Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
|
For
the
quarterly period ended March 31, