Washington,
D.C. 20549
___________
FORM
10-K
(Mark
One)
|
¨
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
|
|
OR
|
|
ý
|
TRANSITION
REPORT PURSUANT TO SECTION 130215(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the transition period from January 1, 2007 to June 30,
2007
|
Commission
File Number 000-33385
GENERAL
FINANCE CORPORATION
(Exact
name of registrant as specified in its charter)
|
California
(State
or other jurisdiction of
incorporation
or organization)
|
95-3876317
(I.R.S.
Employer Identification No.)
|
|
260
So. Los Robles Avenue, Suite 217
Pasadena,
CA
(Address
of principal executive offices)
|
91101
(Zip
Code)
|
Registrant’s
telephone number, including area code (626) 584-9722
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each Class
|
|
Name
of each Exchange on which Registered
|
|
Units,
each consisting of one share of Common Stock, $0.001 par value, and
One
Warrant
|
|
American
Stock Exchange
|
|
Common
Stock, $0.001 par value
|
American
Stock Exchange
|
|
|
Warrants
to Purchase Common Stock
|
American
Stock Exchange
|
|
Securities
Registered Pursuant to Section 12(g) of the
Act:
|
|
None
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as
defined in Rule 405 of the Securities Act.
Yes
¨
No
x
|
|
|
|
Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
Yes
¨
No
x
|
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 ý No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. ý
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 ¨ Accelerated
filer ¨ Non-accelerated
filer ý
Indicate
by check mark if whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ý
No
¨
Based
on
the closing price as reported on the American Stock Exchange, the aggregate
market value of the Registrant’s common stock held by non-affiliates on October
24, 2007 was approximately $73,071,176. Shares of common stock held by each
executive officer and director and by each shareholder affiliated with a
director or an executive officer have been excluded from this calculation
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The
number of outstanding shares of the Registrant’s common stock as of October 24,
2007 was 9,690,099.
GENERAL
FINANCE CORPORATION
2007
TRANSITION REPORT ON FORM 10-K
TABLE
OF CONTENTS
Page(s)
| SAFE HARBOR STATEMENT |
1
|
||
| PART I |
|
2
|
|
|
ITEM
1.
|
BUSINESS
|
2
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
3
|
|
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
4
|
|
|
ITEM
2.
|
PROPERTIES
|
4
|
|
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
4
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
4
|
|
|
|
|
|
|
| PART II. |
|
5
|
|
|
ITEM
5.
|
MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
5
|
|
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
6
|
|
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
7
|
|
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
9
|
|
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA
|
10
|
|
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
10
|
|
|
ITEM
9A.
|
CONTROLS
AND PROCEDURES
|
10
|
|
|
ITEM
9B.
|
OTHER
INFORMATION
|
10
|
|
|
|
|
|
|
| PART III |
|
11
|
|
|
ITEM
10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
11
|
|
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
13
|
|
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
15
|
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
19
|
|
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
19
|
|
|
|
|
|
|
| PART IV |
|
20
|
|
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
20
|
|
| SIGNATURES |
|
21
|
|
SAFE
HARBOR STATEMENT
This
Transition Report on Form 10-K contains statements relating to future results
of
General Finance Corporation (including certain projections and business trends)
that are “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the “safe harbor” created by those
sections. Forward-looking statements frequently are identifiable by the use
of
words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,”
“believe,” “estimate,” “continue,” or the negative of such terms and other
similar expressions. Our actual results may differ materially from those
projected as a result of certain risks and uncertainties. These risks and
uncertainties include, but are not limited to, those set forth in Item 1A.
Risk
Factors and elsewhere in this Transition Report on Form 10-K and those detailed
from time to time in our other filings with the Securities and Exchange
Commission. These forward-looking statements are made only as of the date
hereof, and we undertake no obligation to update or revise the forward-looking
statements, whether as a result of new information, future events or
otherwise.
1
In
September 2007, we changed our fiscal year to June 30 from December 31. We
are filing this transition report on Form 10-K with respect to the six
months ended June 30, 2007. In addition, the consolidated financial
statements of Royal Wolf, as our predecessor, for the years ended June 30,
2007
and 2006, for the six months ended June 30, 2005 and for the year ended December
31, 2004 are included herein. Royal Wolf’s results of operations will be
included in our consolidated financial statements from the completion date
of
the acquisition and will be first reported in our Form 10- Q for the
quarter ended September 30, 2007.
Item
1. Business
General
Development of the Business
We
were
incorporated in Delaware on October 14, 2005 in order to serve as a vehicle
to
effect a business combination with one or more operating businesses. From
inception through the end of the period covered by this Report, we have been
a
development stage company. We did not have any business or operations and
our
activities were limited to raising capital in our initial public offering
(the
“IPO”) in April 2006, identifying an operating business to acquire, and
negotiating and entering into an agreement to acquire Royal Wolf.
We
issued
8,625,000 units in our IPO. Each unit consists of one share of our common stock
and one warrant entitling the holder to purchase one share of our common stock
at a price of $6.00. The public offering price of each unit was $8.00, and
we
generated gross proceeds of $69,000,000 in the IPO. Of the gross proceeds:
(i)
we deposited $65,000,000 into a trust account (the “Trust Account”), which
amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters
received $3,450,000 as underwriting fees (excluding the deferred underwriting
fees); and (iii) we retained $550,000 for offering expenses. In addition, we
deposited into the Trust Account $700,000 that we received from the issuance
and
sale of 583,333 warrants to Ronald F. Valenta, a director and our Chief
Executive Officer, and John O. Johnson, our Chief Operating Officer, prior
to
completion of the IPO. Stockholders holding the shares issued in connection
with
the IPO are referred to as “Public Stockholders.”
Subsequent
Event—Acquisition of Royal Wolf
On
September 13, 2007, we completed the acquisition of Royal Wolf through the
acquisition of all of the outstanding shares of RWA. Based upon the actual
exchange rate of one U.S. dollar to $0.8407 Australian dollar realized in
connection with payments made upon completion of the acquisition, the purchase
price for the RWA shares was $64.3 million, including deposits of
$1,005,000 previously paid by us in connection with the acquisition. We paid
the
purchase price, less the deposits, by a combination of cash in the amount
of
$44.7 million plus the issuance to Bison Capital Australia, L.P. (“Bison
Capital”), one of the sellers, of shares of common stock of GFN U.S.,
constituting 13.8% of the outstanding capital stock of GFN U.S. following
the
issuance. As a result of this structure, we own 86.2% of the outstanding
capital
stock of GFN U.S. and Bison Capital owns 13.8% of the outstanding capital
stock
of GFN U.S, which through its indirect subsidiary GFN Finance owns all of
the
outstanding capital stock of Royal Wolf.
The
funds
in the Trust Account were distributed at the closing of the acquisition of
Royal
Wolf. We received approximately $60.8 million, of which we used $44.7 million
to
pay the purchase price for the RWA shares. Approximately $6.4 million ($7.93482
per share) of the funds in the Trust Account was paid to Public Stockholders
holding 809,901 shares who voted against the acquisition and, in accordance
with
our certificate of incorporation, elected to receive cash in exchange for their
shares, which have been cancelled. The remaining $1.3 million was paid our
IPO
underwriters as deferred underwriting fees.
For
a
description of the business of Royal Wolf, see our definitive proxy statement
relating to our acquisition of Royal Wolf, filed August 10, 2007 with the
Securities and Exchange Commission (the “Definitive Proxy Statement”).
Our
Internet website, which is located at http://www.generalfinance.com, is under
construction. This reference to our Internet website does not constitute
incorporation by reference in this report of the information contained on or
hyperlinked from our Internet website and such information should not be
considered part of this report.
We
are
required to file Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q
with the Securities and Exchange Commission (“SEC”) on a regular basis, and are
required to disclose certain material events (e.g., changes in corporate
control; acquisitions or dispositions of a significant amount of assets other
than in the ordinary course of business and bankruptcy) in a current report
on
Form 8-K. The public may read and copy any materials we file with the SEC at
the
SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference
Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The SEC’s Internet
website is located at http://www.sec.gov.
As
of
June 30, 2007, we had three executive officers and a controller. Other than
our
Chief Financial Officer, who was hired on a full-time basis on September 11,
2006, these individuals were not obligated to devote any specific number of
hours to our matters and devoted only as much time as they deem necessary to
our
affairs and received no salary or similar compensation. The amount of time
they
devoted in any time period varied based on the availability of suitable target
businesses to investigate. We do not believe the value of these services to
be
significant to our operating results.
None
of
our employees is covered by a collective bargaining agreement.
2
Item
1A. Risk Factors
In
addition to risk factors included in this Transition Report, you should also
consider all the Risks Related to “Our Business and Operations Following Our
Acquisition of Royal Wolf” as set forth in the Definitive Proxy Statement.
We
may not take certain actions with respect to Royal Wolf without the written
consent of Bison Capital Partners, L.P., as the holder of 13.8% of the
outstanding capital stock of GFN U.S., which owns Royal
Wolf.
We
have
entered into a shareholders agreement with Bison Capital Partners, L.P. (“Bison
Capital”) with respect to our 86.2% and Bison Capital’s 13.8% ownership interest
in GFN U.S., which owns Royal Wolf. Under the shareholders agreement, neither
GFN U.S. nor Royal Wolf may take certain actions without the written consent
of
Bison Capital, including without limitation selling material assets outside
the
ordinary course of business, entering into transactions with GFN, issuing
capital stock to GFN without offering a pro rata share to Bison Capital,
issuing
capital stock to third party, issuing subordinated debt to any person without
offering Bison its pro rata share, paying dividends or make other payments
to
GFN (other than up to $1 million per year for administrative and overhead
expenses), changing the nature of the business, merging with any person that
results in a change of control, or acquiring any business if the purchase
price
and assumed debt exceeds $10 million. Because
of this, Bison Capital, as a minority stockholder of GFN U.S., has the power
to
prevent us from taking certain actions or entering into certain transactions
with respect to Royal Wolf that we believe to be desirable.
Under
our shareholders agreement with Bison Capital, we have agreed to acquire
businesses competitive with Royal Wolf in certain geographic territory solely
through Royal Wolf.
Under
our
shareholders agreement with Bison Capital, we have agreed to acquire businesses
engaged in the sale
and
lease of portable storage containers, portable container buildings and freight
containers in certain geographic territory solely through Royal Wolf. The
geographic territory is that part of the world south of Guam, west of Hawaii
and
east of Viet Nam. Because
of this, Bison Capital, as the owner of a 13.8% interest in Royal Wolf, will
receive its pro rata share of any increase in the value of Royal Wolf resulting
from such acquisitions.
Our
ability to be successful may depend on the efforts of Ronald F. Valenta and
John
O. Johnson.
Our
ability to be successful may depend upon the efforts of Ronald F. Valenta,
our
Chief Executive Officer, and John O. Johnson, our Chief Operating Officer.
Mr.
Valenta has significant experience and contacts in owning, operating and
acquiring companies in the business of equipment sales and leasing, our present
business. Mr. Johnson has significant experience in acquisitions, and part
of
our strategy is to acquire additional businesses engaged in equipment sales
and
leasing. Neither Mr. Valenta nor Mr. Johnson has an employment agreement
with
us, and they are not currently compensated for their services, although Mr.
Valenta and Mr. Johnson beneficially own approximately 24.0% and 6.7%,
respectively, of our outstanding common stock.
Neither
Ronald F. Valenta, our Chief Executive Officer, nor John O. Johnson, our Chief
Operating Officer, devotes or is required to devote his full time to our
affairs. This could create a conflict of interest when allocating their time
between our operations and their other commitments. These executive officers
are
engaged in several other business endeavors and are not obligated to devote
any
specific number of hours to our affairs. If these executive officers’ other
business affairs require them to devote more substantial amounts of time to
such
affairs, it could limit their ability to devote time to our affairs and could
have a negative impact on our ability to function as an operating company and
consummate future business combinations.
Ronald
F. Valenta is affiliated with two companies in the specialty finance business,
which could create a conflict of interest in decisions affecting our business.
Ronald
F.
Valenta, a director and our Chief Executive Officer, is also affiliated with
two
companies in the specialty finance industry. He is a director of Mobile Services
Group, Inc., a portable storage company he founded in 1988, and the Chairman
of
the Board of Directors of Mobile Office Acquisition Corporation, the parent
company of PacVan, Inc., a U.S. office modular and portable storage
company.
3
While
part of our business strategy is to acquire additional businesses, there is
no
assurance that we will be able to identify businesses that we can acquire upon
terms we believe acceptable, or if such acquisitions require additional
financing, that we could obtain such additional financing.
Part
of
our business strategy is to acquire additional businesses. We can give
no
assurance you that we will be able to identify any additional businesses
that we
will be able to acquire on terms and conditions that we deem acceptable.
Further, we may need additional financing to make some or all of these
possible
acquisitions. We can give no assurance that we will be able to obtain such
financing or that such financing will be available on terms and conditions
acceptable to us.
At
September 30, 2007, we had outstanding options and warrants to purchase
11,433,333 shares of common stock. The potential for the issuance of substantial
numbers of additional shares of common stock upon exercise of these warrants
and
option could make us a less attractive acquisition vehicle in the eyes of a
target business. Such securities, when exercised, will increase the number
of
issued and outstanding shares of our common stock and reduce the value of the
shares issued to complete a future business combination. Additionally, the
sale,
or even the possibility of sale, of the shares underlying the warrants and
options could have an adverse effect on the market price for our securities
or
on our ability to obtain future financing.
Inapplicable.
We
maintain our executive offices at 260 South Los Robles Avenue, Suite 217,
Pasadena, CA 91101. These offices are provided to us by an affiliate of Ronald
F. Valenta. This affiliate of Mr. Valenta made this space available though
the
completion of the acquisition of Royal Wolf free of a rental charge. We now
rent
this space on a month-to-month basis for $1,148 per month and consider the
current office space adequate for our current operations.
None.
On
June
14, 2007, we held our Annual Meeting of Stockholders. The following are the
results of the proposals:
a) Election
of directors:
|
Nominee
|
For
|
Withheld
|
|||||
|
David
M. Connell
|
8,776,419
|
323,945
|
|||||
|
Manuel
Marrero
|
8,776,419
|
323,945
|
|||||
| (b) |
Approval
of 2006 Stock Option Plan:
|
|
For
|
5,598,970
|
|||
|
Against
|
707,933
|
|||
|
Abstain
|
241,125
|
|||
|
Not
Voted
|
2,552,336
|
|||
| (c) |
Ratification
of the selection of Grobstein, Horwath & Company LLP as independent
auditors:
|
|
For
|
8,831,021
|
|||
|
Against
|
265,643
|
|||
|
Abstain
|
3,700
|
4
PART
II
Market
Prices
Our
units, common stock and warrants are listed on the American Stock Exchange
under
the symbols “GFN.U,” “GFN” and “GFN.WS,” respectively. The following table sets
forth for the periods indicated the range of high and low sales prices for
the
units, since the units commenced trading on April 10, 2006, and for the common
stock and warrants, since the common stock and warrants commenced public trading
separately on June 13, 2006:
|
|
Units
|
Common
Stock
|
Warrants
|
||||||||||||||||
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
2007:
|
|
|
|
|
|
|
|||||||||||||
|
Fourth
Quarter
|
$
|
9.75
|
$
|
9.00
|
$
|
7.95
|
$
|
7.56
|
$
|
1.96
|
$
|
1.45
|
|||||||
|
Third
Quarter
|
$
|
9.60
|
$
|
8.50
|
$
|
7.95
|
$
|
7.46
|
$
|
1.80
|
$
|
1.10
|
|||||||
|
Second
Quarter
|
$
|
8.00
|
$
|
7.81
|
$
|
7.70
|
$
|
7.22
|
$
|
1.15
|
$
|
0.62
|
|||||||
|
First
Quarter
|
$
|
8.45
|
$
|
7.75
|
$
|
7.36
|
$
|
7.22
|
$
|
0.85
|
$
|
0.63
|
|||||||
|
2006:
|
|
|
|
|
|
|
|
||||||||||||
|
Fourth
Quarter
|
$
|
8.06
|
$
|
7.75
|
$
|
7.35
|
$
|
7.24
|
$
|
0.80
|
$
|
0.63
|
|||||||
Record
Holders
As
of
October 24, 2007, there were eight stockholders of record of our common stock.
We believe that there are hundreds of beneficial owners of our common stock,
units and warrants.
Dividend
Policy
We
have
not paid any dividends on our common stock to date. The payment of dividends
in
the future will be contingent upon our revenues and earnings, if any, capital
requirements and general financial condition. The payment of any dividends
will
be within the discretion of our board of directors. It is the present intention
of our Board of Directors to retain all earnings, if any, for use in our
business operations and, accordingly, our board does not anticipate declaring
any dividends in the foreseeable future.
We
have
not provided a line graph comparing yearly percentage change in our shareholder
return on common stock against various indices or peer group because we were
a
blank check company without an operating business.
5
The
following table sets forth selected historical financial information derived
from our audited consolidated financial statements included elsewhere in
this
Report for the period from October 14, 2005 (inception) to December 31, 2005,
for the year ended December 31, 2006, for the six months ended June 30, 2007,
for the period from October 14, 2005 (inception) to June 30, 2007 and as
of
December 31, 2006 and June 30, 2007. The following data has been restated
from
previously issued financial information for the for the retrospective
application of the capitalization of the costs incurred relating to the
acquisition of Royal Wolf and should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements including the notes
thereto, included elsewhere in this Transition Report on Form 10-K.
|
October 14,
2006 (inception) to December 31,
2005
|
Year
Ended December 31, 2006
|
Six
Months Ended
June
30, 2007
|
October
14, 2005 (inception) to June 30, 2007
|
||||||||||
|
General
and administrative expenses
|
$
|
3,509
|
$
|
387,815
|
$
|
795,989
|
$
|
1,187,313
|
|||||
|
Operating
loss
|
(3,509
|
)
|
(387,815
|
)
|
(795,989
|
)
|
(1,187,313
|
)
|
|||||
|
Other
income:
|
|||||||||||||
|
Interest
income
|
--
|
1,888,503
|
1,312,169
|
3,200,672
|
|||||||||
|
Interest
expense
|
--
|
(20,498
|
)
|
(72,398
|
)
|
(92,896
|
)
|
||||||
|
Other,
net
|
--
|
--
|
(7,469
|
)
|
(7,469
|
)
|
|||||||
|
Net
income (loss)
|
$
|
(3,509
|
)
|
$
|
891,090
|
$
|
261,513
|
$
|
1,149,094
|
||||
|
Net
income (loss) per share:
|
|||||||||||||
|
Basic
|
$
|
(0.00
|
)
|
$
|
0.11
|
$
|
0.02
|
||||||
|
Diluted
|
$
|
(0.00
|
)
|
$
|
0.09
|
$
|
0.02
|
||||||
|
|
|||||||||||||
|
Weighted
average shares outstanding:
|
|||||||||||||
|
Basic
|
1,875,000
|
8,151,369
|
10,500,000
|
||||||||||
|
Diluted
|
$
|
1,875,000
|
$
|
9,636,545
|
$
|
12,704,299
|
|||||||
Balance
Sheet Information:
|
|
December
31,
2006
|
June
30,
2007
|
|||||
|
|
|
|
|||||
|
Cash
|
$
|
37,713
|
$
|
59,427
|
|||
|
Cash
equivalents held in trust - restricted
|
68,055,252
|
68,217,585
|
|||||
| Deferred acquisition costs | 783,663 | 1,547,742 | |||||
|
Total
assets
|
69,713,171
|
71,078,142
|
|||||
|
Deferred
underwriting fees
|
1,380,000
|
1,380,000
|
|||||
|
Total
liabilities
|
3,947,907
|
4,812,265
|
|||||
|
Common
stock subject to possible conversion
|
13,168,200
|
13,338,500
|
|||||
|
Stockholders’
equity
|
$
|
52,597,064
|
$
|
52,927,377
|
|||
6
Quarterly
Results of Operations
The
following table sets forth unaudited operating data for each of the quarters
in
the year ended December 31, 2006 and the six months ended June 30, 2007. This
quarterly information has been restated from previously issued financial
information for the retrospective application of the capitalization of the
costs
incurred relating to the acquisition of Royal Wolf and has been prepared on
the
same basis as our annual consolidated financial statements and, in the opinion
of management, reflects all significant adjustments (consisting primarily of
normal recurring adjustments) necessary for a fair presentation of results
of
operations for the periods presented.
|
Year
Ended December 31, 2006
|
First
Quarter
|
Second Quarter
|
Third
Quarter
|
Fourth Quarter
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Net
income (loss), as previously reported
|
$
|
(8,014
|
)
|
$
|
302,406
|
$
|
(2,603 |
)
|
$
|
165,211 | |||
|
Effect
of accounting change, net of tax
|
-- | 3,763 |
265,772
|
164,555 | |||||||||
|
Net
income (loss), as restated
|
$
|
(8,014
|
)
|
$
|
306,169
|
$
|
263,169
|
$
|
329,766
|
||||
| Income (loss) per share, as previously reported | |||||||||||||
|
Basic
|
$
|
(0.00
|
) |
$
|
0.03
|
$
|
-- |
$
|
0.03
|
||||
|
Diluted
|
$
|
(0.00
|
) |
$
|
0.03
|
$
|
-- |
$
|
0.02
|
||||
| Income (loss) per share, as restated | |||||||||||||
|
Basic
|
$
|
(0.00
|
)
|
$
|
0.03
|
$
|
0.03
|
$
|
0.03
|
||||
|
Diluted
|
$
|
(0.00
|
)
|
$
|
0.03
|
$
|
0.02
|
$
|
0.03
|
||||
|
Six
Months Ended June 30, 2007
|
First
Quarter
|
Second Quarter
|
|||||
|
|
|
||||||
|
Net
income (loss), as previously reported
|
$ |
(180,584
|
) | $ | (34,898 | ) | |
|
Effect
of accounting change, net of tax
|
298,703 | 178,292 | |||||
|
Net
income (loss), as restated
|
$
|
118,119
|
$
|
143,394
|
|||
| Income (loss) per share, as previously reported |
|
||||||
|
Basic
|
$
|
(0.02
|
)
|
$
|
(0.00
|
) | |
|
Diluted
|
$
|
(0.02
|
)
|
$
|
(0.00
|
) | |
|
Income
(loss) per share, as restated
|
|
|
|
||||
|
Basic
|
$
|
0.01
|
$
|
0.01
|
|||
|
Diluted
|
$
|
0.01
|
$
|
0.01
|
|||
You
should read the following discussion and analysis of our financial condition
and
results of operations together with “Selected Consolidated Financial Data” and
our consolidated financial statements and notes thereto that appear elsewhere
in
this Transitional Report on Form 10-K. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties, and assumptions.
Actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including, but not
limited to, those presented under “Risks related to our business” included in
Item 1A and elsewhere in this Transitional Report on Form
10-K.
Overview
We
were
formed in October 2005 in order to serve as a vehicle to effect a business
combination with one or more operating businesses. As of June 30, 2007, we
had
not completed any business combination.
In
April
2006, we completed our initial public offering (“IPO”) of 8,625,000 units. Each
unit consists of one share of our common stock and one warrant entitling the
holder to purchase one share of our common stock at a price of $6.00. The public
offering price of each unit was $8.00, and we generated gross proceeds of
$69,000,000 in the IPO. Of the gross proceeds: (i) we deposited $65,000,000
into
a trust account (the “Trust Account”), which amount included $1,380,000 of
deferred underwriting fees; (ii) the underwriters received $3,450,000 as
underwriting fees (excluding the deferred underwriting fees); and (iii) we
retained $550,000 for offering expenses. In addition, we deposited into the
Trust Account $700,000 that we received from the issuance and sale of 583,333
warrants to Ronald F. Valenta, a director and our Chief Executive Officer,
and
John O. Johnson, our Chief Operating Officer, prior to completion of the IPO.
Stockholders holding the shares issued in connection with the IPO are referred
to as “Public Stockholders.”
In
September 2007, we changed our fiscal year to June 30
from December 31.
7
Subsequent
Event
On
September 13, 2007, we completed the acquisition of Royal Wolf through the
acquisition of all of the outstanding shares of RWA. Based upon the actual
exchange rate of one U.S. dollar to $0.8407 Australian dollar realized in
connection with payments made upon completion of the acquisition, the purchase
price for the RWA shares was $64.3 million, including deposits of
$1,005,000 previously paid by us in connection with the acquisition. We paid
the
purchase price, less the deposits, by a combination of cash in the amount
of
$44.7 million plus the issuance to Bison Capital Australia, L.P. (“Bison
Capital”), one of the sellers, of shares of common stock of GFN U.S.,
constituting 13.8% of the outstanding capital stock of GFN U.S. following
the
issuance. As a result of this structure, we own 86.2% of the outstanding
capital
stock of GFN U.S. and Bison Capital owns 13.8% of the outstanding capital
stock
of GFN U.S, which owns through its indirect subsidiary GFN Finance all of
the
outstanding capital stock of Royal Wolf.
The
funds
in the Trust Account were distributed at the closing of the acquisition of
Royal
Wolf. We received approximately $60.8 million, of which we used $44.7 million
to
pay the purchase price for the RWA shares. Approximately $6.4 million ($7.93482
per share) of the funds in the Trust Account was paid to Public Stockholders
holding 809,901 shares who voted against the acquisition and, in accordance
with
our certificate of incorporation, elected to receive cash in exchange for their
shares, which have been cancelled. The remaining $1.3 million was paid the
underwriters as deferred underwriting fees.
On
April
10, 2006, we completed our IPO of 7,500,000 units, and on April 13, 2006, we
completed the closing of an additional 1,125,000 units that were subject to
the
underwriter’s over-allotment option. Each Unit consists of one share of our
common stock and one warrant entitling the holder to purchase one share of
our
common stock at a price of $6.00. The public offering price of each unit was
$8.00, and we generated gross proceeds of $69,000,000 in the IPO (including
proceeds from the exercise of the over-allotment option). Of the gross proceeds:
(i) we deposited $65,000,000 into the Trust Account at JP Morgan Chase NY Bank,
maintained by Continental Stock Transfer & Trust Company as trustee, which
included $1,380,000 of deferred underwriting fees; (ii) the underwriters
received $3,450,000 as underwriting fees (excluding the deferred underwriting
fees); and (iii) we retained $550,000 for offering expenses. In addition, we
deposited into the Trust Account $700,000 that we received from the issuance
and
sale of 583,333 warrants to Ronald F. Valenta, a director and our Chief
Executive Officer, and John O. Johnson, our Chief Operating Officer, on April
7,
2006.
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may
materially differ from these estimates under different assumptions or conditions
as additional information becomes available in future periods.
Management
has discussed the development and selection of critical accounting estimates
with the Audit Committee of the Board of Directors and the Audit Committee
has
reviewed our disclosure relating to critical accounting estimates in this
Transitional Report. We believe the following are the more significant judgments
and estimates used in the preparation of our consolidated financial
statements.
For
the
issuances of stock options, we follow the fair value provisions of Statement
of
Financial Accounting Standards (“SFAS”) SFAS No. 123R, Share-Based Payment. SFAS
No. 123R requires recognition of employee share-based compensation expense
in
the statements of income over the vesting period based on the fair value of
the
stock option at the grant date. The pricing model we use for determining fair
values of the purchase option and the embedded derivative is the Black Scholes
Pricing Model. Valuations derived from this model are subject to ongoing
internal and external verification and review. The model uses market-sourced
inputs such as interest rates, market prices and volatilities. Selection of
these inputs involves management’s judgment and may impact net income. In
particular, the Company uses volatility rates based upon a sample of comparable
companies in Royal Wolf’s industry and a risk-free interest rate, which is the
rate on U. S. Treasury instruments, for a security with a maturity that
approximates the estimated remaining contractual life of the
derivative.
8
Results
of Operations, Financial Condition and Liquidity
Our
operating expenses totaled $3,509, $387,815, $795,989 and $1,187,313 for
the
period
from October 14, 2005 (inception) to December 31, 2005, for the year ended
December 31, 2006, for the six months ended June 30, 2007 and for the period
from October 14, 2005 (inception) to June 30, 2007,
respectively. These expenses consisted primarily of accounting, legal and
other
professional services (including investor relations fees), liability insurance,
Delaware franchise taxes, payroll (including stock-based compensation) and
general office expenses. Operating expenses have increased both on an absolute
and relative basis since our formation in October 2005 due primarily to the
hiring of a Chief Financial Officer in September 2006, the engaging of an
investor relations firm in October 2006 and the increasing requirements of
corporate governance and public reporting. We also incurred over $594,000
of
offering costs in connection with the IPO, all of which have been applied
against paid-in capital; and have capitalized costs incurred relating primarily
to the acquisition of Royal Wolf of $783,683, $761,395 and $1,545,058
for
the
year ended December 31, 2006, for the six months ended June 30, 2007 and
for the
period from October 14, 2005 (inception) to June 30, 2007,
respectively.
We
had
net interest income earned primarily on the marketable securities held in the
Trust Account of $1,888,503, $1,312,169 and $3,200,672 for the year ended
December 31, 2006, for the six months ended June 30, 2007 and for the period
from October 14, 2005 (inception) to June 30, 2007, respectively. Interest
income excludes earnings on funds held in the Trust Account associated with
common stock subject to possible conversion, net of any taxes payable by us
relating to such interest earned.
Interest
expense for the year ended December 31, 2006, for the six months ended June
30,
2007 and for the period from October 14, 2005 (inception) to June 30, 2007
of
$20,498, $72,398 and $92,896, respectively, relates primarily to borrowings
under our limited recourse revolving line of credit.
We
have
provided for an annual effective income tax rate of approximately 40%
for
the
year ended December 31, 2006, for the six months ended June 30, 2007 and
for the
period from October 14, 2005 (inception) to June 30, 2007 primarily because
of
state income taxes and the nondeductible portion of travel and entertainment
expenses.
The
following is a summary of our contractual obligations, including accrued
interest, as of June 30, 2007:
|
Payment
Due by Year Ending June 30,
|
||||||||||||||||
|
Contractual
Obligations
|
Total
|
2008
|
2009-2012
|
2013
|
2014
and Thereafter
|
|||||||||||
|
(in thousands)
|
||||||||||||||||
|
Limited
recourse
revolving
line of
credit
(1)
|
$
|
2,441
|
$
|
2,441
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
|
||||||||||||||||
|
Total
|
$
|
2,441
|
$
|
2,441
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
(1
On
September 14, 2007, subsequent to the completion of acquisition of Royal
Wolf,
we repaid the outstanding balance and terminated the limited
recourse revolving line of credit. Total principal and interest paid totaled
$2,586,848.
Impact
of Recently Issued Accounting Pronouncements
Reference
is made to Note 2 of our Consolidated Financial Statements for a discussion
of
recently issued accounting pronouncements that could potentially impact
us.
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. As of June 30, 2007 we had not engaged in any substantive commercial
business. Accordingly, we have not been exposed to significant risks associated
with foreign exchange rates, commodity prices, equity prices or other
market-driven rates or prices. The net proceeds of our initial public offering
held in the Trust Account were invested by the trustee only in United States
“government securities” within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940 having a maturity of 180 days or less, or in money market
funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act of 1940. Given our limited risk in our exposure to
government securities and money market funds, we did not view the interest
rate
risk to be significant.
9
|
Index
to Financial Statements: of General Finance Corporation
(Registrant):
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm - Grobstein, Horwath
& Company LLP
|
F-1
|
|
Independent
Auditors’
Report - LaRue, Corrigan & McCormack LLP
|
F-2
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and June 30, 2007
|
F-3
|
|
|
|
|
|
|
Consolidated
Statements of Operations from inception to December 31, 2005, for
the year
ended December 31, 2006, for the six months ended June 30, 2007
and from
inception to June 30, 2007
|
F-4
|
|
|
|
|
|
|
Consolidated
Statement of Stockholders’ Equity from inception to December 31, 2005, for
the year ended December 31, 2006 and for the six months ended June
30,
2007
|
F-5
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows from inception to December 31, 2005, for
the year
ended December 31, 2006, for the six months ended June 30, 2007
and from
inception to June 30, 2007
|
F-6
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
Index
to Financial Statements: of RWA Holdings Pty Limited
(Predecessor):
|
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm - Grobstein, Horwath
& Company LLP
|
P-1
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2007 and 2006
|
P-2
|
|
|
|
|
|
|
Consolidated
Statements
of Operations for the years ended June 30, 2007 and 2006, the six
months
ended June 30, 2005 and the year ended December 31, 2004
|
P-3
|
|
|
|
|
|
|
Consolidated
Statement of Changes in Shareholders’ Equity for the years ended June 30,
2007 and 2006, the six months ended June 30, 2005 and the year
ended
December 31, 2004
|
P-4
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2007 and
2006, the
six months ended June 30, 2005 and the year ended December 31,
2004
|
P-5
|
|
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
P-6
|
None.
Ronald
F.
Valenta (our principal executive officer) and Charles E. Barrantes (our
principal financial officer) carried out an evaluation as of June 30, 2007
of
the effectiveness of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(the “Exchange Act”). Based upon that evaluation, they concluded that, as of
June 30, 2007, our disclosure controls and procedures were (1) effective in
that they were designed to ensure that material information relating to us
is
made known to our principal executive and principal financial officers, and
(2) effective in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under
the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.
There
has
not been any change in our internal control over financial reporting in
connection with the evaluation required by Rule 13a-15(d) under the Exchange
Act
that occurred during the quarter ended June 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Not
applicable.
10
PART
III
Directors
and Executive Officers
The
following information is provided regarding our directors and executive officers
as of October 24, 2007. No family relationship exists between any director
or
executive officer:
|
Name
|
|
Age
|
|
Position
|
||
|
Ronald
F. Valenta
|
|
|
48
|
|
|
Chief
Executive Officer, Secretary and Director
|
|
John
O. Johnson
|
|
|
46
|
|
|
Chief
Operating Officer
|
|
Charles
E. Barrantes
|
|
|
55
|
|
|
Executive
Vice President and Chief Financial Officer
|
|
Robert
Allan
|
|
|
43
|
|
|
Chief
Executive Officer, Royal Wolf
|
|
Lawrence
Glascott
|
|
|
73
|
|
|
Chairman
of the Board of Directors
|
|
David
M. Connell
|
|
|
63
|
|
|
Director
|
|
Manuel
Marrero
|
|
|
49
|
|
|
Director
|
|
James
B. Roszak
|
|
|
66
|
|
|
Director
|
Ronald
F. Valenta
has
served as a director and as our Chief Executive Officer and Secretary since
our
inception. He also served as Chief Financial Officer from inception through
September 2006. Mr. Valenta served as the President and Chief Executive
Officer of Mobile Services Group, Inc., a portable storage company he founded
in
1988 until 2003. In April 2000, Windward Capital Partners acquired a controlling
interest in Mobile Services Group, Inc. through a recapitalization transaction.
In August 2006, Welsh, Carson, Anderson & Stowe, through another
recapitalization transaction, acquired a controlling interest in Mobile Services
Group, Inc. Mr. Valenta served as the non-executive Chairman of the Board
of Directors of Mobile Services Group, Inc. from March 2003 until August 2006,
and as a director since that time. Mr. Valenta was the managing member of
Portosan Company, LLC, a portable sanitation services company he founded in
1998, until 2004 when a majority of the assets of that company were sold to
an
affiliate of Odyssey Investment Partners, LLC. Mr. Valenta is currently
Chairman of the Board of Directors for CMSI Capital Holdings, Inc., a private
investment company he founded in 1991, Mobile Office Acquisition Corporation,
the parent company of PacVan, Inc., a U.S. office modular and portable
storage company, PV Realty LLC, a real estate company founded in 2000, and
United Document Storage, LLC (formerly PortoShred LLC), a document storage
and
destruction company he formed in 2003. From 2003 to 2006, Mr. Valenta was
also a director of the National Portable Storage Association, a not-for-profit
entity dedicated to the needs of the storage industry. From 1985 to 1989,
Mr. Valenta was a Senior Vice President with Public Storage, Inc., and from
1980 to 1985 Mr. Valenta was a manager with the accounting firm of Arthur
Andersen & Co. in Los Angeles.
John
O. Johnson
has
served as our Chief Operating Officer since November 2005. Mr. Johnson is a
Managing Director of The Spartan Group, a boutique investment banking firm,
which he co-founded in 2002. As a Managing Director of The Spartan Group, he
is
responsible for origination and execution of mergers and acquisition advisory
work and capital raising for growth companies. Prior to founding The Spartan
Group, Mr. Johnson served in multiple positions with Banc of America
Securities from 1984 until 2002, culminating in his appointment as Managing
Director in 1994. While at Banc of America Securities, he specialized in growth
company banking coverage and leveraged buyouts and leveraged finance while
ultimately becoming a Group Head. Mr. Johnson has served as an investment banker
to various companies owned or operated by Mr. Valenta since
1997.
Charles
E. Barrantes
became
our Executive Vice President and Chief Financial Officer in September 2006.
Prior to joining us, Mr. Barrantes was vice president and chief financial
officer for Royce Medical Company from early 2005 to its sale in late 2005.
From
1999 to early 2005, he was chief financial officer of Earl Scheib, Inc., a
public company that operated over 100 retail paint and body shops.
Mr. Barrantes has over 25 years of experience in accounting and
finance, starting with more than a decade with Arthur Andersen &
Co.
Robert
Allan has
been
the Chief Executive Officer of Royal Wolf since February 2006 and as such has
been one of our executive officers since September 13, 2007. Mr. Allan joined
Royal Wolf in April 2004 as its Executive General Manager. From 2000 until
joining Royal Wolf, he served as Group General Manager of IPS Logistics Pty
Ltd,
a shipping and logistics company. From 1997 until 2000, Mr. Allan was
employed as a Regional Director of Triton Container International, the world’s
largest lessor of marine cargo containers to the international shipping
industry. Mr. Allan has more than 30 years of experience in the
container leasing and logistics industries.
Lawrence
Glascott
has been
our Chairman of the Board of Directors since November 2005. Mr. Glascott
has served as a director of 99¢ Only Stores since 1996 where he currently serves
on its Audit, Compensation and Nominating and Corporate Governance Committees.
From 1991 to 1996 he was the Vice President — Finance of Waste Management
International, an environmental services company. Prior thereto,
Mr. Glascott was a partner at Arthur Andersen LLP and was in charge of the
Los Angeles based Arthur Andersen LLP Enterprise Group practice for over
15 years.
David
M. Connell
has been
a director since November 2005. Mr. Connell founded Cornerstone Corporate
Partners, LLC, a consulting and advisory firm, in 1998. Prior to establishing
Cornerstone Corporate Partners in 1998, Mr. Connell served as President and
a member of the Board of Directors for Data Processing Resources Corporation,
or
DPRC, from 1992 to 1998. DPRC was a NASDAQ listed provider of information
technology consulting services to Fortune 500 companies. Prior to his services
with DPRC, from 1988 to 1993, Mr. Connell was engaged by Welsh, Carson,
Anderson; Stowe, a New York private equity firm, to manage a group of portfolio
companies. From 1990 to 1993, Mr. Connell served as Chairman and Chief
Executive Officer of Specialized Mortgage Service, Inc., an information
technology company serving the real estate, banking, and credit rating
industries. From 1988 to 1990, he served as Chairman and Chief Executive Officer
of Wold Communications, Inc., which later merged and became Keystone
Communications, a leading satellite communications service
provider.
Manuel
Marrero
has been
a director since November 2005. Since January 2004, Mr. Marrero has worked
as a financial and operations management consultant with several companies,
principally focused in consumer products brand management. From May 2002 until
January 2004, Mr. Marrero served as the Chief Financial Officer of Mossimo,
Inc., a designer and licensor of apparel and related products. From 1999 to
2001, Mr. Marrero was the Chief Operating Officer and Chief Financial
Officer of Interplay Entertainment Corp., a developer, publisher and distributor
of interactive entertainment software, and the Chief Financial Officer of
Precision Specialty Metals, Inc. from 1996 to 1999, a light gauge conversion
mill for flat rolled stainless steel and high performance alloy. He has served
on the boards of Interplay OEM, Inc., Shiney Entertainment, Inc., Seed Internet
Ventures, Inc., L.A. Top Producers, LLC, Friends of Rancho San Pedro and Tree
People.
James
B. Roszak
has been
a director since November 2005. Mr. Roszak has been a director of National
RV Holdings, Inc. since June 2003. Mr. Roszak was employed by the Life
Insurance Division of Transamerica Corporation, a financial services
organization engaged in life insurance, commercial lending, leasing and real
estate services, from June 1962 through his retirement as President of such
division in June 1997. Mr. Roszak also served as interim Chief Executive
Officer and a director of buy.com, an Internet retailer, from February 2001
through August 2001. He is also a member of the Board of Trustees of Chapman
University.
11
Board
and Committee Meetings
The
Board
of Directors held eight meetings during the six months ended June 30,
2007. Each
director attended more than 75% of all meetings of the Board of Directors and
board committees on which he during the six months ended June 30,
2007.
Board
Committees
The
Board
of Directors has an Audit Committee, a Compensation Committee and a Nominating
Committee.
Audit
Committee.
The
Audit Committee consists of Messrs. Roszak, as chairman, Marrero and Glascott,
each of whom we believe qualifies as an “audit committee financial expert,” as
defined in the rules and regulations of the Securities and Exchange Commission.
In addition, we will certify to the American Stock Exchange that the committee
has, and will continue to have, at least one member who has past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background that results in the
individual's financial sophistication. Each member of the Audit Committee is
an
independent director under the American Stock Exchange listing
standards.
The
purpose of the Audit Committee is to represent and assist our board in its
general oversight of our accounting and financial reporting processes, audits
of
the financial statements and internal control and audit functions. The Audit
Committee is directly responsible for the appointment, compensation, retention,
oversight and work of our independent auditor.
The
Audit
Committee met three times during the six months ended June 30,
2007.
Compensation
Committee.
The
Compensation Committee consists of Messrs. Connell, as Chairman, Marrero and
Roszak.
The
purposes of the Compensation Committee are: (i) to determine and approve the
goals, objectives and compensation structure for our executive officers; (ii)
to
review the performance of our executive officers; and (iii) to review the
Company's management resources, succession planning and development
activities.
Nominating
Committee.
The
Nominating Committee consists of Messrs. Marrero, as chairman, Connell and
Roszak, each of whom is an independent director under the American Stock
Exchange listing standards.
The
purpose of the Nominating Committee is to be primarily responsible for
identifying individuals qualified to serve as members of our Board of Directors
and recommending to the Board the persons to be nominated by the Board as
nominees for director at each annual meeting of shareholders.
The
Nominating Committee met two times during
the six months ended June 30, 2007.
The
Nominating Committee seeks to achieve a balance of knowledge, experience and
capability on the Board of Directors. When considering candidates for director,
the Nominating Committee takes into account a number of factors, including
the
following (although candidates need not possess all of the following
characteristics and not all factors are weighted equally):
| · |
Ability
to attend regular and special board and committee meetings and willingness
to perform the duties of a director
|
| · |
Fine
moral character, good personal and business
reputation
|
| · |
Industry
knowledge, contacts and network of potential clients in industries
served
by the Company
|
| · |
Ability
to be responsible, fair-minded, reliable, ethical and possess high
integrity
|
| · |
Prior
experience on boards of directors
|
| · |
Senior-level
management experience
|
| · |
Possession
of specific skills in auditing, accounting, personnel, finance,
etc.
|
The
Nominating Committee will periodically assess the appropriate size of the Board
of Directors and whether any vacancies on the Board of Directors are expected
due to retirement or otherwise. If vacancies are anticipated, or otherwise
arise, or the size of the Board of Directors is expanded, the Nominating
Committee will consider various potential candidates for director. Candidates
may come to the attention of the Board of Directors through current Board of
Directors members or management, stockholders or other persons. These candidates
will be evaluated at regular or special meetings of the Nominating Committee,
and may be considered at any point during the year.
The
Nominating Committee will consider candidates for directors recommended by
stockholders who follow the proper procedures in submitting the recommendation.
The Board of Directors will consider candidates recommended by stockholders
using the same criteria it applies to candidates recommended by directors.
To be
considered for election at an annual meeting, the recommendation must be
submitted no later than December 31 of the year prior to the year in which
the
meeting will be held. The recommendation must by in writing addressed to the
Corporate Secretary and must include the following: (i) statement that the
writer is a stockholder and is proposing a candidate for consideration by the
Nominating Committee; (ii) name and contact information for the candidate;
(iii)
statement of the candidate's business and educational experience; (iv)
information regarding each of the factors listed above (other than the factor
regarding board size and composition) sufficient to enable the Nominating
Committee to evaluate the candidate; (v) statement detailing any relationship
between the candidate and any competitor of the Company; (vi) detailed
information about any relationship or understanding between the writer and
the
candidate; and (vii) statement that the candidate is willing to be considered
and is willing to serve as a director if nominated and elected.
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers and 10% stockholders to file reports with the
Securities and Exchange Commission on changes in their beneficial ownership
of
Common Stock and to provide us with copies of the reports. We believe that
all
of these persons filed all required reports on a timely basis during the six
months ended June 30, 2007.
12
We
have a
code of ethics that applies to our directors, officers and employees. We will
provide without charge a copy of the code of ethics to any person who so
requests by a letter addressed to the Corporate Secretary, General Finance
Corporation, 260 Santa Los Robles Avenue, Suite 217, Pasadena, California
91101.
Item
11. Executive Compensation
Compensation
Discussion and Analysis
Messrs.
Valenta, Johnson and Perez, our Chief Executive Officer, Chief Operating Officer
and Controller, respectively, have served in those capacities since our
inception in 2005. In connection with our initial public offering, they agreed
to serve without compensation until the consummation of our first business
combination. Subsequently, Messrs. Valenta and Johnson have agreed to serve
without compensation until at least the earlier of June 30, 2008 or until we
have achieved certain financial goals after the consummation of our first
business combination.
Accordingly,
Mr. Barrantes, our Chief Financial Officer, is our only employee who
received compensation for his services to us during the six months ended
June
30, 2007. We
compensate Mr. Barrantes pursuant to his employment agreement entered into
in
September 2006 in connection with his commencement of employment with us.
For a
description of the employment agreement, see “Employment Agreement”
below.
Messrs.
Valenta and Johnson negotiated Mr. Barrantes' employment agreement on our
behalf, and the Board of Directors approved the employment agreement. Although
our Compensation Committee was in existence in September 2006, the Board of
Directors had not approved a charter for the Committee at that time and the
Committee was not then performing functions.
In
approving Mr. Barrantes' compensation under his employment agreement, the
Board
of Directors reviewed information provided by management regarding the
compensation of the chief financial officers of four public companies in
the
equipment leasing business. The Board also considered the size and stage
of
development of the Company, Mr. Barrantes' experience and prior compensation,
and the scope of the services that Mr. Barrantes would be required to render
(particularly given the lack of support staff and the need to implement policies
and procedures). The Board of Directors determined that Mr. Barrantes'
compensation should consist of a base salary, the opportunity for a material
performance-based bonus and stock options under the 2006 Stock Option Plan.
In
addition, because we did not have in place medical or other insurance plans,
we
would reimburse him up to $750 per month for insurance
coverage.
The
Compensation Committee approved the bonus paid to Mr. Barrantes for services
in
2006.
Report
of the Compensation Committee
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis contained in this Form 10-K with management. Based on the
Compensation Committee's review of and the discussions with management
with
respect to the Compensation Discussion and Analysis, the Compensation Committee
recommended to the board of directors that the Compensation Discussion
and
Analysis be included in this Form 10-K for filing with the
SEC.
|
|
Respectfully
Submitted,
|
|
|
|
|
|
David
M. Connell, Chairman
|
|
|
Manuel
Marrero
|
|
|
James
B. Roszak
|
Summary
Compensation Table
The
following table contains summary compensation information of the following
executive officers (our “Named Executive Officers”) for the six months ended
June 30, 2007.
13
Summary
Compensation Table
| Name and Principal Position |
Year
|
Salary
|
Bonus
|
Option
Awards (2)
|
All
Other Compensation (3)
|
Total
|
||||||||||||||
|
Ronald
F. Valenta
Chief
Executive Officer
|
2007
|
(1)
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
|
|
2006
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||
|
|
||||||||||||||||||||
|
Charles
E. Barrantes
Chief
Financial Officer and Executive Vice President
|
2007
|
(1)
|
$
|
100,000
|
$
|
—
|
$
|
68,800
|
$
|
3,512
|
$
|
172,312
|
||||||||
|
|
2006
|
62,121
|
(4)
|
21,742
|
(4)
|
42,000
|
3,361
|
129,224
|
|
(1)
|
For
the six months ended June 30, 2007
|
|
(2)
|
The
amounts shown are the amounts of compensation expense recognized
by us
relating to the grants of stock options in fiscal 2006, as described
in
Financial Accounting Standards No. 123R. For a discussion of valuation
assumptions used in the calculation of these amounts, see Note
2, “Summary
of Significant Accounting Policies,” and Note 8, “2006 Stock Option Plan,”
of the Notes to Consolidated Financial Statements included elsewhere
in
this Transitional Report on Form
10-K.
|
|
(3)
|
Reimbursement
of medical insurance premiums.
|
|
(4)
|
Mr.
Barrantes received a bonus for services in 2006, which was paid
in
September 2007. This amount equaled 35% of the salary paid to him
for 2006, which was equal to his target bonus under his employment
agreement.
|
Plan-Based
Awards
We
have
only one compensation plan, our 2006 Stock Option Plan. No options were granted
to the Named Executive Officers during the six months ended June 30,
2007.
The
following table provides information options held by Named Executive Officers
as
of June 30, 2007.
Outstanding
Equity Awards at Fiscal Year-End
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
|
Number
of Securities Underlying Unexercised Options
(#)(1)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Exercise
Price ($/Sh)
|
Expiration
Date
|
|||||||||||
|
Ronald
F. Valenta
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
|
|
||||||||||||||||
|
Charles
E. Barrantes
|
--
|
225,000
|
--
|
$
|
7.30
|
9/11/16
|
||||||||||
|
(1)
|
These
options vest in
five equal annual installments on September 11 of each of 2007,
2008,
2009, 2010 and 2011, subject to continued service with us, and
have a
ten-year term.
|
No
Named
Executive Officer exercised any stock options during the six months ended
June
30, 2007.
14
Employment
Agreement
On
September 11, 2006, we entered into an employment agreement with Charles E.
Barrantes, under which he agreed to serve as our Executive Vice President and
Chief Financial Officer. Under the employment agreement, Mr. Barrantes
receives a base annual salary of $200,000, and is eligible to receive an annual
bonus each fiscal year of up to 35% of his base salary, provided he is employed
on the last day of such year. We reimburse Mr. Barrantes up to $750 per
month for health, dental, vision and supplemental disability premiums for
himself and his family, because we do not currently provide employee benefits.
Should we provide such benefits in the future, Mr. Barrantes will be
entitled to participate on the same basis in all offered benefits or programs
as
any other employee.
Mr. Barrantes
also received options to purchase an aggregate of 225,000 shares of common
stock under our 2006 Stock Option Plan as of the date of commencement of his
employment. The options have an exercise price of $7.30 per share (the closing
sales price of the common stock on the date of grant), vest in five equal annual
installments and expire ten years from the date of grant.
Mr.
Barrantes' employment agreement will terminate upon his death or in the event
of
a physical or mental disability that renders him unable to perform his duties
for 60 consecutive days or 120 days in any twelve-month period. Mr.
Barrantes may terminate his employment agreement at any time upon 30 days
notice to us, and we may terminate it at any time upon notice to Mr.
Barrantes.
Robert
Allan serves as Chief Executive Officer of Royal Wolf under an employment
agreement that will continue indefinitely, unless terminated by Mr. Allan
or Royal Wolf upon at least six months’ notice. Under his employment agreement,
using an Australian dollar to United States dollar exchange rate of 0.84880
at
June 30, 2007, Mr. Allan receives a base annual salary of $254,640 and is
eligible to receive an annual performance bonus not to exceed $84,880 based
upon
the achievement of specified performance indicators. The maximum annual
performance bonus is subject to increase based upon consumer price index
increases. There is no severance or similar obligation to Mr. Allan under
his employment agreement except that Royal Wolf may pay six months’ compensation
to Mr. Allan in lieu of providing notice of termination of his employment
as
described above.
Potential
Payments Upon Termination of Employment or Change in
Control
We
have
no agreements or arrangement with any executive officer that provides for
payments upon termination of employment except that pursuant to his employment
agreement, Mr. Barrantes is entitled to a lump-sum severance payment of six
months' base salary if, prior to March 13, 2008, we terminate his employment
without “cause” or he terminates his employment for “good reason.” We have no
agreements or arrangements with any executive officer that provide for payments
upon a change of control.
Compensation
Committee Interlocks and Insider Participation
No
person
who served on the Compensation Committee during the six months ended June
30,
2007 was previously one of our officers or employees or had a relationship
with
us requiring disclosure under Item 404 of Regulation S-K. Further no
interlocking relationship exists between any member of the Board of Directors
and any member of any other company's board of directors or compensation
committee.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the beneficial ownership of
our
common stock as of October 24, 2007, by (i) each person known by us to be the
beneficial owner of more than 5% of our outstanding shares of common stock;
(ii)
each
of
our executive officers and directors; and (iii) all of our executive officers
and directors as a group. Unless otherwise noted, we believe that each
beneficial owner named in the table has sole voting and investment power with
respect to the shares shown, subject to community property laws where
applicable. An asterisk (*) denotes beneficial ownership of less than one
percent.
15
|
Beneficial
Ownership
|
|||||||
|
Name
|
Number
of
Shares
(1)
|
Percent
of
Class
(1)
|
|||||
|
Ronald
F. Valenta(2)(3)
|
2,605,466
|
24.0
|
%
|
||||
|
|
|||||||
|
John
O. Johnson(2)(4)
|
665,617
|
6.7
|
%
|
||||
|
|
|||||||
|
James
B. Roszak(2)
|
22,500
|
(*
|
)
|
||||
|
|
|||||||
|
Lawrence
Glascott(2)
|
22,500
|
(*
|
)
|
||||
|
|
|||||||
|
Manuel
Marrero(2)
|
22,500
|
(*
|
)
|
||||
|
|
|||||||
|
David
M. Connell(2)
|
22,500
|
(*
|
)
|
||||
|
|
|||||||
|
Charles
E. Barrantes(2)(5)
|
45,000
|
(*
|
)
|
||||
|
|
|||||||
|
Robert
Allan(6)
|
800
|
(*
|
)
|
||||
|
|
|||||||
|
Gilder,
Gagnon, Howe & Co. LLC(7)
|
1,788,772
|
18.5
|
%
|
||||
|
|
|||||||
|
Olawalu
Holdings, LLC(8)
|
642,000
|
6.6
|
%
|
||||
|
2863
S. Western Avenue
Palos
Verdes, California 90275
|
|||||||
|
|
|||||||
|
Ronald
L. Havner, Jr.(9)
LeeAnn
R. Havner
The
Havner Family Trust
|
671,500
|
6.8
|
%
|
||||
|
c/o
Public Storage, Inc.
701
Western Avenue
Glendale,
California 91201
|
|||||||
|
|
|||||||
|
Jonathan
Gallen(10)
|
1,905,000
|
18.4
|
%
|
||||
|
299
Park Avenue, 17th
Floor
New
York, New York 10171
|
|||||||
|
|
|||||||
|
Neil
Gagnon(11)
|
1,810,303
|
18.7
|
%
|
||||
|
1370
Avenue of the Americas, Suite 2400
New
York, New York 10019
|
|||||||
|
|
|||||||
|
Jack
Silver(12)
|
2,071,410
|
17.8
|
%
|
||||
|
SIAR
Capital LLC
660
Madison Avenue
New
York, New York 10021
|
|||||||
|
|
|||||||
|
All
executive officers and directors as a group (8 persons_nine
persons)(13)
|
3,406,883
|
30.4
|
%
|
||||
|
(1)
|
Based
on 9,690,099 shares of common stock outstanding. In accordance with
the rules of the Securities and Exchange Commission, person is deemed
to
be the beneficial owner of shares that the person may acquire within
the
following 60 days (such as upon exercise of options or warrants or
conversion of convertible securities). These shares are deemed to
be
outstanding for purposes of computing the percentage ownership of
the
person beneficially owning such shares but not for purposes of computing
the percentage of any other holder.
|
16
|
(2)
|
Business
address is c/o General Finance Corporation, 260 South Los Robles,
Suite 217, Pasadena, California 91101.
|
|
(3)
|
Includes:
(i) 13,500 shares owned by Mr. Valenta’s wife and minor children, as to
which Mr. Valenta’s shares voting and investment power with his wife;
and (ii) 1,181,966 shares that may be acquired upon exercise of warrants.
The shares shown exclude the shares referred to in note (8),
below.
|
|
(4)
|
Includes
309,367 shares that may be acquired upon exercise of
warrants.
|
|
(5)
|
Represents
shares that may be acquired upon exercise of options.
|
|
(6)
|
Business
address is Suite 201,
Level 2, 22-28 Edgeworth David Avenue, Hornsby, New South Wales,
Australia 2077
|
|
(7)
|
Information
is based upon a Schedule 13G/A filed on October 10, 2007. Gilder,
Gagnon, Howe & Co. LLC is a New York limited liability and broker or
dealer registered under the Securities Exchange Act of 1934. The
shares
shown include 55,454 shares as to which Gilder, Gagnon, Howe &
Co. LLC has sole voting power and 1,788,772 shares as to which
it shares
voting and investment power. Of these 1,788,772 shares, 1,582,235
shares are held in customer accounts under which partners or employees
of
Gilder, Gagnon, Howe & Co. LLC have discretionary authority to dispose
or direct the disposition of the shares, 151,083 shares are held
in
accounts of its partners and 55,454 shares are held in its
profit-sharing plan.
|
|
(8)
|
Information
is based upon a Schedule l3G filed on February 27, 2007. Olawalu
Holdings, LLC (“Olawalu”), is a Hawaiian limited liability company, of
which Rick Pielago is the manager. Olawalu shares voting and investment
power as to all of the shares shown with Lighthouse Capital Insurance
Company, a Cayman Islands exempted limited company, and the Ronald
Valenta
Irrevocable Life Insurance Trust No. 1, a California trust, of which
Mr. Pielago is trustee. The Ronald Valenta Irrevocable Life Insurance
Trust No. 1 is an irrevocable family trust established by Ronald F.
Valenta in December 1999 for the benefit of his wife at the time, any
future wife, and their descendants. Mr. Valenta, himself, is not a
beneficiary of the Trust, and neither he nor his wife or their
descendants
has voting or investment power, or any other legal authority, with
respect
to the shares shown. Mr. Valenta disclaims beneficial ownership of
our shares held by the Trust. Mr. Pielago may be deemed to be the
control person of Olawalu and the Ronald Valenta Irrevocable Life
Insurance Trust No. 1.
|
|
(9)
|
Information
is based upon a Schedule 13D filed on February 9, 2007. The
shares shown include 7,000 shares as to which Ronald L. Havner
has sole
voting power and 3,000 shares as to which his wife, LeeAnn R. Havner,
has
sole voting power. Mr. and Mrs. Havner are Co-Trustees of The Havner
Family Trust. The Trust owns 434,251 shares and warrants to purchase
227,250 shares. As Co-Trustees of the Trust, Mr. and Mrs. Havner may
he deemed to beneficially own all of the shares held by the Trust.
|
|
(10)
|
Information
is based upon a Schedule 13G filed on September 14, 2007 and
upon subsequent filings on Forms 3 and 4. The shares shown are
held by
Ahab Partners, L.P., Ahab International, Ltd., Queequeg Partners,
L.P.,
Queequeg, Ltd. and one or more other private funds managed by
Mr. Gallen. The shares shown include 650,000 shares that may be
acquired upon exercise of
warrants.
|
|
(11)
|
Information
is based upon a Schedule 13G/A filed on September 17, 2007. The
shares shown include: (i) 244,008 shares beneficially owned by
Mr. Gagnon; (ii) 39,520 shares beneficially owned by
Mr. Gagnon over which he has sole voting power and shared dispositive
power; (iii) 162,443 shares beneficially owned by Lois Gagnon,
Mr. Gagnon’s wife, over which he has shared voting power and shared
dispositive power; (iv) 3,510 shares beneficially owned by
Mr. Gagnon and Mrs. Gagnon as joint tenants with rights of
survivorship, over which he has shared voting power and shared
dispositive
power; (v) 38,888 shares held by the Lois E. and Neil E. Gagnon
Foundation, of which Mr. Gagnon is a trustee and over which he has
shared voting power and shared dispositive power; (vi) 60,163 shares
held by the Gagnon Family Limited Partnership, of which Mr. Gagnon is
a partner and over which lie has shared voting power and shared
dispositive power; (vii) 51,180 shares held by the Gagnon
Grandchildren Trust over which Mr. Gagnon has shared dispositive
power but no voting power; (viii) 530,549 shares held by four hedge
funds, of which Mr. Gagnon is either the principal executive officer
of the manager or the managing member of a member of the general
partner
or the managing member: (ix) 1,605 shares held by the Gagnon
Securities LLC Profit Sharing Plan and Trust, of which Mr. Gagnon is
a trustee; (x) 4,715 shares held by the Gagnon Securities LLC Profit
Sharing Plan and Trust; and (xi) 674,262 shares held for certain
customers of Gagnon Securities LLC, of which Mr. Gagnon is the
managing member and the principal owner and over which he has shared
dispositive power but no voting
power.
|
|
(12)
|
Information
is based upon a schedule 13G filed September 18, 2007 and subsequent
Forms 3 and 4. The shares shown include: (i) 342,500 shares that may
be acquired upon exercise of warrants held by Sherleigh Associates
Inc.
Defined Benefit Pension Plan, a trust of which Mr. Silver is the
trustee; (ii) 1,590,110 shares that may be acquired upon exercise of
warrants held by Sherleigh Associates Inc. Profit Sharing Plan,
a trust of
which Mr. Silver is the trustee; and (iii) 138,800 shares held
by Sherleigh Associates Inc. Defined Benefit Pension Plan, a trust
of
which Mr. Silver is a
trustee.
|
|
(13)
|
Includes
1,536,333 shares that may be acquired upon the exercise of warrants
and
options.
|
The
following table sets forth information concerning our equity compensation plans
as of June 30, 2007:
|
Plan
category
|
(a)
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
(c)
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||||||
|
Equity
compensation plans approved by
security
holders(1)
|
225,000
|
$ | 7.30 |
1,275,000
|
||||||
|
Equity
compensation plans not approved
by
security holders (1)
|
--
|
-- |
--
|
|||||||
|
Total
|
225,000
|
$ | 7.30 |
1,275,000
|
||||||
|
(1)
|
We
have one equity compensation plan, the 2006 Stock Option Plan.
|
17
Compensation
of Directors
The
following table provides information concerning the compensation of the
directors for the six months ended June 30, 2007:
|
Director
Compensation
|
|||||||
|
Name
|
Fees
Earned
or
Paid
in
Cash
|
Total
($)
|
|||||
|
Lawrence
Glascott
|
$
|
4,500
|
$
|
4,500
|
|||
|
|
|||||||
|
David
M. Connell
|
$
|
4,500
|
$
|
4,500
|
|||
|
|
|||||||
|
Manuel
Marrero
|
$
|
4,500
|
$
|
4,500
|
|||
|
|
|||||||
|
James
B. Roszak
|
$
|
4,500
|
$
|
4,500
|
|||
|
|
|||||||
|
Ronald
F. Valenta
|
$
|
--
|
$
|
--
|
|||
In
fiscal
2006, our non-employee directors received $1,500 for each Board meeting attended
in-person. We also reimburse all of our directors for out-of-pocket expenses
incurred by them in connection with their activities on our behalf.
In
September 2007, our Board of Directors approved a new schedule of compensation
of our non-employee directors effective upon completion of the acquisition
of
Royal Wolf. The new compensation schedule was based upon recommendations of
the
Compensation Committee of our Board in light of the fact that, upon completion
of the Royal Wolf acquisition, we are no longer a shell company. The following
table summarizes the new schedule of compensation of our non-employee directors
(directors who also serve as officers currently receive no additional
compensation for their services as directors). The annual compensation shown
became effective September 13, 2007, and will be prorated for our fiscal
year ending June 30, 2008. In addition to the compensation set forth below,
each director is also eligible for reimbursement of reasonable expenses incurred
in connection with the director’s services.
|
Annual
Retainer—Chairman of the Board
|
$
|
40,000
|
||
|
Annual
Retainer—Other Directors
|
$
|
30,000
|
||
|
Additional
Annual Retainer - Audit Committee Chair
|
$
|
10,000
|
||
|
Additional
Annual Retainer - Compensation Committee Chair
|
$
|
7,500
|
||
|
Additional
Annual Retainer - Nominating Committee Chair
|
$
|
3,000
|
||
|
Board
Meeting Attendance Fee—Chairman of the Board
|
$
|
2,000
|
||
|
Board
Meeting Attendance Fee—Other Directors
|
$
|
1,500
|
||
|
Committee
Meeting Attendance Fee
|
$
|
750
|
||
|
Telephonic
Meeting Attendance Fee
|
$
|
500
|
The
annual retainers are payable in advance in semiannual increments on June 30
and December 31.
In
September 2007, our Board of Directors also adopted an informal policy with
respect to future stock-based compensation of our non-employee directors.
Under
the policy, our Board of Directors will consider making stock option grants
upon
each director’s initial election or appointment to the Board, as well as at each
annual stockholders meeting thereafter following which an incumbent director
continues to serve as a director. Any actual stock option grants or other
stock-based compensation paid to our non-employee directors, however, will
be
made only as and when approved by the Board of Directors in the
future.
18
Item
13. Certain Relationships and Related Transactions
Transactions
with Related Persons
We
had an
unsecured limited recourse revolving line of credit agreement with Ronald F.
Valenta, our Chief Executive Officer and a director, which had entered into
prior to our initial public offering. Under the revolving line of credit, we
were able to borrow up to $3,000,000 from time to time at an annual interest
rate of 8%. At June 30, 2007, the outstanding amount of principal and accrued
interest under the line of credit was $2,441,253, which was the largest amount
outstanding during the six months ended June 30, 2007. On September 14, 2007,
subsequent to the completion of acquisition of Royal Wolf, we repaid the
outstanding balance and accrued interest ($2,586,848) and terminated the
revolving line of credit. Prior to that, we had not made any payments on the
revolving line of credit.
We
utilize certain administrative, technology and secretarial services from
affiliates of officers; as well as certain limited office space provided by
an
affiliate of Mr. Valenta. These affiliates had agreed to make these services
and
office space available to us free of charge, with the exception of the
reimbursement of certain out-of-pocket costs incurred on our behalf, until
completion of our initial business combination. Management does not believe
the
value of these services were significant.
We
have
not adopted a formal written policy regarding transactions with related persons.
However, in general, any such material transaction would require approval of
the
Board of Directors, with any interested director abstaining.
Director
Independence
The
American Stock Exchange requires that a majority of the Board of Directors
must
be composed of “independent directors,” which is defined generally as a person
other than an officer or employee of the Company or its subsidiaries or any
other individual having a relationship, which, in the opinion of the Company's
Board of Directors, would interfere with the director's exercise of independent
judgment in carrying out the responsibilities of a director.
Messrs.
Connell, Marrero, Glascott and Roszak are “independent directors.”
LaRue,
Corrigan & McCormick, LLP (“LCM”) audited our financial statements as of
October 19, 2005, as of December 31, 2005 and as of April 10, 2006 (the closing
of our initial public offering). LCM's opinion of the financial statements
as of
October 19, 2005 and as of December 31, 2005 both contained a “going-concern”
qualification due to our need to complete a successful public offering and
acquire an operating business to generate revenue. LCM
has
removed this qualification in subsequent re-issuances of their audit opinion.
LCM's opinion on the financial statements as of April 10, 2006 (after
completion of our initial public offering) did not contain an adverse opinion
or
a disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles.
On
August
1, 2006, our Audit Committee dismissed LCM as our independent auditors and
engaged Grobstein, Horwath & Company LLP (“GHC”) as our independent auditors
to audit our financial statements for the fiscal year ending December 31, 2006.
From October 14, 2005 and through August 1, 2006: (i) the Company had no
disagreements with LCM on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of LCM, would have caused it to make reference
to
the subject matter of the disagreement in connection with its report; and (ii)
LCM did not advise the Company of any of the events requiring reporting under
Item 304(a)(1)(v) of Regulation S-K.
Aggregate
fees billed to us by (i) LaRue, Corrigan & McCormick, LLP (“LCM”) for
professional services rendered with respect to the period from inception
(October 14, 2005) to December 31, 2005, (ii) LCM and Grobstein, Horwath &
Company LLP (“GHC”) for professional services rendered with respect to the year
ended December 31, 2006 and (3) GHC for the six months ended June 30, 2007,
were
as follows:
|
LCM
2005
and
2006
|
GHC
2006
|
GHC
2007
|
||||||||
|
Audit
Fees
|
$
|
36,033
|
$
|
46,385
|
$
|
45,773
|
||||
|
Audit-Related
Fees
|
26,023
|
18,709
|
840
|
|||||||
|
Tax
Fees
|
2,172
|
650
|
8,574
|
|||||||
|
All
Other Fees
|
94,203
|
--
|
--
|
|||||||
In
the
above table, in accordance with the Securities and Exchange Commission's
definitions and rules, “audit fees” are fees we paid for professional services
for the audit of our consolidated financial statements, including those in
our
Form 10-K, and reviews of our Form 10-Qs. “Audit-related fees” are fees for
assurance and related services that are reasonably related to the performance
of
the audit or review of our financial statements. These services include the
filing of the registration statement for our initial public offering and special
meeting proxy statement for our proposed initial business combination. “Tax
fees” are fees for tax compliance, tax advice and tax planning. “All Other Fees”
for LCM are for due diligence services in connection with the acquisition of
Royal Wolf.
The
policy of the Audit Committee is that it must approve in advance all services
(audit and non-audit) to be rendered by the Company's independent auditors.
The
Audit Committee approved in advance the engagement of LCM and GHC for services
during the periods above, except that the Audit Committee did not approve in
advance the engagement of LCM to conduct certain diligence in connection with
the acquisition of Royal Wolf. LCM did not perform any audit or review services
for us after commencement of such engagement.
19
(1) Financial
Statements
See
Item
8. Financial Statements and Supplementary Data.
(2) Financial
Statement Schedules
All
supplemental schedules have been omitted since the required information is
not
present in amounts sufficient to require submission of the schedule, or because
the required information is included in the consolidated financial statements
or
notes thereto.
(3) Exhibits
See
Exhibit Index.
20
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
General
Finance Corporation
|
||
| |
|
|
| By: | /s/ Ronald F. Valenta | |
|
Name: Ronald F. Valenta |
||
|
Title:
Chief Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
|
Signature
|
|
Title
|
|
Date
|
|
/s/
Ronald F. Valenta
|
|
Chief
Executive Officer, Secretary and Director
(Principal
Executive Officer)
|
|
November
9, 2007
|
|
Ronald
F. Valenta
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Charles E. Barrantes
|
|
Executive
Vice President & Chief Financial Officer
(Principal
Accounting and Financial Officer)
|
|
November
9, 2007
|
|
Charles
E. Barrantes
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Lawrence Glascott
|
|
Chairman
of the Board of Directors
|
|
November
9, 2007
|
|
Lawrence
Glascott
|
|
|
|
|
|
|
|
|
|
|
|
/s/
David M. Connell
|
|
Director
|
|
November
9, 2007
|
|
David
M. Connell
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Manuel Marrero
|
|
Director
|
|
November
9, 2007
|
|
Manuel
Marrero
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James B. Roszak
|
|
Director
|
|
November
9, 2007
|
|
James
B. Roszak
|
|
|
|
|
21
EXHIBIT
INDEX
|
|
|
Exhibit
Description
|
|
2.1
|
|
Deed
of Variation No. 3 dated March 30, 2007, which amended and restated
the
Share Sale Deed dated September 12, 2006, by and among General
Finance
Corporation, GFN Australasia Finance Pty. Limited, Bison Capital
Australia
LP, and the shareholders of RWA Holdings Pty Limited and certain
other
parties. Incorporated by reference to Annex A to Registrant’s Preliminary
Proxy Statement of Schedule 14A filed April 27,
2007.
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation filed April 4, 2006
(incorporated by reference to Exhibit 3.1 of Registrant’s Form S-1, File
No. 333-129830).
|
|
3.2
|
|
Amended
and Restated Bylaws as of April 27, 2007 (incorporated by reference
to
Exhibit 3.1 of Registrant’s Form 10-Q for the quarter ended June 30,
2007).
|
|
4.1
|
|
Form
of Unit Certificate (incorporated by reference to Exhibit 4.1 of
Registrant’s Form S-1, File No. 333-129830).
|
|
4.2
|
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit
4.2 of
Registrant’s Form S-1, File No. 333-129830).
|
|
4.3
|
|
Form
of Warrant Certificate (incorporated by reference to Exhibit 4.3
of
Registrant’s Form S-1, File No. 333-129830).
|
|
10.1
|
|
Unit
Purchase Option granted to Morgan Joseph & Co. Inc. dated
April 10, 2006 (incorporated by reference to Exhibit 10.1 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2006).
|
|
10.2
|
|
Warrant
Agreement dated April 5, 2006 between Continental Stock Transfer
& Trust Company and General Finance Corporation (incorporated by
reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q
for the quarter ended March 31, 2006).
|
|
10.3
|
|
Investment
Management Trust Agreement dated April 5, 2006 between Continental
Stock Transfer & Trust Company and General Finance Corporation
(incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31,
2006).
|
|
10.4
|
|
Stock
Escrow Agreement dated April 5, 2006 between General Finance
Corporation, Continental Stock Transfer & Trust Company and certain
stockholders (incorporated by reference to Exhibit 10.4 of Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006).
|
|
10.5
|
|
Amended
and Restated Warrant Purchase Agreements dated April 5, 2006 by and
between Morgan Joseph & Co. Inc and each of Ronald F. Valenta and John
O. Johnson (incorporated by reference to Exhibit 10.5 of Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31,
2006).
|
|
|
|
Amended
and Restated Letter Agreement dated March 3, 2006 among the
Registrant, Morgan Joseph & Co., and each of David M. Connell,
Lawrence Glascott, Manuel Marrero, James B. Roszak, John O. Johnson
and
Marc Perez; Amended and Restated Letter Agreement dated March 3, 2006
among the Registrant, Morgan Joseph & Co. Inc. and Ronald F.
Valenta (incorporated by reference to Exhibit 10.1 of Registrant’s Form
S-1, File No. 333-129830).
|
|
10.7
|
|
Amended
and Restated Registration Rights Agreement dated March 3, 2006 by and
between the Registrant and each of Ronald F. Valenta, John O. Johnson,
Marc Perez, Lawrence Glascott, David M. Connell, Manuel Marrero
and James
B. Roszak (incorporated by reference to Exhibit 10.5 of Registrant’s Form
S-1, File No. 333-129830).
|
|
10.
8
|
|
Form
of Indemnification Agreement by and between the Registrant and
each of
Ronald F. Valenta, John O. Johnson, Marc Perez, Lawrence Glascott,
David
M. Connell, Manuel Marrero, James B. Roszak and Charles E. Barrantes
(incorporated by reference to Exhibit 10.7 of Registrant’s Form S-1, File
No. 333-129830).
|
|
10.9
|
|
2006
Stock Option Plan (incorporated by reference to Exhibit 10.1 of
Registrant’s Form 10-Q for the quarter ended September 30,
2006).
|
|
10.10
|
|
Forms
of Incentive Stock Option Agreement and Non-Qualified Stock Option
Agreement used under the 2006 Stock Option Plan (incorporated by
reference
to Exhibit 10.2 of Registrant’s Form 8-K filed September 12,
2006).
|
|
10.11
|
|
Employment
Agreement dated September 11, 2006 between General Finance Corporation
and
Charles E. Barrantes (incorporated by reference to Exhibit 10.3
of
Registrant’s Form 8-K filed September 12, 2006).
|
|
10.12
|
|
Fifth
Amended and Restated Revolving Line of Credit Agreement, dated
as of
January 20, 2007, by and between General Finance Corporation and
Ronald F. Valenta (incorporated by reference to Exhibit 10.12 of
Registrant’s Form 8-K filed September 19, 2007).
|
|
|
|
|
|
10.13
|
Executive
Services Agreement, dated July 4, 2006, between Royal Wolf Trading
Australia Pty Ltd and Robert Allan (incorporated by reference to
Exhibit
10.13 of Registrant’s Form 8-K filed September 19,
2007).
|
22
|
10.16
|
|
Securities
Purchase Agreement, dated as of September 13, 2007, among
General
Finance Corporation,
GFN U.S. Australasia Holdings, Inc., GFN Australasia Holdings Pty
Limited
and Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.16 of Registrant’s Form 8-K filed
September 19, 2007).
|
|
10.17
|
|
Senior
Secured Subordinated Promissory Note, dated September 13, 2007, of
GFN Australasia Finance Pty Limited in favor of Bison Capital Australia,
L.P.
(incorporated by reference to Exhibit 10.17 of Registrant’s Form 8-K filed
September 19, 2007).
|
|
10.18
|
|
Form
of Deed of Charge, dated as of September 13, 2007, between each of
General
Finance Corporation,
GFN U.S. Australasia Holdings, Inc., GFN Australasia Holdings Pty
Limited
and GFN Australasia Finance Pty Limited, respectively, and Bison
Capital
Australia, L.P. (incorporated
by reference to Exhibit 10.18 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.19
|
|
Warrants,
dated September 13, 2007, of General
Finance Corporation
in
favor of Bison Capital Australia, L.P. (incorporated
by reference to Exhibit 10.19 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.20
|
|
Registration
Rights Agreement dated as of September 13, 2007, between General
Finance Corporation
and Bison Capital Australia, L.P. (incorporated
by reference to Exhibit 10.20 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.21
|
|
Guaranty,
dated as of September 13, 2007, by General
Finance Corporation,
GFN U.S. Australasia Holdings, Inc. and GFN Australasia Holdings
Pty
Limited in favor of Bison Capital Australia, L.P. (incorporated
by reference to Exhibit 10.21 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.22
|
|
Shareholders
Agreement dated as of September 13, 2007, among General
Finance Corporation,
GFN U.S. Australasia Holdings, Inc. and Bison Capital Australia,
L.P.
(incorporated
by reference to Exhibit 10.22 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.23
|
|
Royal
Wolf Intercreditor Deed, dated as of September 13, 2007, among
General
Finance Corporation,
Bison Capital Australia, L.P., Royal Wolf Trading Australia Pty Ltd,
GFN
Australasia Finance Pty Ltd, RWA Holdings Pty Ltd, GFN Australasia
Holdings Pty Ltd, Royal Wolf Hi-Tech Pty Ltd, and Australia and New
Zealand Banking Group Limited (incorporated
by reference to Exhibit 10.23 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.24
|
|
Sublease,
dated February 7, 2007, between Royal Wolf Trading Australia Pty Ltd
and Tyne Container Services Pty Limited (incorporated
by reference to Exhibit 10.24 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.25
|
|
Commercial
Tenancy Agreement, dated October 31, 2006, between Royal Wolf Trading
Australasia Pty Ltd and Corporate Banking Services Pty Ltd (incorporated
by reference to Exhibit 10.25 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.26
|
|
Lease,
dated October 1, 2006, between Royal Wolf Trading Australia Pty Ltd
and GPF No. 3 Pty (incorporated
by reference to Exhibit 10.26 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.27
|
|
Letter
of Offer, dated September 10, 2007, to Royal Wolf Australia Group
from Australia and New Zealand Banking Group Limited (incorporated
by reference to Exhibit 10.27 of Registrant’s Form 8-K filed September 19,
2007).
|
|
10.28
|
|
Cross
Guarantee and Indemnity, dated September 13, 2007, by GFN Australasia
Holdings Pty Limited, GFN Australasia Finance Pty Limited, Royal
Wolf
Trading Australia Pty Limited, RWA Holdings Pty Limited and Royal
Wolf
Hi-Tech Ltd in favor of Australia and New Zealand Banking Group Limited
(incorporated
by reference to Exhibit 10.28 of Registrant’s Form 8-K filed September 19,
2007).
|
|
21.1
|
|
Subsidiaries
of General Finance Corporation
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to SEC Rule
13a-14(a)/15d-14(a)
|
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to SEC Rule
13a-14(a)/15d-14(a)
|
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. §1350
|
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C.
§1350
|
23
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders
General
Finance Corporation and Subsidiaries
(A
Development Stage Company)
We
have
audited the accompanying consolidated balance sheets of General Finance
Corporation and Subsidiaries (collectively the “Company”) as of June 30, 2007
and December 31, 2006, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 2006,
the
six months ended June 30, 2007, and the period from inception (October
14,
2005) to June 30, 2007. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on
these consolidated financial statements based on our audits. We did not
audit
the financial statements of the Company for the period from inception (October
14, 2005) to December 31, 2005 which statements reflect a net loss of $3,509.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the operating results
of the
Company for the period from inception (October 14, 2005) to June 30, 2007,
is
based solely on the report of the other auditors.
We
conducted our audits in accordance with the standards established by the
Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audits to obtain reasonable assurance about whether
the
consolidated financial statements are free of material misstatement. The
Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe
that our
audits provide a reasonable basis for our opinion.
In
our
opinion, based on our audits and the report of other auditors, the consolidated
financial statements referred to above present fairly, in all material
respects,
the consolidated financial position of General Finance Corporation and
Subsidiaries as of June 30, 2007 and December 31, 2006, and the consolidated
results of their operations and cash flows for the year ended December
31, 2006,
the six months ended June 30, 2007, and the period from inception (October
14,
2005) to June 30, 2007 in conformity with accounting principles generally
accepted in the United States.
As
indicated in Note 2 to the financial
statements, in 2007 the Company changed its method of accounting for costs
incurred in connection with a business acquisition.
/s/
Grobstein, Horwath & Company LLP
Sherman
Oaks, California
October
22, 2007
F-1
INDEPENDENT
AUDITORS’
REPORT
Board
of
Directors and Stockholders
General
Finance Corporation
(A
Development Stage Company)
We
have
audited the accompanying balance sheet of General Finance Corporation (A
Development Stage Company) (the "Company") as of December 31, 2005, and the
related statements of operations, stockholders’ equity and cash flows for the
period from October 14, 2005 (inception) to December 31, 2005. These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements based
on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of General Finance Corporation
as of
December 31, 2005, and the results of its operations and its cash flows for
the
period then ended in conformity with accounting principles generally accepted
in
the United States of America.
/s/
LaRue, Corrigan & McCormick LLP
Woodland
Hills, California
January
20, 2006
F-2
|
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
||||||||
|
(A
Development Stage Company)
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
ASSETS
|
|
December
31, 2006
|
June
30, 2007
|
||||||
|
Current
assets:
|
(as
restated)
|
(as
restated)
|
|||||
|
Cash
|
$
|
37,713
|
$
|
59,427
|
|||
|
Cash
equivalents held in trust account - restricted
|
68,055,252
|
68,217,585
|
|||||
|
Prepaid
expenses
|
19,125
|
111,375
|
|||||
|
Total
current assets
|
68,112,090
|
68,388,387
|
|||||
|
Office
equipment, net
|
2,871
|
2,349
|
|||||
|
Deferred
income taxes
|
--
|
131,827
|
|||||
|
Deferred
acquisition costs
|
783,663 | 1,547,742 | |||||
|
Other
assets
|
814,547
|
1,007,837
|
|||||
|
Total
assets
|
$
|
69,713,171
|
$
|
71,078,142
|
|||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
462,224
|
$
|
660,366
|
|||
|
Accrued
liabilities, including accrued interest of $20,498 in 2006 and
$91,253 in
2007 on borrowings from related party
|
77,083
|
244,699
|
|||||
|
Income
taxes payable
|
560,800
|
177,200
|
|||||
|
Deferred
underwriting fees
|
1,380,000
|
1,380,000
|
|||||
|
Borrowings
from related party
|
1,280,000
|
2,350,000
|
|||||
|
Total
current liabilities
|
3,760,107
|
4,812,265
|
|||||
|
Deferred
income taxes
|
187,800
|
--
|
|||||
| Common stock subject to possible conversion, | |||||||
|
1,724,138
shares at conversion value
|
13,168,200
|
13,338,500
|
|||||
|
Commitments
|
--
|
--
|
|||||
|
Stockholders’
equity:
|
|||||||
|
Preferred
stock, $.0001 par value: 1,000,000 shares authorized; no shares
outstanding
|
--
|
--
|
|||||
|
Common
stock, $.0001 par value: 100,000,000 shares authorized;
|
|||||||
|
10,500,000
shares outstanding (including 1,724,138 shares subject to possible
conversion)
|
1,050
|
1,050
|
|||||
|
Additional
paid-in capital
|
51,708,433
|
51,777,233
|
|||||
|
Earnings
accumulated during the development stage
|
887,581
|
1,149,094
|
|||||
|
Total
stockholders’ equity
|
52,597,064
|
52,927,377
|
|||||
|
Total
liabilities and stockholders’ equity
|
$
|
69,713,171
|
$
|
71,078,142
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
|
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
|
(A
Development Stage Company)
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
October
14, 2005 (inception) to
December
31, 2005
|
Year
Ended
December
31, 2006
|
Six
Months Ended
June
30, 2007
|
October
14, 2005 (inception) to
June
30, 2007
|
||||||||||
|
(as
restated)
|
(as
restated)
|
(as
restated)
|
|||||||||||
|
General
and administrative expenses
|
$
|
3,509
|
$
|
387,815
|
$
|
795,989
|
$
|
1,187,313
|
|||||
|
Operating
loss
|
(3,509
|
)
|
(387,815
|
)
|
(795,989
|
)
|
(1,187,313
|
)
|
|||||
|
Other:
|
|||||||||||||
|
Interest
income
|
--
|
1,888,503
|
1,312,169
|
3,200,672
|
|||||||||
|
Interest
expense
|
--
|
(20,498
|
)
|
(72,398
|
)
|
(92,896
|
)
|
||||||
|
Other,
net
|
--
|
--
|
(7,469
|
)
|
(7,469
|
)
|
|||||||
|
Income
(loss) before provision for income taxes
|
(3,509
|
)
|
1,480,190
|
436,313
|
1,912,994
|
||||||||
|
Provision
for income taxes
|
--
|
589,100
|
174,800
|
763,900
|
|||||||||
|
Net
income (loss)
|
$
|
(3,509
|
)
|
$
|
891,090
|
$
|
261,513
|
$
|
1,149,094
|
||||
|
Net
income (loss) per share:
|
|||||||||||||
|
Basic
|
$
|
(0.00
|
)
|
$
|
0.11
|
$
|
0.02
|
||||||
|
Diluted
|
$
|
(0.00
|
)
|
$
|
0.09
|
$
|
0.02
|
||||||
|
Weighted
average shares outstanding
|
|||||||||||||
|
Basic
|
1,875,000
|
8,151,369
|
10,500,000
|
||||||||||
|
Diluted
|
1,875,000
|
9,636,545
|
12,704,299
|
||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
|
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
|
(A
Development Stage Company)
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’
EQUITY
|
|
Common
Stock
|
Additional
Paid-In
|
Earnings
Accumulated During the Development
|
Total
Stockholders’
|
|||||||||||||
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity
|
||||||||||||
|
Balance
at October 14, 2005 (inception)
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
--
|
|||||||
|
Sale
of common stock to initial stockholder on October 14, 2005
|
1,875,000
|
188
|
249,812
|
--
|
250,000
|
|||||||||||
|
Net
loss
|
--
|
--
|
--
|
(3,509
|
)
|
(3,509
|
)
|
|||||||||
|
Balance
at December 31, 2005
|
1,875,000
|
188
|
249,812
|
(3,509
|
)
|
246,491
|
||||||||||
|
Sale
of warrants on April 10, 2006
|
--
|
--
|
700,000
|
--
|
700,000
|
|||||||||||
|
Sale
of 7,500,000 units and underwriters’ purchase option, net of underwriters’
discount and offering expenses on
April
10, 2006
|
7,500,000
|
750
|
55,254,754
|
--
|
55,255,504
|
|||||||||||
|
Sale
of 1,125,000 units for over-allotment on April 13, 2006
|
1,125,000
|
112
|
8,319,667
|
--
|
8,319,779
|
|||||||||||
|
Proceeds
subject to possible conversion of 1,724,138 shares
|
--
|
--
|
(12,857,800
|
)
|
--
|
(12,857,800
|
)
|
|||||||||
|
Share-based
compensation
|
--
|
--
|
42,000
|
--
|
42,000
|
|||||||||||
|
Net
income (as
restated)
|
--
|
--
|
--
|
891,090
|
891,090
|
|||||||||||
|
Balance
at December 31, 2006
|
10,500,000
|
1,050
|
51,708,433
|
887,581
|
52,597,064
|
|||||||||||
|
Share-based
compensation
|
--
|
--
|
68,800
|
--
|
68,800
|
|||||||||||
|
Net
income (as restated)
|
--
|
--
|
--
|
261,513
|
261,513
|
|||||||||||
|
Balance
at June 30, 2007
|
10,500,000
|
$
|
1,050
|
$
|
51,777,233
|
$
|
1,149,094
|
$
|
52,927,377
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
|
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
|
(A
Development Stage Company)
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
October
14, 2005 (inception) to December 31, 2005
|
|
Year
Ended
December
31, 2006
|
|
Six
Months Ended
June
30, 2007
|
|
October
14, 2005 (inception) to June 30, 2007
|
|||||||
|
Cash
flows from operating activities
|
|||||||||||||
|
Net
income (loss)
|
$
|
(3,509
|
)
|
$
|
891,090
|
$
|
261,513
|
$
|
1,149,094
|
||||
|
Depreciation
and amortization
|
--
|
722
|
707
|
1,429
|
|||||||||
|
Share-based
compensation expense
|
--
|
42,000
|
68,800
|
110,800
|
|||||||||
|
Deferred
income taxes
|
--
|
187,800
|
(319,627
|
)
|
(131,827
|
)
|
|||||||
|
Changes
in operating assets and liabilities:
|
|||||||||||||
|
Prepaid
expenses
|
--
|
(19,125
|
)
|
(92,250
|
)
|
(111,375
|
)
|
||||||
|
Other
assets
|
(71,116
|
)
|
200,493
|
--
|
(3,688
|
)
|
|||||||
|
Accounts
payable and accrued liabilities
|
--
|
406,242
|
365,758
|
905,065
|
|||||||||
|
Income
taxes payable
|
--
|
560,800
|
(383,600
|
)
|
177,200
|
||||||||
|
Interest
deferred for common stock
subject
to possible conversion, net of
income
tax effect
|
--
|
310,400
|
170,300
|
480,700
|
|||||||||
|
Net
cash provided (used) by operating
activities
|
(74,625
|
)
|
2,580,422
|
71,601
|
2,577,398
|
||||||||
|
Cash
flows from investing activities:
|
|||||||||||||
|
Deposit
related to proposed acquisition
|
--
|
(811,320
|
)
|
(193,475
|
)
|
(1,004,795
|
)
|
||||||
|
Acquisition
costs
|
--
|
(783,663
|
)
|
(764,079
|
)
|
(1,547,742
|
)
|
||||||
|
Purchases
of office equipment
|
--
|
(3,132
|
)
|
--
|
(3,132
|
)
|
|||||||
|
Cash
equivalents held in trust account
|
--
|
(68,055,252
|
)
|
(162,333
|
)
|
(68,217,585
|
)
|
||||||
|
Net
cash used by investing activities
|
--
|
(69,653,367
|
)
|
(1,119,887
|
)
|
(70,773,254
|
)
|
||||||
|
Cash
flows from financing activities:
|
|||||||||||||
|
Borrowings
from revolving line of credit
with
related party
|
--
|
1,280,000
|
1,070,000
|
2,350,000
|
|||||||||
|
Proceeds
from sale of units, net
|
--
|
64,955,283
|
--
|
64,955,283
|
|||||||||
|
Proceeds
from private placement
|
--
|
700,000
|
--
|
700,000
|
|||||||||
|
Proceeds
from sale of common stock to
initial
stockholder
|
250,000
|
--
|
--
|
250,000
|
|||||||||
|
Net
cash provided by financing
activities
|
250,000
|
66,935,283
|
1,070,000
|
68,255,283
|
|||||||||
|
Net
increase (decrease) in cash
|
175,375
|
(137,662
|
)
|
21,714
|
59,427
|
||||||||
|
Cash
at beginning of period
|
--
|
175,375
|
37,713
|
-
|
|||||||||
|
Cash
at end of period
|
$
|
175,375
|
$
|
37,713
|
$
|
59,427
|
$
|
59,427
|
|||||
|
Non-cash
financing activity:
|
|||||||||||||
|
Accrued
deferred underwriting fees
|
--
|
$
|
1,380,000
|
$
|
1,380,000
|
$
|
1,380,000
|
||||||
|
Accrued
deferred offering costs
|
$
|
133,065
|
--
|
--
|
--
|
||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1.
Organization
and Business Operations
General
Finance Corporation (the “Company”) was incorporated in Delaware on October 14,
2005 for the purpose of effecting a merger, capital stock exchange, asset
acquisition or other similar business combination with one or more operating
businesses.
As
of
June 30, 2007, the Company had not yet commenced any operations and is therefore
a development-stage company. All activity through June 30, 2007 pertains
to the
Company's formation, its initial public offering of the securities (the “IPO”)
completed in April 2006, activities to identify an operating business to
acquire
and entering into an agreement to acquire an operating business. See Notes
3 and
9.
At
a
special meeting of our board of directors held on September 11, 2007, the
board
of directors determined to change the Company’s fiscal year to June 30 from
December 31, conditioned upon the completion of the acquisition of
RWA
Holdings Pty Limited (“RWA”), an Australian corporation, and its subsidiaries
(collectively, “Royal
Wolf”).
See
Note 9. As a result, the consolidated financial statements include the
presentation of the transition period for the six months ended June 30,
2007.
Note
2.
Summary
of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements have been prepared on the accrual basis
of
accounting in accordance with accounting principles generally accepted in
the
United States.
Restatement
for Change in Accounting
Method
The
Company had been expensing the costs related to the acquisition of Royal
Wolf as it had previously considered treating this business combination as
a reverse acquisition, whereby the Company was to be the acquired entity.
However, it has been determined that the Company should be the accounting
acquirer and that the preferable accounting treatment is the purchase method
of
accounting in accordance with Statement of Financial Standards (“SFAS”) No. 141,
Business
Combinations.
Under
this method of accounting, Royal Wolf’s assets and liabilities will be recorded
at their respective fair values as of the closing date of the acquisition
(including any identifiable intangible assets). Any excess of the purchase
price
over the net fair values of Royal Wolf’s assets and liabilities will be recorded
as goodwill. The consolidated financial statements subsequent to the closing
of
the acquisition will reflect these values and the results of operations of
Royal Wolf will be included in the Company’s results of operations
beginning upon the completion of the acquisition. As a result of this change
in
the accounting for the acquisition with Royal Wolf, the Company has
retrospectively applied the capitalization of the costs incurred relating
primarily to the acquisition of Royal Wolf to the accompanying consolidated
financial statements for all the periods presented. The effect of this
retrospective application from previously issued consolidated financial
statements was to reduce the operating loss and increase income before
provision
for income taxes by $783,663, $761,395 and $1,545,058; and to increase
net
income by $434,263, $476,995 and $911,258 for the year ended December 31,
2006,
for the six months ended June 30, 2007 and for the period from inception
(October 14, 2005) to June 30, 2007, respectively.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and
its
wholly-owned subsidiaries, GFN U.S. Australasia Holdings, Inc. (“GFN U.S.”), GFN
Australasia Finance Pty Limited (“GFN Finance”) and GFN Australasia Holdings Pty
Limited. All significant intercompany accounts and transactions have been
eliminated.
Use
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the consolidated financial statements, and the reported amounts of revenues
and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
Equivalents
The
Company considers highly liquid investments with maturities of three months
or
less, when purchased, to be cash equivalents. Cash equivalents held in
the trust
account (see Note 3) are to be held to maturity, and accordingly, are stated
at
amortized cost, which approximates current market value. Funds held in
the trust
account are restricted.
Deferred
Underwriting Fees
Deferred
underwriting fees of up to $1,380,000 accrued in connection with the
IPO will be
payable when the Company effects its initial business combination (see
Notes 3
and 9).
Common
Stock Subject to Possible Conversion
Common
stock subject to possible conversion is convertible into cash in an amount
not
to exceed approximately 20% of the funds held in the trust account after
subtracting deferred underwriting fees and the estimated tax liability
associated with interest income earned on the funds held in trust (see
Notes 3
and 9).
F-7
Derivative
Financial Instruments
Derivative
financial instruments consist of warrants issued as part of the IPO and a
purchase option that was sold to the representative of the underwriters as
described in Note 3. Based on Emerging Issues Task Force Issue No. 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock, the issuance of the warrants and the sale
of
the purchase option were reported in stockholders' equity and, accordingly,
there is no impact on the Company's financial position or results of operations,
except for the $100 in proceeds from the sale of the purchase option. Subsequent
changes in the fair value will not be recognized as long as the warrants
and
purchase option continue to be classified as equity instruments.
At
the
date of issuance, the Company determined the purchase option had a fair market
value of approximately $641,000 using the Black-Scholes pricing
model.
Accounting
for Stock Options
For
the
issuances of stock options, the Company follows the fair value provisions
of
SFAS No. 123 (revised 2004),
Share-Based Payment
(“No.
123R”). SFAS No. 123R replaces SFAS No. 123,
Accounting for Stock-Based Compensation
and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
SFAS
No. 123R requires recognition of employee share-based compensation expense
in
the statements of income over the vesting period based on the fair value
of the
stock option at the grant date.
Income
Taxes
The
Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes.
Accordingly, the Company uses the asset and liability method of accounting
for
income taxes. Under this method, deferred tax assets and liabilities are
recorded for temporary differences between the financial reporting basis
and
income tax basis of assets and liabilities at the balance sheet date multiplied
by the applicable tax rates. Valuation allowances are established when
necessary
to reduce deferred tax assets to the amount expected to be realized. Income
tax
expense is recorded for the amount of income tax payable or refundable
for the
period increased or decreased by the change in deferred tax assets and
liabilities during the period. As of December 31, 2006 and June 30, 2007,
a
deferred tax liability of $187,800 and a deferred tax asset of $131,827 ,
respectively, have been recorded. The asset relates to certain expenses
reported
in these financial statements that must be capitalized and amortized for
income
tax reporting purposes. As of June 30, 2007, management believes it is
more
likely than not that this asset will be realized and that no valuation
reserve
is required.
In
June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. (“FIN”) 48,
Accounting for Uncertainty in Income Taxes,
an
interpretation of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109 and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position
taken
or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 was effective January 1, 2007
for the Company and its adoption did not have a significant effect on the
consolidated financial statements.
Net
Income per Common Share
Basic
net
income per share is computed by dividing net income by the weighted-average
number of shares of common stock outstanding during the periods. Diluted
net
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common
stock or resulted in the issuance of common stock that then shared in the
earnings of the Company. The potential dilutive securities the Company has
outstanding are warrants and stock options (see Notes 3 and 8). The
following is a reconciliation of weighted average shares outstanding used
in
calculating net income per share:
|
|
October 14,
2005 (inception) to
December 31,
2005
|
|
Year
Ended
December
31, 2006
|
|
Six
Months Ended
June
30, 2007
|
|||||
|
Basic
|
1,875,000
|
8,151,369 |
10,500,000
|
|||||||
|
Assumed
exercise of warrants
|
—
|
1,481,590 |
2,188,003
|
|||||||
|
Assumed exercise
of stock options
|
—
|
3,586 |
16,296
|
|||||||
|
Diluted
|
1,875,000
|
9,636,545 |
12,704,299
|
|||||||
Valuation
of Financial Instruments
The
carrying value of the Company's financial instruments, which include cash
and
cash equivalents, accounts payable, and a revolving line of credit, approximate
fair value due to current market conditions, maturity dates and other
factors.
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective in fiscal years beginning after
November 15, 2007. Management is currently evaluating the impact that the
adoption of this statement may have on the Company's consolidated financial
statements.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - including
an
amendment of FASB Statement No. 115.,
which
permits entities to choose to measure many financial instruments and certain
other items at fair value. Most of the provisions of this Statement apply
only
to entities that elect the fair value option. However, the amendment to FASB
Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities, applies
to all entities with available-for-sale and trading securities. SFAS 159
is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also
elects
to apply the provisions of FASB Statement No. 157, Fair
Value Measurements.
Management does not believe that the adoption of SFAS No. 159 will have a
material effect on the Company’s consolidated financial statements.
F-8
Note
3.
Initial
Public Offering
On
April
10, 2006, the Company issued and sold 7,500,000 units (“Units”) in its IPO, and
on April 13, 2006, the Company issued and sold an additional 1,125,000 Units
that were subject to the underwriters' over-allotment option. Each Unit consists
of one share of common stock and one warrant. Each warrant entitles the holder
to purchase from the Company one share of common stock at an exercise price
of
$6.00 commencing at the later of the completion of a business combination
with a
target business or one year from the effective date of the IPO (April 5,
2007)
and expiring April 5, 2010 (“Warrants”). The Warrants will be redeemable at a
price of $.01 per Warrant upon 30 days' notice after the Warrants become
exercisable, only in the event that the last sale price of the common stock
is
at least $11.50 per share for any 20 trading days within a 30 trading day
period
ending on the third day prior to the date on which notice of redemption is
given. Stockholders
holding the shares issued in connection with the IPO are referred to as “Public
Stockholders”.
The
initial public offering price of each Unit was $8.00, and the gross proceeds
of
the IPO were $69,000,000 (including proceeds from the exercise of the
over-allotment option). Of the gross proceeds: (i) $65,000,000 was deposited
into a trust account (the “Trust Account”), which amount included $1,380,000 of
deferred underwriting fees; (ii) the underwriters received $3,450,000 as
underwriting fees (excluding the deferred underwriting fees); and (iii) the
Company retained $550,000 for offering expenses. In addition, the Company
deposited into the Trust Account the $700,000 that it received from a private
placement of 583,333 warrants to two executive officers (one of whom is also
a
director) for $1.20 per warrant immediately prior to the closing of the IPO.
These warrants are identical to the Warrants issued in the IPO.
In
connection with the IPO, two executive officers (one of whom is a director)
entered into agreements with the representative of the underwriters that
during
the 40 trading day period commencing at least 60 days after the IPO, they
would
collectively purchase Warrants in the public market at prices not to exceed
$1.20 per Warrant up to an aggregate purchase price of $700,000. These purchases
have been completed.
In
connection with the IPO, the Company sold to the representative of the
underwriters for $100 an option to purchase 750,000 units for $10.00 per
Unit.
These units are identical to the Units issued in the IPO except that the
warrants included in the units have an exercise price of $7.20. This option
may
be exercised on a cashless basis. This option expires April 5,
2011.
The
funds
in the Trust Account were distributed upon the consummation of the business
combination with Royal Wolf in September 2007(see Note 9). Prior to the
distribution, the funds in the Trust Account were invested in government
securities and certain money market funds.
Note
4.
Concentrations
of Credit Risk
The
Company maintains its cash in bank deposit accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit
risk
on its cash balances. The Company did not have cash on deposit exceeding
the
insured limit as of December 31, 2006 and June 30, 2007. Marketable securities
(restricted cash equivalents) held at June 30, 2007 consisted of United States
Treasury Bills that matured on July 26, 2007.
Note
5.
Limited
Recourse Revolving Line of Credit
The
Company had an unsecured limited recourse revolving line of credit from
Ronald
F. Valenta, a director and the chief executive officer of the Company,
pursuant
to which the Company could borrow up to $3,000,000 outstanding at one
time. The
line of credit terminated upon the completion of the acquisition of Royal
Wolf
subsequent to June 30, 2007 (see Note 9).
The
line
of credit bore interest at 8% per annum. As of December 31, 2006 and June
30,
2007, $1,280,000 and $2,350,000, respectively, were outstanding under the
line
of credit.
Note
6.
Related
Party Transactions
For
the
period from October 14, 2005 (inception) to December 31, 2005, Ronald F.
Valenta
paid for deferred offering costs and other assets on behalf of the Company
totaling $13,688. The amount was paid in full to Mr. Valenta in December
2005.
The
Company had a limited recourse revolving line of credit agreement with
Mr.
Valenta (see Note 5). Through June 30, 2007, interest expense of $91,253
has
been accrued but not paid.
The
Company utilizes certain administrative, technology and secretarial services
from affiliates of officers; as well as certain limited office space provided
by
an affiliate of Mr. Valenta. Until the consummation of the Business Combination
by the Company, the affiliates had agreed to make such services available
to the
Company free of charge, as may be required by the Company from time to
time;
with the exception of the reimbursement of certain out-of-pocket costs
incurred
on behalf of the Company. Management does not believe the value of these
services were significant.
Note
7.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock with
such
designations, voting and other rights and preferences as may be determined
from
time to time by the Board of Directors.
F-9
Note
8.
2006
Stock Option Plan
On
August
29, 2006, the Board of Directors of the Company adopted the General Finance
Corporation 2006 Stock Option Plan (“2006 Plan”), which was approved by
stockholders on June 14, 2007. Under the 2006 Plan, the Company may issue
to
directors, employees, consultants and advisers up to 1,500,000 shares of
its
common stock pursuant to options to be granted under the 2006 Plan. The options
may be incentive stock options under Section 422 of the Internal Revenue
Code of
1986, as amended, or so-called non-qualified options that are not intended
to
meet incentive stock option requirements. The options may not have a term
in
excess of ten years, and the exercise price of any option may not be less
than
the fair market value of the Company's common stock on the date of grant
of the
option. Unless terminated earlier, the 2006 Plan will automatically terminate
June 30, 2016.
On
September 11, 2006, the Company granted to an executive officer options
to
purchase 225,000 shares at an exercise price equal to the closing market
price
of the Company's common stock as of that date, or $7.30, with a vesting
period
of five years. Stock-based compensation expense of $110,800 related to
these
options was recognized in the statements of operations through June 30,
2007;
with a corresponding benefit to additional paid-in capital. As of June
30, 2007,
there remains $577,400 of unrecognized compensation expense that will be
charged
into the statement of income on a straight-line basis over the remaining
vesting
period. Also, as of June 30, 2007, none of these options are
exercisable.
A
deduction is not allowed for income tax purposes with respect to non-qualified
options until the stock options are exercised or with respect to incentive
stock
options, unless the optionee makes a disqualifying disposition of the underlying
shares. The amount of any deduction will be the difference between the fair
value of the Company's common stock and the exercise price at the date of
exercise. Accordingly, there is a deferred tax asset recorded for the tax
effect
of the financial statement expense recorded. The tax effect of the income
tax
deduction in excess of the financial statement expense, if any, will be recorded
as an increase to additional paid-in capital.
The
weighted-average fair value of the stock options granted was $3.06, determined
by using the Black-Scholes option-pricing model using the following assumptions:
A risk-free interest rate of 4.8% (10-year Treasury bill); an expected life
of
7.5 years; an expected volatility of 26.5%; and no expected
dividend.
Note
9.
Acquisition
of Royal Wolf
On
September 13, 2007, we completed the acquisition of Royal Wolf through
the
acquisition of all of the outstanding shares of RWA. Based upon the actual
exchange rate of one U.S. dollar to $0.8407 Australian dollar realized in
connection with payments made upon completion of the acquisition, the
purchase
price for RWA shares was $64.3 million, including deposits of $1,005,000
previously paid by us in connection with the acquisition. We paid the
purchase
price, less the deposits, by a combination of cash in the amount of $44.7
million plus the issuance to Bison Capital Australia, L.P., (“Bison Capital”),
one of the sellers, of shares of common stock of GFN U.S., containing
13.8% of
the outstanding capital stock of GFN U.S. following the issuance. As
a result of
this structure, we own 86.2% of the outstanding capital stock of GFN
U.S. and
Bison Capital owns 13.8% of the outstanding capital stock on GFN U.S.,
which
through its indirect subsidiary GFN Finance owns all of the outstanding
capital
stock of Royal Wolf.
The
funds
in the Trust Account were distributed at the closing of the acquisition
of Royal
Wolf. We received approximately $60.8 million, of which we used $44.7
million to
pay the purchase price for the RWA shares. Approximately $6.4 million
($7.93482
per share) of the funds in the Trust Account was paid to Public Stockholders
holding 809,901 shares who voted against the acquisition and, in accordance
with
our certificate of incorporation, elected to receive cash in exchange
for their
shares, which have been cancelled. The remaining $1.3 million was paid
our IPO
underwriters as deferred underwriting fees.
On
September 14, 2007, subsequent to the completion of acquisition of RWA, the
Company repaid the outstanding balance and terminated the unsecured
limited recourse revolving line of credit with Ronald F. Valenta. Total
principal and interest paid totaled $2,586,848.
F-10
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Members
RWA
Holdings Pty Limited and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of RWA Holdings Pty
Limited
and Subsidiaries (collectively “the Company”) as of June 30, 2007 and 2006, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the years ended June 30, 2007 and 2006, for
the six
months ended June 30, 2005, and for the year ended December 31, 2004. These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration
of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the
accounting principles used and significant estimates made by management,
as well
as evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of RWA Holdings
Pty Limited and Subsidiaries as of June 30, 2007 and 2006, and the consolidated
results of their operations and cash flows for the years ended June 30, 2007
and
2006, the six months ended June 30, 2005, and the year ended December 31,
2004,
in conformity with accounting principles generally accepted in the United
States.
Grobstein,
Horwath & Company LLP
Sherman
Oaks, California
October
XX, 2007
P-1
RWA
Holdings Pty Limited Financial ReportConsolidated
Balance Sheets
|
At
|
|||||||
|
June
30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Assets
|
|
|
|||||
|
Cash
and cash equivalents
|
$ |
886
|
$ |
567
|
|||
|
Trade
and other receivables, net of allowance for doubtful accounts
of
$237
and $129 at June 30, 2007 and 2006, respectively
|
13,322
|
7,451
|
|||||
|
Inventories
|
5,472
|
5,460
|
|||||
|
Total
current assets
|
19,680
|
13,478
|
|||||
|
|
|
|
|||||
|
Lease
receivables
|
1,364
|
566
|
|||||
|
Property,
plant and equipment
|
2,737
|
2,614
|
|||||
|
Container
for hire fleet
|
40,928
|
27,773
|
|||||
|
Intangible
assets
|
4,079
|
3,472
|
|||||
|
Total
non-current assets
|
49,108
|
34,425
|
|||||
|
|
|
|
|||||
|
Total
assets
|
$ |
68,788
|
$ |
47,903
|
|||
|
|
|
|
|||||
|
Liabilities
|
|
|
|||||
|
Trade
and other payables
|
$ |
8,641
|
$ |
9,133
|
|||
|
Interest-bearing
loans and borrowings
|
10,359
|
6,526
|
|||||
|
Income
tax payable
|
245
|
—
|
|||||
|
Employee
benefits
|
1,614
|
702
|
|||||
|
Provisions
|
—
|
219
|
|||||
|
Total
current liabilities
|
20,859
|
16,580
|
|||||
|
|
|
|
|||||
|
Non-current
liabilities
|
|
|
|||||
|
Interest
bearing loans and borrowings
|
33,811
|
27,155
|
|||||
|
Deferred
tax liabilities
|
881
|
415
|
|||||
|
Employee
benefits
|
171
|
529
|
|||||
|
Provisions
|
26
|
206
|
|||||
|
Total
non-current liabilities
|
34,889
|
28,305
|
|||||
|
|
|
|
|||||
|
Commitments
and contingencies (Note 18)
|
—
|
—
|
|||||
|
|
|
|
|||||
|
Equity
|
|
|
|||||
|
Issued
capital
|
12,187
|
3,441
|
|||||
|
Retained
earnings/(accumulated losses)
|
(9
|
)
|
(321
|
)
|
|||
|
Accumulated
other comprehensive income (loss)
|
862 | (102 |
)
|
||||
|
13,040
|
3,018
|
||||||
|
Total
liabilities and shareholders’ equity
|
$ |
68,788
|
$ |
47,903
|
|||
The
consolidated balance sheets are to be read in conjunction with the notes
to the
consolidated financial statements.
P-2
RWA
Holdings Pty Limited Financial ReportConsolidated
Statements of Operations
|
Six
Months
|
|||||||||||||
|
Year
Ended
|
Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Revenue
|
|||||||||||||
|
Sale
and modification of containers
|
$ |
52,929
|
$ |
34,473
|
$ |
13,563
|
$ |
26,141
|
|||||
|
Hire
of containers
|
21,483
|
15,921
|
7,224
|
12,351
|
|||||||||
|
Total
revenue
|
74,412
|
50,394
|
20,787
|
38,492
|
|||||||||
|
Other
income
|
25
|
26
|
14
|
23
|
|||||||||
|
Changes
in inventories of finished goods and WIP
|
758
|
(2,599
|
)
|
(1,497
|
)
|
1,283
|
|||||||
|
Purchases
of finished goods and consumables used
|
(47,185
|
)
|
(30,088
|
)
|
(11,360
|
)
|
(25,385
|
)
|
|||||
|
Employee
benefits expense
|
(12,678
|
)
|
(7,631
|
)
|
(3,721
|
)
|
(5,616
|
)
|
|||||
|
Depreciation
and amortization expense
|
(2,577
|
)
|
(2,668
|
)
|
(1,480
|
)
|
(2,504
|
)
|
|||||
|
Other
operating expenses
|
(8,083
|
)
|
(5,022
|
)
|
(2,183
|
)
|
(3,367
|
)
|
|||||
|
Results
from operating activities
|
4,672
|
2,412
|
560
|
2,926
|
|||||||||
|
Financial
income
|
508
|
413
|
332
|
87
|
|||||||||
|
Financial
expenses
|
(4,378
|
)
|
(3,039
|
)
|
(1,127
|
)
|
(2,397
|
)
|
|||||
|
Net
financing costs
|
(3,870
|
)
|
(2,626
|
)
|
(795
|
)
|
(2,310
|
)
|
|||||
|
Other,
net
|
—
|
—
|
133
|
68
|
|||||||||
|
Income(loss)
before tax
|
802
|
(214
|
)
|
(102
|
)
|
684
|
|||||||
|
Income
tax expense
|
490
|
214
|
75
|
400
|
|||||||||
|
Net
income(loss)
|
$ |
312
|
$ |
(428
|
)
|
$ |
(177
|
)
|
$ |
284
|
|||
The
consolidated statements of operations are to be read in conjunction with
the
notes to the consolidated financial statements.
P-3
RWA
Holdings Pty Limited Financial ReportConsolidated
Statement of Changes in Shareholders’ Equity
|
Share
capital
(Note
15)
|
Retained
earnings/
(Accumulated
losses)
|
Accumulated
other comprehensive income (loss)
|
Total
equity
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Balance
at January 1, 2004
|
$ |
2,762
|
$ |
—
|
$ |
—
|
$ |
2,762
|
|||||
|
Net
income
|
—
|
284
|
—
|
284
|
|||||||||
|
Cumulative
translation
adjustment
|
—
|
—
|
119
|
119
|
|||||||||
| Total comprehensive income (loss) | — | 284 | 119 | 403 | |||||||||
|
Balance
at December 31, 2004
|
2,762
|
284
|
119
|
3,165
|
|||||||||
|
Issuance
of capital
|
679
|
—
|
—
|
679
|
|||||||||
|
Net
loss
|
—
|
(177
|
)
|
—
|
(177
|
)
|
|||||||
|
Cumulative
translation
adjustment
|
—
|
—
|
(81
|
)
|
(81 | ) | |||||||
| Total comprehensive income (loss) |
—
|
(177) | (81) | (258) | |||||||||
|
Balance
at June 30, 2005
|
3,441
|
107
|
38
|
3,586
|
|||||||||
|
Net
loss
|
—
|
(428
|
)
|
—
|
(428
|
)
|
|||||||
|
Cumulative
translation
adjustment
|
—
|
—
|
(140
|
) |
(140
|
)
|
|||||||
| Total comprehensive income (loss) |
—
|
(428)
|
(140)
|
(568)
|
|||||||||
|
Balance
at June 30, 2006
|
3,441
|
(321
|
)
|
(102
|
) |
3,018
|
|||||||
|
Issuance
of capital
|
8,746
|
—
|
—
|
8,746
|
|||||||||
|
Net
income
|
—
|
312
|
—
|
312
|
|||||||||
|
Cumulative
translation
adjustment
|
—
|
—
|
964
|
964 | |||||||||
| Total comprehensive income (loss) |
—
|
312
|
964
|
1,276
|
|||||||||
|
Balance
at June 30, 2007
|
$ |
12,187
|
$ |
(9
|
)
|
$ |
862
|
$ |
13,040
|
||||
The
consolidated statement of changes in shareholders’ equity is to be read in
conjunction with the notes to the consolidated financial
statements.
P-4
RWA
Holdings Pty Limited Financial ReportConsolidated
Statements of Cash Flows
|
Year
Ended
|
Six
Months Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Cash
flows from operating activities (Note 20)
|
|
|
|
|
|||||||||
|
Cash
receipts from customers
|
$ |
75,502
|
$ |
53,376
|
$ |
22,616
|
$ |
41,518
|
|||||
|
Cash
paid to suppliers and employees
|
(62,796
|
)
|
(41,204
|
)
|
(19,597
|
)
|
(36,550
|
)
|
|||||
|
12,706
|
12,172
|
3,019
|
4,968
|
||||||||||
|
Interest
(paid)/received, net
|
(3,799
|
)
|
(2,118
|
)
|
(902
|
)
|
(1,182
|
)
|
|||||
|
Income
taxes received/(paid)
|
49
|
-
|
(587
|
)
|
576
|
||||||||
|
Net
cash from operating activities
|
8,956
|
10,054
|
1,530
|
4,362
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Cash
flows from investing activities
|
|
|
|
|
|||||||||
|
Proceeds
from sale of property, plant and equipment
|
101
|
52
|
19
|
55
|
|||||||||
|
Acquisition
of subsidiary, net of cash acquired
|
(303
|
)
|
(4,855
|
)
|
—
|
—
|
|||||||
|
Acquisition
of property, plant and equipment
|
(845
|
)
|
(837
|
)
|
(1,498
|
)
|
(924
|
)
|
|||||
|
Acquisition
of container hire fleet
|
(20,350
|
)
|
(13,178
|
)
|
(5,975
|
)
|
(8,848
|
)
|
|||||
|
Acquisition
of intangible assets
|
(66
|
)
|
(144
|
)
|
(19
|
)
|
(52
|
)
|
|||||
|
Payment
of deferred purchase consideration
|
(451
|
)
|
-
|
(2,707
|
)
|
—
|
|||||||
|
Net
cash used by investing activities
|
(21,914
|
)
|
(18,962
|
)
|
(10,180
|
)
|
(9,769
|
)
|
|||||
|
|
|
|
|
|
|||||||||
|
Cash
flows from financing activities
|
|
|
|
|
|||||||||
|
Proceeds
from capital lease and other liabilities
|
434
|
—
|
—
|
—
|
|||||||||
|
Payment
of capital lease and other liabilities
|
(1,152
|
)
|
(565
|
)
|
(298
|
)
|
(1,408
|
)
|
|||||
|
Proceeds
from borrowings
|
16,050
|
20,088
|
10,045
|
14,901
|
|||||||||
|
Repayment
of borrowings
|
(10,689
|
)
|
(10,557
|
)
|
(1,241
|
)
|
(9,402
|
)
|
|||||
|
Proceeds
from issuance of capital
|
8,746
|
—
|
679
|
—
|
|||||||||
|
Net
cash from financing activities
|
13,389
|
8,966
|
9,185
|
4,091
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Net
increase / (decrease) in cash and cash equivalents
|
431
|
58
|
535
|
(1,316
|
)
|
||||||||
|
Cash
and cash equivalents at beginning of period
|
567
|
530
|
2
|
1,340
|
|||||||||
| Translation adjustment |
(112
|
) |
(21
|
)
|
(7
|
) |
(22
|
) | |||||
|
Cash
and cash equivalents at end of period
|
$ |
886
|
$ |
567
|
$ |
530
|
$ |
2
|
|||||
The
statements of cash flows are to be read in conjunction with the notes to
the
consolidated financial statements.
P-5
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
1. Significant
accounting policies
(a) General
RWA
Holdings Pty Limited is a company organized under the laws of Australia and
a
holding company
for Royal Wolf Trading Australia Pty Limited, its wholly-owned principal
operating subsidiary
acquired in December 2003, and its only other wholly-owned subsidiary, Hi-Tech
Pty Limited,
which is engaged
in substantially the
same
business and activities as Royal Wolf Trading Australia
Pty Limited (collectively “the Company”). The Company leases and sells portable
storage
containers, portable container buildings and freight containers in Australia.
The
consolidated financial statements include the accounts of the Company and
its
wholly-subsidiaries. All significant intercompany accounts and transactions
have
been eliminated.
(b) Basis
of preparation
The
consolidated financial statements (also referred to as the “financial report”)
have
been
prepared on the accrual basis of accounting in accordance with accounting
principles generally accepted
in the United States. The financial report is prepared on the historical
cost basis except that the following assets and liabilities are stated at
their
fair value: derivative
financial instruments, financial instruments held for trading, and financial
instruments classified
as available-for-sale.
The
Company’s functional currency is the Australian dollar. All adjustments
resulting from the translation of the accompanying consolidated financial
statements from the functional currency into the United States (“U.S.”) dollar
reporting currency are recorded as a component of shareholders' equity
in
accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 52, Foreign
Currency Translation.
All
assets and liabilities are translated at the rates in effect at the balance
sheet dates; and revenues, expenses, gains and losses are translated
using the
average exchange rates during the period. At June 30, 2007 and 2006, the
Australian dollar to the U.S. dollar exchange rate was $0.84880 and $0.73010,
respectively. The average exchange rates used to translate the Company’s results
of operations for the years ended June 30, 2007 and 2006, for the six
months
ended June 30, 2005 and for the year ended December 31, 2004 were $0.78592
,
$0.74783, $0.77350 and $0.73713, respectively.
The
preparation of a financial report requires management to make judgements,
estimates and assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgements about carrying values of
assets
and liabilities that are not readily apparent from other sources. Actual
results
may differ from these estimates. These accounting policies have been
consistently applied.
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate
is
revised if the revision affects only that period; or in the period of the
revision and future periods if the revision affects both current and future
periods.
Judgements
made by management that have a significant effect on the financial report
and
estimates with a significant risk of material adjustment in the next year
are
discussed in accounting policy (t).
The
accounting policies set out below have been applied consistently to all periods
presented in the consolidated financial report.
(c) Foreign
currency transactions
Transactions
in foreign currencies are translated at the foreign exchange rate prevailing
at
the date of the transaction. Monetary assets and liabilities denominated
in
foreign currencies at the balance sheet date are translated to Australian
dollars at the foreign exchange rate prevailing at that date. Foreign exchange
differences arising on translation are recognized in the statement of
operations. Non-monetary assets and liabilities that are measured in terms
of
historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Non-monetary assets
and
liabilities denominated in foreign currencies that are stated at fair value
are
translated to Australian dollars at foreign exchange rates prevailing at
the dates the fair value was determined.
P-6
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(d) Derivative
financial instruments
The
Company may use derivative financial instruments to hedge its exposure to
foreign exchange and interest rate risks arising from operating, financing
and
investing activities. In accordance with its treasury policy, the Company
does
not hold or issue derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting are accounted
for
as trading instruments.
Derivative
financial instruments are recognized initially at fair value. Subsequent
to
initial recognition, derivative financial instruments are stated at fair
value.
The gain or loss on remeasurement to fair value is recognized immediately
in the
statement of operations (see also Note 16).
(e) Property,
plant and equipment
(i) Owned
assets
|
Property,
plant and equipment are stated at cost, less accumulated depreciation
(see
below) and impairment losses (see accounting policy (k)). The
cost of
self-constructed assets includes the cost of materials, direct
labor, the
initial estimate, where relevant, of the costs of dismantling
and removing
the items and restoring the site on which they are located, and
an
appropriate proportion of production overheads, where
applicable.
|
| Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. |
(ii) Subsequent
costs
| The Company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when the cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognized in the statement of operations as an expense as incurred. |
(iii) Leased
assets
| Leases under which the substantially all the risks and benefits incidental to ownership of the leased item are assumed by the Company are classified as capital leases. Other leases are classified as operating leases. |
Capital
leases
A
lease
asset and a lease liability equal to the present value of the minimum lease
payments, or the fair value of the leased item, whichever is the lower, are
capitalized and recorded at the inception of the lease. Lease payments are
apportioned between the finance charges and reduction of the lease liability
so
as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly against income. Capitalized
leased assets are depreciated over the shorter of the estimated useful life
of
the asset or the lease term.
P-7
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Operating
leases
Payments
made under operating leases are expensed on a straight-line basis over the
term
of the lease, except where an alternative basis is more representative of
the
pattern of benefits to be derived from the leased property. Where leases
have
fixed rate increases, these increases are accrued and amortized over the
entire
lease period, yielding a constant periodic expense for the entire term of
the
lease.
(iv)
Depreciation
Depreciation
is charged to the statement of operations on a straight line basis over the
estimated useful lives of each part of an item of property, plant and
equipment.
The
residual value, the useful life and the depreciation method applied to an
asset
are reassessed at least annually.
The
estimated useful lives in the current and comparative periods are as
follows:
|
|
2007
|
|
2004
- 2006
|
||
|
|
|
|
|||
|
|
|
|
|
||
|
Plant
and equipment
|
3
-
10 years
|
|
3
-
10 years
|
||
|
Motor
vehicles
|
3
-
10 years
|
|
3
-
10 years
|
||
|
Furniture
and fittings
|
5
-
10 years
|
|
5
-
10 years
|
||
|
|
|
|
|
||
|
Container
hire fleet
|
|
|
|
||
|
|
|
|
|
||
|
Containers
for hire
|
10-20
years (10-70% residual)
|
|
10-25
years (20% residual)
|
||
|
10-20
years (10-70% residual)
|
|
10-25
years (20% residual)
|
|||
|
Leased
containers for hire (new)
|
10-20
years (10-70% residual)
|
|
10-30
years (20-30% residual)
|
(f) Container
hire fleet
The
Company has a container hire fleet primarily consisting of refurbished,
modified
and manufactured shipping containers that are held long term and leased
to
customers under operating lease agreements with varying terms. Depreciation
is
provided using the straight-line method over the respective unit’s estimated
useful life, after the date the unit is put in service, and are depreciated
down
to their estimated residual values. For depreciation rates, estimated useful
lives and residual values, see above. In the opinion of management, estimated
residual values do not cause carrying values to exceed net realizable value.
The
Company continues to evaluate these depreciation policies as more information
becomes available from other comparable sources and its own historical
experience.
Costs
incurred on hire fleet containers subsequent to initial acquisition are
capitalized when it is probable that future economic benefits in excess of
the
originally assessed performance of the asset will flow to the Company in
future
years, otherwise, they are expensed as incurred.
Containers
in the hire fleet are available for sale, and are transferred to inventory
prior
to sale. Cost of sales of the hire fleet container is recognized at the
carrying
amount at the date of disposal.
P-8
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(g) Intangible
assets
(i) Goodwill
| All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. |
| Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and not amortized but is tested annually for impairment (see accounting policy (k)). |
(ii)
Other
intangible assets
| Other intangible assets that are acquired by the Company are stated at cost less accumulated amortization (see below) and impairment losses (see accounting policy (k)). |
| Research and development costs are expensed as incurred. |
(iii) Subsequent
expenditure
| Subsequent expenditures on capitalized intangible assets are capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are expensed as incurred. |
(iv)
Amortization
| Amortization is charged to the statement of operations on the straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortized from the date they are available for use. |
The
estimated useful lives in the current and comparative periods are as
follows:
·
Goodwill / trademark - indefinite
·
Software - 3
years
(h) Trade
and other receivables
Trade
and
other receivables are stated at cost, less a specific allowance for doubtful
accounts (see accounting policy (k)(i)), which approximates fair
value.
(i) Inventories
Inventories
are stated at the lower of cost or market (net realizable value). Net realizable
value is the estimated selling price in the ordinary course of business.
Expenses of marketing, selling and distribution to customers, as well as
costs
of completion are estimated and are deducted from the estimated selling price
to
establish net realizable value.
Costs
are
assigned to individual items of stock on the basis of specific identification
and include expenditures incurred in acquiring the inventories and bringing
them
to their existing condition and location.
P-9
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(j) Cash
and cash equivalents
Cash
and
cash equivalents consist of cash balances and short term deposits
(maturities of 90 days or less).
(k) Impairment
The
carrying amounts of the Company’s assets, other than inventories (see accounting
policy (i)) and deferred tax assets (see accounting policy (r)), are reviewed
at
each balance sheet date to determine whether there is any indication of
impairment. If any such indication exists, the asset’s recoverable amount is
estimated.
For
goodwill, assets that have an indefinite useful life and intangible assets
that
are not yet available for use, the recoverable amount is estimated at each
balance sheet date.
An
impairment loss is recognized whenever the carrying amount of an asset
or its
cash generating unit exceeds its recoverable amount. Impairment losses
are
recognized in the statement of operations.
Impairment
losses recognized in respect of cash-generating units are allocated first
to
reduce the carrying amount of any goodwill allocated to cash-generating units
and then to reduce the carrying amount of the other assets in the unit on
a pro
rata basis.
(i) Calculation
of recoverable amount
The
recoverable amount of the Company’s receivables carried at cost is calculated as
the present value of estimated future cash flows, discounted at the original
effective interest rate (i.e. the effective interest rate compounded at initial
recognition of these financial assets). Receivables with a short duration
are
not discounted. Net allowance for doubtful accounts provided and uncollectible
accounts written off were $229,000, $149,000, $50,000, $8,000 and $149,000,
$93,000, $37,000, $41,000 for the years ended June 30, 2007 and 2006, for
the
six months ended June 30, 2005 and for the year ended December 31, 2004,
respectively.
Impairment
or allowance for doubtful accounts of receivables is not recognized until
objective evidence is available that impairment has occurred. Receivables
are
individually assessed for impairment.
The
recoverable amount of the Company’s other assets is the greater of their fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value
of money and the risks specific to the asset. For an asset that does not
generate largely independent cash inflows, the recoverable amount is determined
for the cash-generating unit to which the asset belongs.
(ii) Impairment
losses
Impairment
losses recorded are considered part of the asset's carrying amount and
are never
reversed even if there is an indication that the impairment loss may no
longer
be required.
P-10
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(l) Interest-bearing
borrowings
Interest-bearing
borrowings are recognized initially at cost. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortized cost with any difference
between cost and redemption value being recognized in the statement of
operations over the period of the borrowings on an effective interest
basis.
(m) Employee
benefits
(i) Defined
contribution pension plan
| Obligations for contributions to a defined contribution pernsion plan are recognized as an expense in the statement of operations as incurred. |
(ii) Long-term
service benefits
| The Company’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Company’s obligations. |
(iii) Wages,
salaries and annual leave
| Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the Company expects to pay as at reporting date including related payroll costs, such as workers compensation insurance and payroll tax. |
(iv) Share-based
payment transactions
| The Company had an employee share option plan (ESOP) for the granting of non-transferable options to certain key management personnel and senior employees with more than twelve months’ service at the grant date. During the year ended June 30, 2007, $2,930,000 was paid to the employees relating to the ESOP with a remaining $759,000 being paid in July 2007. |
(n) Provisions
A
provision is recognized in the balance sheet when the Company has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at
a
pre-tax rate that reflects current market assessments of the time value of
money
and, where appropriate, the risks specific to the liability.
P-11
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(o) Trade
and other payables
Trade
payables are non-interest bearing and are normally settled within 60 day
terms.
(p) Revenue
Revenue
is generally realized or realizable and earned when all of the following
criteria have been met:
| · |
persuasive
evidence of an arrangement exists;
|
| · |
delivery
has occurred;
|
| · |
the
seller’s price to the customer is fixed or determinable;
and
|
| · |
collectability
is reasonable assured.
|
Sale
and modification of containers
Revenue
from the sale and modification of containers is fixed based on invoiced
amounts and is recognized in the statement of operations (net of returns,
discounts and allowances) when the significant risks and rewards of ownership
have been transferred to the buyer and can be measured reliably. Risks
and
rewards are considered passed to the buyer at the time the goods are delivered
to or retrieved by the customer. This is also at which point the invoice
is
raised and the customer has accepted the goods. No revenue is recognized
if
there are significant uncertainties regarding recovery of the consideration
due, the cost incurred or to be incurred cannot be measured reliability,
there
is a risk of return of goods or there is continuing management involvement
with
the goods.
Hire
of containers
Revenue
from hire of containers is recognised in the period earned and is fixed based
on
the term prescribed in the lease hire agreement. No revenue is recognized
if
there is a significant uncertainty regarding recovery of the consideration
due,
the cost incurred or to be incurred cannot be measured reliably, there is
a risk
of return of goods or there is continuing management involvement with the
goods.
Unearned
revenue arises when transport charges for the return retrieval of a hired
container or containers is billed in advance, while the actual retrieval
has not
yet occurred as the container is still on hire. The amount of unearned
revenue
at June 30, 2007 and 2006 was $1,495,000 and $413,000, respectively, and
is
included in trade and other payables.
(q)
Net financing costs
Net
financing costs consist of interest payable on borrowings calculated
using the effective interest method, interest receivable on funds invested,
dividend income, foreign exchange gains and losses, and gains and losses
on
hedging instruments that are recognized in the statement of operations
(see
accounting policy (d)). Borrowing costs are expensed as incurred and included
in
net financing costs.
Interest
income is recognized in the statement of operations as it accrues, using
the
effective interest method. Dividend income is recognized in the statement
of
operations on the date the Company’s right to receive payments is established.
The interest expense component of finance lease payments is recognised in
the
statement of operations using the effective interest method.
P-12
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
(r) Income
tax
Income
tax on the profit or loss for the year consists of current and
deferred tax. Income tax is recognized in the statement of
operations.
Current
tax is the expected tax payable on the taxable income for the year, using
tax
rates enacted or substantively enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.
Deferred
tax is provided using the liability method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The amount of deferred
tax
provided is based on the expected manner of realization or settlement of
the
carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A
deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilized. Deferred tax assets are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
Additional
income taxes that arise from the distribution of dividends are recognised
at the
same time as the liability to pay the related dividend.
(s) Goods
and services tax
Revenue,
expenses and assets are recognised net of the amount of goods and services
tax
(GST), except where the amount of GST incurred is not recoverable from the
Australian Tax Office (ATO). In these circumstances the GST is recognised
as
part of the cost of acquisition of the asset or as part of the
expense.
Receivables
and payables are stated with the amount of GST included. The net amount of
GST
recoverable from, or payable to, the ATO is included as a current asset or
liability in the balance sheet.
Cash
flows are included in the statement of cash flows on a gross basis. The GST
components of cash flows arising from investing and financing activities
that
are recoverable from, or payable to, the ATO are classified as operating
cash
flows.
(t) Accounting
estimates and judgments
The
estimates and judgments that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
Revision
of accounting estimates - Container for hire
depreciation
The
preparation of the financial report requires the making of estimations and
assumptions that affect the recognized amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent liabilities. The estimates
and
associated assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgments about carrying values of
assets
and liabilities that are not readily apparent from other sources. Actual
results
may differ from these estimates.
P-13
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognized in the period in which the estimate
is
revised if the revision affects only that period; or in the period of the
revision and future periods if the revision affects both current and future
periods.
At
the
beginning of the 2007 fiscal year, the Company revised upwards the useful
life
of containers for hire as outlined in accounting policy (e)(iv). The financial
impact of the revision results in depreciation expense for the year ended
June
30, 2007 being $969,000 less than what it would have been if the previous
useful
life estimate had been applied. The financial impact of the revision in
future
periods is not disclosed as the effect cannot be reliably estimated at
this
point in time due to uncertainty over the timing of sale of existing containers
and purchase of new containers.
Key
sources of estimation uncertainty
Note
1(k)
contains information about the assumptions and their risk factors relating
to
goodwill impairment. In Note 16, detailed analyses are given of the foreign
exchange exposure of the Company and risks in relation to foreign exchange
movements.
Impairment
of goodwill and intangibles with indefinite useful
lives
The
Company assesses whether goodwill and intangibles with indefinite useful
lives
are impaired at least annually in accordance with the accounting policy in
(k)
and in Note 9. These calculations involve an estimation of the recoverable
amount of the cash-generating units to which the goodwill and intangibles
with
indefinite useful lives are allocated.
2. Segment
information
The
Company operates predominantly in one segment, being the sale and leasing
of
freight containers and container based storage and accommodation products
and
within one geographical segment, being Australia.
3. Net
financing costs
|
Six
Months
|
|||||||||||||
|
Year
Ended
|
Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Interest
income
|
$
|
239
|
$
|
156
|
$
|
80
|
$
|
87
|
|||||
|
Net
gain on remeasurement of interest rate swap at fair value through
statement of operations
|
174
|
219
|
—
|
—
|
|||||||||
|
Net
foreign exchange gain
|
95
|
38
|
252
|
—
|
|||||||||
|
Financial
income
|
$
|
508
|
$
|
413
|
$
|
332
|
$
|
87
|
|||||
|
|
|
|
|
|
|||||||||
|
Interest
expense
|
$
|
4,378
|
$
|
3,017
|
$
|
1,002
|
$
|
2,110
|
|||||
|
Net
foreign exchange loss
|
—
|
—
|
—
|
287
|
|||||||||
|
Net
loss on remeasurement of forward exchange contracts at fair value
through
statement of operations
|
—
|
22
|
—
|
—
|
|||||||||
|
Net
loss on remeasurement of interest rate swap at fair value through
statement of operations
|
—
|
—
|
125
|
—
|
|||||||||
|
Financial
expenses
|
4,378
|
3,039
|
1,127
|
2,397
|
|||||||||
|
Net
financing costs
|
$
|
3,870
|
$
|
2,626
|
$
|
795
|
$
|
2,310
|
|||||
P-14
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
4. Income
tax expense
|
Six
Months
|
|||||||||||||
|
Year
Ended
|
Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Recognized
in the income statement
|
|
|
|
|
|||||||||
|
Current
tax (benefit) / expense
|
|
|
|
|
|||||||||
|
Current
year
|
$
|
13
|
$
|
—
|
$
|
(23
|
)
|
$
|
(3
|
)
|
|||
|
Adjustments
for prior years
|
(4
|
)
|
—
|
—
|
—
|
||||||||
|
|
9
|
—
|
(23
|
)
|
(3
|
)
|
|||||||
|
|
|
|
|
|
|||||||||
|
Deferred
tax expense
|
|
|
|
|
|||||||||
|
Origination
and reversal of temporary differences
|
481
|
214
|
98
|
403
|
|||||||||
|
|
481
|
214
|
98
|
403
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Total
income tax (benefit)/expense in income statement
|
$
|
490
|
$
|
214
|
$
|
75
|
$
|
400
|
|||||
|
Six
Months
|
|||||||||||||
|
Year
Ended
|
Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Numerical
reconciliation between tax expense and pre-tax net
profit
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|||||||||
|
Profit
/ (loss) before tax
|
$
|
802
|
$
|
(214
|
)
|
$
|
(102
|
)
|
$
|
684
|
|||
|
|
|
|
|
|
|||||||||
|
Income
tax using the domestic corporation tax rate of 30%
|
241
|
(64
|
)
|
(31
|
)
|
205
|
|||||||
|
|
|
|
|
|
|||||||||
|
Increase
in income tax expense due to:
|
|
|
|
|
|||||||||
|
Goodwill
write off arising from benefit from deferred tax assets not recognized
at
date of previous business combinations
|
—
|
80
|
—
|
—
|
|||||||||
|
Non-deductible
expenses
|
253
|
198
|
106
|
195
|
|||||||||
|
Decrease
in income tax expense due to:
|
|
|
|
|
|||||||||
|
Under
/ (over) provided in prior years
|
(4
|
)
|
—
|
—
|
—
|
||||||||
|
Income
tax (benefit) / expense on pre-tax net profit
|
$
|
490
|
$
|
214
|
$
|
75
|
$
|
400
|
|||||
P-15
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Deferred
tax assets and liabilities
Recognised
deferred tax assets and liabilities
Deferred
tax assets and liabilities are attributable to the following:
|
Assets
|
Liabilities
|
Net
|
|||||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
2007
|
2006
|
||||||||||||||
|
(-000-)
|
|||||||||||||||||||
|
Property,
plant and equipment
|
$
|
—
|
$
|
—
|
$
|
(1,902
|
)
|
$
|
(1,338
|
)
|
$
|
(1,902
|
)
|
$
|
(1,338
|
)
|
|||
|
Interest
bearing loans and borrowings
|
71
|
91
|
—
|
—
|
71
|
91
|
|||||||||||||
|
Employee
benefits
|
164
|
269
|
—
|
—
|
164
|
269
|
|||||||||||||
|
Other
items
|
786
|
114
|
—
|
(87
|
)
|
786
|
27
|
||||||||||||
|
Tax
value of loss carry-forwards
|
—
|
536
|
—
|
—
|
—
|
536
|
|||||||||||||
|
Tax
assets / (liabilities)
|
$
|
1,021
|
$
|
1,010
|
$
|
(1,902
|
)
|
$
|
(1,425
|
)
|
$
|
(881
|
)
|
$
|
(415
|
)
|
|||
5. Trade
and other receivables
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Current
|
|
|
|||||
|
Trade
receivables
|
$
|
12,189
|
$
|
6,788
|
|||
|
Less: allowances
|
(237
|
)
|
(129
|
)
|
|||
|
|
11,952
|
6,659
|
|||||
|
|
|
|
|||||
|
Lease
receivable
|
479
|
245
|
|||||
|
Fair
value of derivatives
|
300
|
96
|
|||||
|
Other
receivables and prepayments
|
591
|
451
|
|||||
|
|
$
|
13,322
|
$
|
7,451
|
|||
6. Inventories
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Finished
goods
|
$
|
4,113
|
$
|
5,081
|
|||
|
Work
in progress
|
1,359
|
379
|
|||||
|
|
$
|
5,472
|
$
|
5,460
|
|||
P-16
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
7. Property,
plant and equipment
|
Plant
and equipment, fixtures and fittings
|
||||
|
(-000-)
|
||||
|
Cost
|
|
|||
|
Balance
at January 1, 2004
|
$
|
866
|
||
|
Acquisitions
|
924
|
|||
|
Disposals
|
(51
|
)
|
||
| Translation adjustment | 83 | |||
|
Balance
at December 31, 2004
|
1,822
|
|||
|
Acquisitions
|
1,498
|
|||
|
Disposals
|
(27
|
)
|
||
| Translation adjustment | (64 | ) | ||
|
Balance
at June 30, 2005
|
3,229
|
|||
|
Acquisitions
|
837
|
|||
|
Acquisitions
through business combinations
|
230
|
|||
|
Disposals
|
(82
|
)
|
||
| Translation adjustment |
(159
|
) | ||
|
Balance
at June 30, 2006
|
4,055
|
|||
|
Acquisitions
|
845
|
|||
|
Disposals
|
(237
|
)
|
||
| Translation adjustment |
707
|
|||
|
Balance
at 30 June 2007
|
$
|
5,370
|
||
|
Depreciation
and impairment losses
|
|
|||
|
Balance
at January 1, 2004
|
$
|
—
|
||
|
Depreciation
charge for the period
|
(411
|
)
|
||
|
Disposals
|
24
|
|||
| Translation adjustment |
(22
|
) | ||
|
Balance
at December 31, 2004
|
(409
|
)
|
||
|
Depreciation
charge for the period
|
(337
|
)
|
||
|
Disposals
|
22
|
|||
| Translation adjustment |
14
|
|||
|
Balance
at June 30, 2005
|
(710
|
)
|
||
|
Depreciation
charge for the period
|
(830
|
)
|
||
|
Disposals
|
51
|
|||
| Translation adjustment | 48 | |||
|
Balance
at June 30, 2006
|
(1,441
|
)
|
||
|
Depreciation
charge for the period
|
(1,020
|
)
|
||
|
Disposals
|
133
|
|||
| Translation adjustment |
(305
|
) | ||
|
Balance
at June 30, 2007
|
$
|
(2,633
|
)
|
|
8. Container
for hire fleet
|
Container
Hire Fleet
|
||||
|
(-000-)
|
||||
|
Cost
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
$
|
13,128
|
|
|
Acquisitions
|
|
|
8,848
|
|
|
Transfers
to inventory
|
|
|
(4,016
|
)
|
| Translation adjustment | 767 | |||
|
Balance
at December 31, 2004
|
|
|
18,727
|
|
|
Acquisitions
|
|
|
5,975
|
|
|
Transfers
to inventory
|
|
|
(2,959
|
)
|
| Translation adjustment |
(479
|
) | ||
|
Balance
at June 30, 2005
|
|
|
21,264
|
|
|
Acquisitions
|
|
|
13,178
|
|
|
Acquisitions
through business combinations
|
|
|
5,107
|
|
|
Transfers
to inventory
|
|
|
(8,478
|
)
|
| Translation adjustment |
(1,123
|
) | ||
|
Balance
at June 30, 2006
|
|
|
29,948
|
|
|
Acquisitions
|
|
|
20,350
|
|
|
Acquisitions
through business combinations
|
|
|
299
|
|
|
Transfers
to inventory
|
|
|
(12,601
|
)
|
| Translation adjustment | 5,513 | |||
|
Balance
June 30, 2007
|
|
$
|
43,509
|
|
|
|
|
|
|
|
|
Depreciation
and impairment losses
|
|
|
|
|
|
Balance
at January 1, 2004
|
|
$
|
—
|
|
|
Depreciation
charge for the period
|
|
|
(1,775
|
)
|
|
Transfers
to inventory
|
|
|
626
|
|
| Translation adjustment | (67 | ) | ||
|
Balance
at December 31, 2004
|
|
|
(1,216
|
)
|
|
Depreciation
charge for the period
|
|
|
(984
|
)
|
|
Transfers
to inventory
|
|
|
545
|
|
| Translation adjustment | 35 | |||
|
Balance
at June 30, 2005
|
|
|
(1,620
|
)
|
|
Depreciation
charge for the period
|
|
|
(1,475
|
)
|
|
Transfers
to inventory
|
|
|
837
|
|
| Translation adjustment | 83 | |||
|
Balance
at June 30, 2006
|
|
|
(2,175
|
)
|
|
Depreciation
charge for the period
|
|
|
(1,514
|
)
|
|
Transfers
to inventory
|
|
|
1,467
|
|
| Translation adjustment |
(359
|
) | ||
|
Balance
at June 30, 2007
|
|
$
|
(2,581
|
)
|
P-17
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
9. Intangible
assets
|
Software
|
Goodwill
|
Trademarks
|
Other
|
Total
|
||||||||||||
|
(-000-)
|
||||||||||||||||
|
Cost
|
|
|
|
|
|
|||||||||||
|
Balance
at January 1, 2004
|
$
|
710
|
$
|
437
|
$
|
300
|
$
|
—
|
$
|
1,447
|
||||||
|
Acquisitions
through business combinations
|
—
|
2,580
|
—
|
—
|
2,580
|
|||||||||||
|
Other
acquisitions
|
52
|
—
|
—
|
—
|
52
|
|||||||||||
|
Translation
adjustment
|
29 | 167 | 10 |
—
|
206 | |||||||||||
|
Balance
at December 31, 2004
|
791
|
3,184
|
310
|
—
|
4,285
|
|||||||||||
|
Acquisitions
|
19
|
—
|
—
|
—
|
19
|
|||||||||||
| Translation adjustment | (18 | ) | (74 | ) | (7 | ) | — | (99 | ) | |||||||
|
Balance
at June 30, 2005
|
792
|
3,110
|
303
|
—
|
4,205
|
|||||||||||
|
Acquisitions
through business combinations
|
—
|
1,304
|
—
|
—
|
1,304
|
|||||||||||
|
Other
acquisitions
|
99
|
—
|
—
|
45
|
144
|
|||||||||||
| Translation adjustment | (35 | ) | (158 | ) | (12 | ) | (2 | ) | (207 | ) | ||||||
|
Balance
at June 30, 2006
|
856
|
4,256
|
291
|
43
|
5,446
|
|||||||||||
|
Acquisitions
through business combinations
|
—
|
17
|
—
|
—
|
17
|
|||||||||||
|
Other
acquisitions
|
24
|
—
|
—
|
42
|
66
|
|||||||||||
| Translation adjustment | 141 | 693 | 47 | 10 | 891 | |||||||||||
|
Balance
at June 30, 2007
|
$
|
1,021
|
$
|
4,966
|
$
|
338
|
$
|
95
|
$
|
6,420
|
||||||
|
|
|
|
|
|
|
|||||||||||
|
Amortisation
and impairment losses
|
|
|
|
|
|
|||||||||||
|
Balance
at January 1, 2004
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
|
Amortization
for the period
|
(318
|
)
|
—
|
—
|
—
|
(318
|
)
|
|||||||||
|
Write
off on utilization of unrecognized tax assets arising from business
combinations
|
—
|
(403
|
)
|
—
|
—
|
(403
|
)
|
|||||||||
| Translation adjustment |
(18
|
) |
(24
|
) |
—
|
—
|
(42
|
) | ||||||||
|
Balance
at December 31, 2004
|
(336
|
)
|
(427
|
)
|
—
|
—
|
(763
|
)
|
||||||||
|
Amortization
for the period
|
(159
|
)
|
—
|
—
|
—
|
(159
|
)
|
|||||||||
|
Write
off on utilization of unrecognized tax assets arising from business
combinations
|
—
|
(98
|
)
|
—
|
—
|
(98
|
)
|
|||||||||
| Translation adjustment |
10
|
11
|
—
|
—
|
21
|
|||||||||||
|
Balance
at June 30, 2005
|
(485
|
)
|
(514
|
)
|
—
|
—
|
(999
|
)
|
||||||||
|
Amortization
for the period
|
(347
|
)
|
—
|
—
|
(16
|
)
|
(363
|
)
|
||||||||
|
Write
off on utilization of unrecognized tax assets arising from business
combinations
|
-
|
(678
|
)
|
—
|
—
|
(678
|
)
|
|||||||||
| Translation adjustment | 28 | 38 |
—
|
—
|
66 | |||||||||||
|
Balance
at June 30, 2006
|
(804
|
)
|
(1,154
|
)
|
—
|
(16
|
)
|
(1,974
|
)
|
|||||||
|
Amortization
for the period
|
(35
|
)
|
-
|
—
|
(8
|
)
|
(43
|
)
|
||||||||
| Translation adjustment |
(134
|
) |
(188
|
) |
—
|
(2
|
) |
(324
|
) | |||||||
|
Balance
at June 30, 2007
|
$
|
(973
|
)
|
$
|
(1,342
|
)
|
$
|
—
|
$
|
(26
|
)
|
$
|
(2,341
|
)
|
||
Intangible
assets are tested for impairment where an indicator of impairment
arises.
P-18
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Goodwill
Goodwill
acquired has been allocated to one single cash generating unit, being the
consolidated entity. Goodwill is not amortized but tested for impairment
annually using the value in use model. Goodwill initially arose through the
purchase of Royal Wolf Trading Australia Pty Limited from Triton Containers
International Limited in 2003, and through the purchases of Royal Wolf Hi-Tech
Pty Limited, the business and assets of Cape Containers Pty Limited and
Australian Container Network Pty Limited during the year ended June 30, 2006
and
Terrigal Motors Pty Limited during the year ended June 30, 2007 (see Note
19).
The
recoverable amount of the RWA Holdings Pty Limited cash-generating unit
is based
on a value-in-use model. That model uses cash flow projections based on
actual operating results and a 5 year budget. Cash flows for a further
5-year
period are extrapolated using a 5%
growth
rate, which is considered appropriate. A pre-tax discount rate of 12.9%
has been
used in discounting the projected cash flows.
Software
Software
assets are capitalized at cost. This intangible asset has been assessed as
having a finite useful life, and is amortized using the straight-line method
over a period of 3 years (refer accounting policy (g)(iv)).
Trademarks
Trademarks
are capitalized at cost and have been assessed as having an indefinite useful
life and are tested for impairment at each period end.
Other
Other
assets are capitalized at cost. This intangible asset has been assessed as
having a finite useful life, and is amortized using the straight-line method
over a period of 5 years (refer accounting policy (g)(iv)).
P-19
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
10. Trade
and other payables
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Trade
payables
|
$
|
4,684
|
$
|
7,714
|
|||
|
Other
payables
|
2,394
|
985
|
|||||
|
Unearned
revenue
|
1,495
|
413
|
|||||
|
Fair
value derivative
|
68
|
21
|
|||||
|
$
|
8,641
|
$
|
9,133
|
||||
11. Interest
bearing loans and borrowings
This
following provides information about the contractual terms of the Company’s
interest-bearing loans and borrowings. See Note 16 for more information
about
the Company’s exposure to interest rate and foreign currency risk.
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Current
liabilities
|
|
|
|||||
|
Bank
overdraft and invoice financing facility
|
$
|
6,217
|
$
|
1,552
|
|||
|
Current
portion of bank loans
|
3,167
|
4,257
|
|||||
|
Other
loans
|
42
|
53
|
|||||
|
Current
portion of capital lease liabilities
|
933
|
664
|
|||||
|
|
10,359
|
6,526
|
|||||
|
|
|
|
|||||
|
Non-current
liabilities
|
|
|
|||||
|
Bank
loan
|
22,696
|
13,214
|
|||||
|
Non-convertible
notes
|
10,724
|
7,957
|
|||||
|
B
class notes
|
-
|
4,858
|
|||||
|
Capital
lease liabilities
|
391
|
1,126
|
|||||
|
|
$
|
33,811
|
$
|
27,155
|
|||
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Financing
facilities
|
|
|
|||||
|
Bank
overdraft
|
$
|
866
|
$
|
745
|
|||
|
Invoice
financing facility
|
6,366
|
5,476
|
|||||
|
Secured
bank loans
|
40,969
|
31,366
|
|||||
|
|
$
|
48,201
|
$
|
37,587
|
|||
|
|
|
|
|||||
|
Facilities
utilized at reporting date
|
|
|
|||||
|
Bank
overdraft
|
$
|
545
|
$
|
682
|
|||
|
Invoice
financing facility
|
5,672
|
870
|
|||||
|
Secured
bank loans
|
37,084
|
25,808
|
|||||
|
|
$
|
43,301
|
$
|
27,360
|
|||
|
|
|
|
|||||
|
Facilities
not utilized at reporting date
|
|
|
|||||
|
Bank
overdraft
|
$
|
321
|
$
|
63
|
|||
|
Invoice
financing facility
|
694
|
4,606
|
|||||
|
Secured
bank loans
|
3,885
|
5,558
|
|||||
|
|
$
|
4,900
|
$
|
10,227
|
|||
P-20
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Financing
arrangements
Bank
overdrafts
The
bank
overdrafts of the Company are secured by a floating charge over the Company’s
assets. Interest on bank overdrafts is charged at the prevailing market
rates.
Invoice
financing facility
The
invoice finance facility of the Company is a facility whereby funds are
made
available based on a percentage of debtors outstanding net of any disallowed
debts. The facility is secured by a floating charge over the debtor’s ledger.
Interest is charged at the bank’s prime rate plus 1.65%.
Bank
loans
The
bank
loans amount in current liabilities comprises the portion of the Company’s bank
loan payable within one year. The non-current bank loans are payable
on or
before 2010 and are subject to annual review. The loans bear interest
at the
Australian bank bill reference rate (“BBSW”) plus 1.10% - 1.35% (2006: BBSW plus
1.10%-1.35%, 2005: BBSW plus 1.10% and 2004: BBSW plus 1.35%), payable
monthly.
Bank loans are secured by lease assets in the container fleet with a
carrying
amount of $23,763,000 (2006: $13,246,000) and are due and payable over
the next
five years. In the event of default, the assets revert to the bank.
Principal
payments under the loans are as follows:
|
Year
Ending
|
|
|||
|
June
30,
|
(-000-)
|
|||
|
2008
|
$
|
3,176
|
||
|
2009
|
5,365
|
|||
|
2010
|
17,331
|
|||
Finance
leases and hire purchase contracts
The
Company’s lease liabilities are secured by the leased assets of $159,000 and
$384,000 at June 30, 2007 and 2006, respectively. In the event of default,
the
assets revert to the lessor.
B
class notes
Holders
of B Class Notes are entitled to receive cumulative interest of 15% per
annum on
the issue price of their notes. These notes do not give their holders
any voting
rights at shareholders’ meetings. The B Class Notes were repaid in full on March
30, 2007.
Non-convertible
notes
Holders
of Non-convertible notes are entitled to receive cumulative interest of
15% per
annum on the issue price of their notes. These notes do not give their
holders
any voting rights at shareholders’ meetings. In the event of winding up of the
Company, the holders of non-convertible notes rank above all shareholders
and
are entitled to the proceeds of liquidation only to the extent of the face
value
of the notes and any accumulated interest. Subsequent to June 30, 2007,
the
Non-convertible notes were repaid (see Note 22).
P-21
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Capital
lease liabilities of the Company are payable as follows:
|
2007
|
2006
|
||||||||||||||||||
|
Minimum
lease payments
|
Interest
|
Principal
|
Minimum
lease payments
|
Interest
|
Principal
|
||||||||||||||
|
(-000-)
|
|||||||||||||||||||
|
Less
than one year
|
$
|
1,005
|
$
|
72
|
$
|
933
|
$
|
800
|
$
|
136
|
$
|
664
|
|||||||
|
Between
one and five years
|
421
|
30
|
391
|
1,197
|
71
|
1,126
|
|||||||||||||
|
More
than five years
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
|
|
$
|
1,426
|
$
|
102
|
$
|
1,324
|
$
|
1,997
|
$
|
207
|
$
|
1,790
|
|||||||
The
Company has finance leases and hire purchase contracts for various motor
vehicles, and other assets. These leases have no terms of renewal or purchase
options nor escalation clauses.
Under
the
terms of the Facility Agreement with Australia and New Zealand Banking
Group
Limited (“ANZ”) the Company undertakes to ensure compliance with covenants in
relation to various financial ratios including consolidated interest
cover;
consolidated leverage ratios; and consolidated debt service cover. The
Company
was in compliance with its financial covenants at June 30,
2007.
Subsequent
to June 30, 2007, the ANZ secured credit facility was amended (see Note
22).
12. Employee
benefits
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Current
|
|
|
|||||
|
Liability
for annual leave (vacation)
|
$
|
656
|
$
|
566
|
|||
|
Liability
for long service leave (vacation)
|
199
|
136
|
|||||
|
Cash
settled share-based transactions
|
759
|
—
|
|||||
|
|
$
|
1,614
|
$
|
702
|
|||
|
|
|
|
|||||
|
Non
Current
|
|
|
|||||
|
Liability
for long service leave
|
$
|
171
|
$
|
341
|
|||
|
Cash
settled share-based transactions
|
—
|
188
|
|||||
|
|
171
|
529
|
|||||
|
|
|
|
|||||
|
Total
employee benefits
|
$
|
1,785
|
$
|
1,231
|
|||
Defined
contribution pension plan
The
Company makes contributions to a defined contribution pension plan. The
amount recognized as an expense was $736,000, $590,000, $248,000 and
$452,000
for the years ended June 30, 2007 and 2006, for the six months ended
June 30,
2005 and for the year ended December 31, 2004, respectively.
P-22
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
13.
Share-based payments
The
Company had an employee share option plan (ESOP) for the granting of
non-transferable options to certain key management personnel and senior
employees with more than twelve months’ service at the grant date. During the
year ended June 30, 2007, $2,930,000 was paid to employees relating to
the plan
with remaining $759,000 being paid in July 2007, of which $373,000 was
provided
in prior years.
14. Provisions
|
Leasehold
|
Deferred
|
|||||||||
|
Makegood
|
Consider-
|
|||||||||
|
costs
|
ation
|
Total
|
||||||||
|
(-000-)
|
||||||||||
|
Balance
at January 1, 2004
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Provisions
made during the year
|
6
|
—
|
6
|
|||||||
|
Balance
at December 31, 2004
|
6
|
—
|
6
|
|||||||
|
Provisions
made during the year
|
—
|
—
|
—
|
|||||||
|
Balance
at June 30, 2005
|
6
|
—
|
6
|
|||||||
|
Provisions
made during the year
|
—
|
429
|
429
|
|||||||
|
Translation
adjustment
|
—
|
(10
|
)
|
(10
|
)
|
|||||
|
Balance
at June 30, 2006
|
6
|
419
|
425
|
|||||||
|
Provisions
made during the year
|
17
|
—
|
17
|
|||||||
|
Provisions
used during the year
|
—
|
(451
|
)
|
(451
|
)
|
|||||
|
Unwind
of discount
|
2
|
—
|
2
|
|||||||
|
Translation
adjustment
|
1 |
32
|
33
|
|||||||
|
Balance
at June 30, 2007
|
$
|
26
|
$
|
—
|
$
|
26
|
||||
|
|
|
|
|
|||||||
|
Balance
at June 30, 2006:
|
|
|
|
|||||||
|
Current
|
$
|
—
|
$
|
219
|
$
|
219
|
||||
|
Non-current
|
6
|
200
|
206
|
|||||||
|
|
$
|
6
|
$
|
419
|
$
|
425
|
||||
|
|
|
|
|
|||||||
|
Balance
at June 30, 2007:
|
|
|
|
|||||||
|
Current
|
$
|
—
|
$
|
—
|
$
|
—
|
||||
|
Non-current
|
26
|
—
|
26
|
|||||||
|
$
|
26
|
$
|
—
|
$
|
26
|
|||||
Leasehold
makegood costs
An
obligation exists to restore leasehold sites after fit-outs at the Company’s
head office location in Hornsby. The basis for accounting is set out in
accounting policy (n) of the significant accounting policies in Note
1.
The
expected cost for the restoration is estimated at $32,000, and is expected
to
occur in 2010. This amount has been discounted using Australian government
bond
rates with similar maturities (2007: 6.0%, 2006: 5.8%, 2005 and 2004:
5.2%).
Deferred
consideration
Deferred
purchase consideration consisted of consideration relating to the purchase
of
the business and assets of Australian Container Network Pty Limited (see
Note
19), and was paid out during the year ended June 30, 2007.
P-23
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
15. Capital
and reserves
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
Share
Capital
|
(-000-)
|
||||||
|
|
|
|
|||||
|
8,154,000
and 2,160,000 Ordinary (Common) Shares in 2007 and 2006, respectively
|
$ |
3,441
|
$ |
817
|
|||
|
-0-
and 4,322,590 A Class Shares in 2007 and 2006,
respectively
|
—
|
2,624
|
|||||
|
-0-
and 100 Class C Shares in 2007 and 2006, respectively
|
—
|
—
|
|||||
|
1 and
-0- D Class Share in 2007 and 2006, respectively
|
8,746
|
—
|
|||||
| $ |
12,187
|
$ |
3,441
|
||||
During
the year ended June 30, 2007, one D class share was issued; which was as
part of
the deal in relation to sale of the Company (see Note 22). On March 30,
2007,
the A Class and C Class Shares were converted into Ordinary Shares.
Terms
and conditions
Ordinary
Shares
Holders
of Ordinary Shares rank pari passu with the A Class Shares in the declaration
and payment of dividends and are entitled to one vote per share at shareholders’
meetings.
In
the
event of winding up of the Company, ordinary shareholders rank after all
other
shareholders and creditors and are fully entitled to any proceeds of
liquidation.
A
Class Shares
Holders
of A Class Shares rank pari passu with Ordinary shares in the declaration
and
payment of dividends and are entitled to one vote per share at shareholders’
meetings limited to 50% of the votes to be cast by shareholders.
In
the
event of winding up of the Company, A Class shareholders rank above ordinary
shareholders and are fully entitled to the greater of any proceeds of
liquidation and an amount equal to the issue price of the A Class
Shares.
C
Class Shares
Holders
of C Class Shares are not entitled to receive any dividends prior to conversion
to ordinary shares. The C Class shares shall not entitle the holder to
a vote
prior to conversion to ordinary shares. The C Class shares shall not entitle
the
holder to any proceeds on liquidation prior to conversion to ordinary
shares.
The
Company’s C Class shares are not transferable and will convert into ordinary
shares in the event that all criteria specified in the shareholders’ agreement
are satisfied. The number of ordinary shares received on conversion of
each C
Class share is determined by reference to a profit formula.
D
Class Shares
Holders
of D Class Shares are not entitled to receive any dividends. The D Class
shares
shall not entitle the holder to a vote. The D Class shares shall not entitle
the
holder to any proceeds on liquidation prior to conversion to ordinary shares.
D
Class Shares are not transferable.
In
the
event of winding up of the Company prior to September 30, 2008, D Class
shareholders are entitled to proceeds as determined by reference to a profit
formula. In the event of winding up of the Company after September 30,
2008, D
Class shareholders are entitled to proceeds as determined by reference
to a
profit formula plus where there is a surplus of assets following a return
of
capital, a preferential payment to any further distributions to Ordinary
shares
of an amount equal to interest on the paid up capital of the D Class share
of
18% per annum since the date of issue until the winding up of the Company
calculated on a daily basis (but not capitalized or compounded).
P-24
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
16. Financial
instruments
Exposure
to credit, interest rate and currency risks arises in the normal course
of the
Company’s business. Derivative financial instruments are used to hedge exposure
to fluctuations in foreign exchange rates and interest rates.
Credit
risk
The
Company trades only with recognized, creditworthy third parties.
It
is the
Company’s policy that all customers who wish to trade on credit terms are
subject to credit verification procedures. In addition, receivable balances
are
monitored on an ongoing basis with the result that the Company’s exposure to bad
debts is not significant.
For
transactions that are not denominated in the measurement currency of the
relevant operating unit, the Company does not offer credit terms without
the
specific approval of the Head of Credit Control.
With
respect to credit risk arising from the other financial assets of the Company,
which comprise cash and cash equivalents, available-for-sale financial
assets
and certain derivative instruments, the Company’s exposure to credit risk arises
from default of the counter party, with a maximum exposure equal to the
carrying
amount of these instruments. As the counter party for derivative instruments
is
nearly always a bank, the Company has assessed this as a low risk.
There
are
no significant concentrations of credit risk within the Company.
Interest
rate risk
The
Company’s exposure to market risk for changes in interest rates relates
primarily to its long-term debt obligations. The Company’s policy is to manage
its interest cost using a mix of fixed and variable rate debt.
To
manage
this mix in a cost-efficient manner, the Company enters into interest
rate
swaps, in which the Company agrees to exchange, at specified intervals,
the
difference between fixed and variable interest amounts calculated by
reference
to an agreed-upon notional principal amount. These swaps are designated
to hedge
changes in the interest rate of its commercial bill liability. The secured
loan
and interest rate swap have the same critical terms, including expiration
dates. The Company believes that financial instruments designated as
interest rate hedges are highly effective. However, documentation of
such as
required by SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
does not exist. Therefore, all movements in the fair values
of these
hedges are taken directly to statement of operations.
At
June
30, 2007, after taking into account the effect of interest rate swaps,
59.5%
(2006: 80.2%, 2005: 72.7% and 2004: 97.6%) of the Company’s borrowings are at a
fixed rate of interest.
P-25
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Effective
interest rates and repricing analysis
In
respect of income-earning financial assets and interest-bearing financial
liabilities, the following table indicates their effective interest rates
at the
balance sheet date and the periods in which they reprice.
|
June
30, 2007
|
Effective
interest rate %
|
<
1 year
|
1-2
years
|
2-5
years
|
>5
years
|
Total
|
|||||||||||||
|
(-000-)
|
|||||||||||||||||||
|
Fixed
rate
|
|||||||||||||||||||
|
Lease
receivable
|
15.8
|
%
|
$ |
429
|
$ |
408
|
$ |
146
|
$ |
—
|
$ |
983
|
|||||||
|
Finance
lease liabilities
|
9.2
|
%
|
(934
|
)
|
(301
|
)
|
(89
|
)
|
—
|
(1,324
|
)
|
||||||||
|
Bank
loans
|
6.0
|
%
|
(1,347
|
)
|
(3,801
|
)
|
(8,979
|
)
|
—
|
(14,127
|
)
|
||||||||
|
Other
loans
|
4.0
|
%
|
(42
|
)
|
—
|
—
|
—
|
(42
|
)
|
||||||||||
|
Non-convertible
notes
|
15.0
|
%
|
—
|
—
|
(10,724
|
)
|
—
|
(10,724
|
)
|
||||||||||
|
|
|||||||||||||||||||
|
Variable
rate
|
|||||||||||||||||||
|
Cash
and cash equivalents
|
4.2
|
%
|
886
|
—
|
—
|
—
|
886
|
||||||||||||
|
Interest
rate swap
|
6.0
|
%
|
300
|
—
|
—
|
—
|
300
|
||||||||||||
|
Bank
loans
|
7.5
|
%
|
(1,820
|
)
|
(1,564
|
)
|
(8,352
|
)
|
—
|
(11,736
|
)
|
||||||||
|
Bank
overdrafts
|
BBSW
+ 1.65
|
%
|
(6,217
|
)
|
—
|
—
|
—
|
(6,217
|
)
|
||||||||||
| $ |
(8,745
|
)
|
$ |
(5,258
|
)
|
$ |
(27,998
|
)
|
$ |
—
|
$ |
(42,001
|
)
|
||||||
|
June
30, 2006
|
Effective
interest rate %
|
<
1 year
|
1-2
years
|
2-5
years
|
>5
years
|
Total
|
|||||||||||||
|
(-000-)
|
|||||||||||||||||||
|
Fixed
rate
|
|||||||||||||||||||
|
Lease
receivable
|
18.1
|
%
|
$ |
245
|
$ |
277
|
$ |
288
|
$ |
—
|
$ |
810
|
|||||||
|
Finance
lease liabilities
|
9.0
|
%
|
(664
|
)
|
(806
|
)
|
(320
|
)
|
—
|
(1,790
|
)
|
||||||||
|
Other
loans
|
4.2
|
%
|
(53
|
)
|
—
|
—
|
—
|
(53
|
)
|
||||||||||
|
Non-convertible
notes
|
15.0
|
%
|
—
|
—
|
—
|
(7,957
|
)
|
(7,957
|
)
|
||||||||||
|
B
class notes
|
15.0
|
%
|
—
|
—
|
—
|
(4,858
|
)
|
(4,858
|
)
|
||||||||||
|
Variable
rate
|
|||||||||||||||||||
|
Cash
and cash equivalents
|
3.3
|
%
|
567
|
—
|
—
|
—
|
567
|
||||||||||||
|
Bank
loans
|
BBSW
+ 1.10
|
%
|
(3,210
|
)
|
(1,216
|
)
|
(7,838
|
)
|
—
|
(12,264
|
)
|
||||||||
|
Interest
rate swap
|
6.0
|
%
|
96
|
—
|
—
|
—
|
96
|
||||||||||||
|
Bank
overdrafts
|
BBSW
+ 1.65
|
%
|
(1,552
|
)
|
—
|
—
|
—
|
(1,552
|
)
|
||||||||||
|
Commercial
bills
|
6.9
|
%
|
(998
|
)
|
(1,040
|
)
|
(3,169
|
)
|
—
|
(5,207
|
)
|
||||||||
| $ |
(5,569
|
)
|
$ |
(2,785
|
)
|
$ |
(11,039
|
)
|
$ |
(12,815
|
)
|
$ |
(32,208
|
)
|
|||||
P-26
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Foreign
currency risk
The
Company has transactional currency exposures. Such exposure arises from
sales or
purchases in currencies other than the functional currency. The currency
giving
rise to this risk is primarily U.S. Dollars.
The
Company has a bank account denominated in U.S. Dollars into which customers
pay
their debts. This is a natural hedge against fluctuations in the exchange
rate.
The funds are then used to pay suppliers, avoiding the need to convert
to
Australian dollars.
The
Company uses forward currency contracts and options to eliminate the
currency
exposures on the majority of its transactions denominated in foreign
currencies,
either by transaction if the amount is significant, or on a general cash
flow
hedge basis. The forward currency contracts and options are always in
the same
currency as the hedged item. The
Company believes that financial instruments designated as foreign
currency hedges are highly effective. However documentation of such as
required
by SFAS No. 133 does not exist. Therefore, all movements in the fair
values of
these hedges are taken directly to statement of
operations.
Forecasted
transactions
The
Company classifies its forward exchange contracts hedging forecasted
transactions as cash flow hedges and states them at fair value. The net
fair
value of forward exchange contracts used as hedges of forecasted transactions
at
June 30, 2007 and 2006 was nil. The Company does not have any forward exchange
contracts hedging forecasted transactions.
Recognized
assets and liabilities
Changes
in the fair value of forward exchange contracts that economically hedge
monetary
assets and liabilities in foreign currencies and for which no hedge accounting
is applied are recognized in the statement of operations. Both the changes
in
fair value of the forward contracts and the foreign exchange gains and
losses
relating to the monetary items are recognised as part of ‘net financing costs’
(see Note 3). The fair value of forward exchange contracts used as economic
hedges of monetary assets and liabilities in foreign currencies at June
30, 2007
and 2006 was a liability of $69,000 and $22,000, respectively.
Sensitivity
analysis
In
managing interest rate and currency risks the Company aims to reduce the
impact
of short-term fluctuations on results of operations. Over the longer-term,
however, permanent changes in foreign exchange and interest rates would
have an
impact on the results of operations.
At
June
30, 2007, it is estimated that a general increase of one percentage point
in
interest rates would decrease the Company’s pretax income by approximately
$167,000 (2006: $70,000, 2005: $9,000 and 2004: $4,000). The effects of
interest
rate swaps have been included in this calculation.
It
is
estimated that a general increase of one percentage point in the value
of the
Australian dollar against other foreign currencies would have decreased
the
Company’s pretax income by approximately $77,000 for the year ended June 30,
2007 (2006: $230,000, 2005: $94,000 and 2004: $83,000), based on the actual
transactions incurred in U.S. Dollars. The effects of forward exchange
contracts
have been included in this calculation.
P-27
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Fair
values
The
fair
values together with the carrying amounts shown in the accompanying consolidated
balance sheets are as follows:
|
Carrying
amount
|
Fair
value
|
Carrying
amount
|
Fair
value
|
||||||||||
|
At
June 30,
|
|||||||||||||
|
2007
|
2007
|
2006
|
2006
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Cash
and cash equivalents
|
$ |
886
|
$ |
886
|
$ |
567
|
$ |
567
|
|||||
|
Trade
and other receivables
|
12,543
|
12,543
|
7,110
|
7,110
|
|||||||||
|
Lease
receivable
|
1,843
|
1,843
|
811
|
811
|
|||||||||
|
Interest
rate swap
|
300
|
300
|
96
|
96
|
|||||||||
|
Bank
overdraft
|
(6,217
|
)
|
(6,217
|
)
|
(1,552
|
)
|
(1,552
|
)
|
|||||
|
Trade
and other payables
|
(8,573
|
)
|
(8,573
|
)
|
(9,112
|
)
|
(9,112
|
)
|
|||||
|
Other
loan
|
(42
|
)
|
(42
|
)
|
(53
|
)
|
(53
|
)
|
|||||
|
Finance
lease liabilities
|
(1,324
|
)
|
(1,324
|
)
|
(1,790
|
)
|
(1,790
|
)
|
|||||
|
Bank
loans
|
(20,195
|
)
|
(20,195
|
)
|
(13,754
|
)
|
(13,754
|
)
|
|||||
|
Held
to maturity liabilities
|
(1,717
|
)
|
(1,717
|
)
|
—
|
—
|
|||||||
|
Commercial
bills
|
(3,951
|
)
|
(3,951
|
)
|
(3,717
|
)
|
(3,717
|
)
|
|||||
|
Forward
exchange contracts
|
(68
|
)
|
(68
|
)
|
(21
|
)
|
(21
|
)
|
|||||
|
Non-convertible
notes
|
(10,724
|
)
|
(10,724
|
)
|
(7,957
|
)
|
(7,957
|
)
|
|||||
|
B
class notes
|
—
|
—
|
(4,858
|
)
|
(4,858
|
)
|
|||||||
| $ |
(37,239
|
)
|
$ |
(37,239
|
)
|
$ |
(34,230
|
)
|
$ |
(34,230
|
)
|
||
Estimation
of fair values
The
following summarizes the major methods and assumptions used in estimating
the
fair values of financial instruments reflected in the table.
Derivatives
Forward
exchange contracts and options are marked to market by discounting the
contractual forward price and deducting the current spot rate. For interest
rate
swaps, broker quotes are used. Those quotes are back tested using pricing
models
or discounted cash flow techniques.
Where
discounted cash flow techniques are used, estimated future cash flows are
based
on management’s best estimates and the discount rate is a market related rate
for a similar instrument at the balance sheet date. Where other pricing
models
are used, inputs are based on market related data at the balance sheet
date.
Interest-bearing
loans and borrowings
Fair
value is calculated based on discounted expected future principal and interest
cash flows.
Finance
lease liabilities
The
fair
value is estimated as the present value of future cash flows, discounted
at
interest rates implicit in the relevant lease agreements. These implicit
interest rates are in line with current market rates.
Trade
and other receivables/payables
For
receivables / payables with a remaining life of less than one year, the
notional
amount is deemed to reflect the fair value. All other receivables / payables
are
discounted to determine the fair value.
P-28
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Interest
rates used for determining fair value
The
Company uses the government yield curve as of June 30, 2007 plus an adequate
constant credit spread to discount financial instruments. The interest
rates
used are as follows:
|
At
June 30,
|
||||
|
2007
|
2006
|
|||
|
Derivatives
|
6.0%
|
6.0%
|
||
|
Loans
and borrowings
|
3.9%
- 15.0%
|
4.2%
- 15.0%
|
||
|
Leases
|
9.2%
|
9.0%
|
||
|
Receivables
|
15.8%
|
18.1%
|
||
17. Operating
leases
Leases
as lessee
The
Company leases various office equipment and other facilities under operating
leases. The leases have maturities of between one and nine years, some
with an
option to renew the lease after that period. None of the leases includes
contingent rentals. There are no restrictions placed upon the lessee by
entering
into these leases.
During
the year ended June 30, 2007, $1,295,000 was recognized as an expense in
the
statement of operations in respect of operating leases (2006: $878,000,
2005:
$359,000 and 2004: $585,000)
Non-cancellable
operating lease rentals at June 30, 2007 are payable as
follows:
|
(-000-)
|
||||
|
Less
than one year
|
$
|
3,191
|
||
|
One-two
years
|
1,199
|
|||
|
Two-three
years
|
1,026
|
|||
|
Three-four
years
|
629
|
|||
|
Four-five
years
|
296
|
|||
|
Thereafter
|
423
|
|||
|
$
|
6,764
|
|||
Leases
as lessor
The
Company leases containers on a daily basis in the ordinary course of business.
These leases can vary in length from a minimum hire period of 30 days to
up to
five years and longer.
These
non-cancellable operating leases have maturities of between 1 and 5 years.
All leases include a clause to enable upward revision of the rental
charge.
The
Company has no other lessor relationships apart from those relating the
rental
of containers.
The
future minimum lease payments under non-cancellable leases are as
follows:
|
At
June 30,
|
|||||||
|
2007
|
2006
|
||||||
|
(-000-)
|
|||||||
|
Less
than one year
|
$ |
364
|
$ |
360
|
|||
|
Between
one and five years
|
414
|
669
|
|||||
|
More
than five years
|
—
|
—
|
|||||
| $ |
778
|
$ |
1,029
|
||||
During
the year ended June 30, 2007, $21,483,000 was recognized as income from
the hire
of containers in the statement of operations in respect of operating leases
(2006: $15,921,000, 2005: $7,224,000 and 2004: $12,351,000).
P-29
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
18. Commitments
and contingencies
There
is
a pending litigation case by a former employee against the Company. The
action is being defended and advice from legal counsel indicates that
it is not
practicable to estimate the potential liability at this stage. Based
on legal
advice, the Company believes that there will not be a material liability
arising
from this case.
There
were no other commitments or contingencies of the Company for capital or
otherwise not already disclosed elsewhere in the consolidated financial
statements.
19. Acquisitions
of subsidiaries
On
May
31, 2007, the Company acquired the business and assets of Professional
Sales
& Hire (Terrigal
Motors Ltd) for $303,000 satisfied in cash. The company sells and hires
shipping
containers. In
the
one month to June 30, 2007, the business contributed net profit of $5,000
to the
consolidated net
income for the year. If the acquisition had occurred on July 1, 2006,
consolidated revenues would
have
been
$74,521,000 (unaudited) and net income would have been $237,000
(unaudited).
The
acquisition had the following effect on the Company’s assets and liabilities
during the year ended June 30, 2007:
|
|
|
Professional
Sales and Hire
|
|
|||||||
|
|
|
Fair
values
|
|
Fair
value
adjustments
|
|
Carrying
amounts
|
|
|||
|
|
|
(-000-)
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||
|
Container
hire fleet
|
|
$
|
312
|
|
$
|
88
|
|
$
|
224
|
|
|
Deferred
tax liability
|
|
|
(26
|
)
|
|
(26
|
)
|
|
—
|
|
|
Net
identifiable assets and liabilities
|
|
$
|
286
|
|
$
|
62
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
on acquisitions
|
|
$
|
17
|
|
|
|
|
|
|
|
|
Consideration
paid, satisfied in cash
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash outflow
|
|
$
|
303
|
|
|
|
|
|
|
|
Goodwill
has arisen on the acquisition because of customer relationships that did
not
meet the criteria for recognition as an intangible asset at the date of
acquisition.
During
the year ended June 30, 2006 the Company acquired the following
businesses:
|
·
|
Royal
Wolf Hi-Tech Pty Limited
|
|
·
|
Australian
Container Network Pty Ltd
|
|
·
|
Cape
Containers Pty Limited
|
On
March
30, 2006, the Company acquired the remaining 50% of the shares in Royal
Wolf
Hi-Tech Pty Limited which it did not already own for $591,000 satisfied
in cash.
This company sells, hires and modifies containers. In the three months
to June
30, 2006, the subsidiary contributed a net loss of $19,000 to the consolidated
net loss for the year. If the acquisition had occurred on July 1, 2005,
consolidated revenues would have been $52,021,000 (unaudited) and the net
loss
would have been $486,000 (unaudited). The Company previously acquired the
initial 50% shares in Royal Wolf Hi-Tech Pty Limited and goodwill of $99,000
has
been recognized in respect of this initial acquisition.
On
December 16, 2005, the Company acquired the business and assets of Cape
Containers Pty Limited for $619,000 satisfied in cash. This company sells
and
hires shipping containers. In the six months to June 30, 2006, the business
contributed net income of $68,000 to the consolidated net loss for the
year. If
the acquisition had occurred on July 1, 2005, consolidated revenues would
have
been $50,824,000 (unaudited) and the net loss would have been $378,000
(unaudited).
P-30
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
On
April
28, 2006, the Company acquired the business and assets of Australian Container
Network Pty Ltd for $4.1 million, of which $3.7 million was satisfied
in cash. The Company has recognized a provision for the $0.6 million
deferred consideration extending to August 2007. This company sells and
hires
containers. In the two months to June 30, 2006, the business contributed
net
income of $50,000 to the consolidated net loss for the year. If the acquisition
had occurred on July 1, 2005, consolidated revenues would have been $53,262,000
(unaudited) and net loss would have been $177,000 (unaudited).
The
acquisitions had the following effect on the Company’s assets and liabilities
during the year ended June 30, 2006:
Acquiree’s
net assets at the acquisition date
|
Royal
Wolf Hi-Tech
|
Australian Container Network
|
Cape
Containers
|
|||||||||||||||||||||||||||||
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
|
|
Fair
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
Value
|
|
|
|
|
Value
|
|
|
|
|
value
|
|
|
|
||||||||||||
|
|
|
|
|
Fair
|
|
Adjust-
|
|
Carrying
|
|
Fair
|
|
Adjust-
|
|
Carrying
|
|
Fair
|
|
Adjust-
|
|
Carrying
|
|
||||||||||
|
|
|
|
Values
|
|
ments
|
|
Amounts
|
|
Values
|
|
ments
|
|
Amounts
|
|
Values
|
|
ments
|
|
Amounts
|
||||||||||||
|
(-000-)
|
|||||||||||||||||||||||||||||||
|
Property,
plant and equipment
|
$
|
91
|
$
|
22
|
$
|
69
|
$
|
147
|
$
|
17
|
$
|
130
|
$
|
2
|
$
|
—
|
$
|
2
|
|||||||||||||
|
Container
hire fleet
|
1,245
|
522
|
723
|
3,327
|
2,039
|
1,288
|
487
|
129
|
358
|
||||||||||||||||||||||
|
Inventories
|
74
|
22
|
52
|
418
|
128
|
290
|
—
|
—
|
—
|
||||||||||||||||||||||
|
Trade
and other receivables
|
163
|
—
|
163
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||
|
Cash
and cash equivalents
|
70
|
—
|
70
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||
|
Interest-bearing
loans and borrowings
|
(353
|
)
|
—
|
(353
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||
|
Deferred
tax liability
|
(170
|
)
|
(170
|
)
|
—
|
(655
|
)
|
(655
|
)
|
—
|
(39
|
)
|
(39
|
)
|
—
|
||||||||||||||||
|
Trade
and other payables
|
(170
|
)
|
—
|
(170
|
)
|
—
|
—
|
—
|
(13
|
)
|
—
|
(13
|
)
|
||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Net
identifiable assets and liabilities
|
$
|
950
|
$
|
396
|
$
|
554
|
$
|
3,237
|
$
|
1,529
|
$
|
1,708
|
$
|
437
|
$
|
90
|
$
|
347
|
|||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Goodwill
on acquisitions
|
$
|
210
|
$
|
911
|
$
|
183
|
|||||||||||||||||||||||||
|
Consideration
paid, satisfied in cash*
|
591
|
3,715
|
619
|
||||||||||||||||||||||||||||
|
Deferred
consideration accrued
|
—
|
432
|
—
|
||||||||||||||||||||||||||||
|
Cash
(acquired)
|
(70
|
)
|
—
|
—
|
|||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
|
Net
cash outflow
|
$
|
521
|
$
|
3,715
|
$
|
619
|
|||||||||||||||||||||||||
|
*
|
|
Includes
legal fees amounting to $74,000
|
Goodwill
has arisen on the acquisitions because of customer relationships that did
not
meet the criteria for recognition as an intangible asset at the date of
acquisition.
P-31
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
20. Reconciliation
of cash flows from operating activities
|
Six
Months
|
|||||||||||||
|
Year
Ended
|
Ended
|
Year
Ended
|
|||||||||||
|
June
30,
|
December
31,
|
||||||||||||
|
2007
|
2006
|
2005
|
2004
|
||||||||||
|
(-000-)
|
|||||||||||||
|
Cash
flows from operating activities
|
|||||||||||||
|
Profit/(loss)
for the period
|
$
|
312
|
$
|
(428
|
)
|
$
|
(177
|
)
|
$
|
284
|
|||
|
Adjustments
for:
|
|||||||||||||
|
Gain
on sale of property, plant and equipment
|
(23
|
)
|
(21
|
)
|
(13
|
)
|
(21
|
)
|
|||||
|
Foreign
exchange (gain) / loss
|
(134
|
)
|
(38
|
)
|
(252
|
)
|
287
|
||||||
|
Unrealized
loss on forward exchange contracts
|
40
|
22
|
—
|
—
|
|||||||||
|
Unrealized
gain on interest rate swap
|
(174
|
)
|
(219
|
)
|
—
|
—
|
|||||||
|
Depreciation
and amortization
|
2,577
|
2,668
|
1,480
|
2,504
|
|||||||||
|
Share
of associates net profit
|
—
|
—
|
(133
|
)
|
(68
|
)
|
|||||||
|
Investment
income
|
(239
|
)
|
(156
|
)
|
(80
|
)
|
(87
|
)
|
|||||
|
Interest
expense
|
4,378
|
3,017
|
1,127
|
2,397
|
|||||||||
|
Income
tax (benefit) / expense
|
490
|
214
|
75
|
400
|
|||||||||
|
Cash
settled share based payment expenses
|
336
|
222
|
40
|
96
|
|||||||||
|
Operating
profit before changes in working capital and
provisions
|
7,563
|
5,281
|
2,067
|
5,792
|
|||||||||
|
(Increase)
/ decrease in trade and other receivables
|
(5,017
|
)
|
(1,778
|
)
|
(458
|
)
|
(977
|
)
|
|||||
|
(Increase)
/ decrease in inventories
|
12,017
|
4,959
|
(334
|
)
|
2,882
|
||||||||
|
Increase
/ (decrease) in trade and other payables
|
(1,869
|
)
|
3,299
|
1,518
|
(2,762
|
)
|
|||||||
|
Increase
/ (decrease) in provisions and employee benefits
|
12
|
411
|
226
|
33
|
|||||||||
|
|
12,706
|
12,172
|
3,019
|
4,968
|
|||||||||
|
Interest
(paid)/received, net
|
(3,799
|
)
|
(2,118
|
)
|
(902
|
)
|
(1,182
|
)
|
|||||
|
Income
taxes (paid)/received
|
49
|
-
|
(587
|
)
|
576
|
||||||||
|
Net
cash from operating activities
|
$
|
8,956
|
$
|
10,054
|
$
|
1,530
|
$
|
4,362
|
|||||
21. Related
parties
Transactions
with key management personnel
No
director has entered into a material contract with the Company and there
were no
material contracts involving directors’ interests. In addition to their
salaries, the Company also provides non-cash benefits to key management
personnel
P-32
RWA
Holdings Pty Limited Financial ReportNotes
to the consolidated financial statements
Associates
There
were no equity investees, or associates, at June 30, 2007 or 2006. On March
30, 2006, the Company acquired the remaining 50% of the shares in Royal
Wolf
Hi-Tech Pty Limited which it did not already own (see Note 19). Royal
Wolf
Hi-Tech Pty limited was previously accounted for using the equity method
of
accounting.
Key
management personnel related parties
A
number
of key management persons of the Company, or their related parties, hold
positions in other entities
that result in them having control or significant influence over the financial
or operating policies
of these entities. A number of these entities transacted with the Company
in the
reporting periods.
The terms and conditions of the transactions with the other related parties
were
no more favorable
than those available, or which might reasonably be expected to be available,
on
similar transactions
to non-key management personnel related entities on an arm’s length basis. The
aggregate amounts
recognized during the year for transactions with related parties (RW Logistic
Pty Limited) were
sales revenues and inventory purchases of $35,000 and $1,657,000 and $2,355,000
and $967,000
for the six months ended June 30, 2005 and for the year ended December
31, 2004,
respectively.
While the Company itself has no interest in RW Logistic Pty Limited, this
entity
is related
through common shareholders and directorships
22. Subsequent
events
On
September 13, 2007 (in the U.S.), General Finance Corporation (“GFC”)
completed the acquisition of the Company.
Based upon the actual exchange rate of one U.S. dollar to $0.8407 Australian
dollar realized in
connection with payments made upon completion of the acquisition, the purchase
price for the Company
was $64.3 million, including deposits of $1,005,000 previously paid by GFC
in connection with
the
acquisition. The purchase price, less the deposits, was paid by a combination
of
cash plus the issuance
to Bison Capital Australia, L.P. (“Bison Capital”) of 1,380 shares of common
stock of GFN U.S.
Australasia Holdings, Inc. (“GFN U.S.”), constituting 13.8% of the outstanding
capital stock of GFN
U.S.
immediately following the issuance. As a result, GFC indirectly owns 86.2%
of
the Company and
Bison
Capital indirectly owns the remaining 13.8%. The aggregate acquisition
consideration was approximately
$107.7 million, including a total of $2.5 million in cash payable in
two equal installments
on the first and second anniversaries of the acquisition in exchange for
a
non-compete covenant.
The aggregate consideration also includes approximately $40.9 million of
indebtedness under Royal
Wolf’s senior credit facility with ANZ.
In
connection with the closing of the acquisition, the Company’s existing senior
credit facility with ANZ
(see
Note 11) was amended to increase the total facility limit to $64.4 million,
including the existing
borrowings under the facility, and to make certain other changes relating
to
ownership of the Company
and related matters. The facility is subject to annual review by ANZ,
and is
secured by a lien on
all or
substantially all of the assets of the Company. In connection with the
amendment
of the facility,
the Company paid ANZ a loan approval fee of $210,000 and agreed to bear
certain
costs of ANZ.
At
the completion of the acquisition, the total secured bank loans balance,
including accrued interest,
was $36.2 million. The Non-convertible notes were repaid in full. In
connection with the ANZ
facility, the Company has entered into a five- year
interest rate hedge of $18.9 million notional amount
for five years.
The
amended ANZ facility contains customary reporting covenants.
At
a
special meeting of the GFC board of directors held on September 11, 2007,
the
board changed GFC’s
fiscal year to June 30 from December 31, and, as result, is required to
file a transition report on Form 10-K
with respect to the six months ended June 30, 2007. Since GFC had no
operations prior to the
merger, the Company has been determined to be the accounting predecessor
and is,
therefore, filing these
consolidated financial statements for the years ended June 30, 2007 and
2006,
for the six months ended
June 30, 2005 and for the year ended December 31, 2004 in GFC’s transition
report on Form 10-K.
The
Company’s results of operations will be included in GFC’s consolidated financial
statements
from the completion date of the acquisition and will be first reported
in its
Form 10-Q for the
quarter ending September 30, 2007.
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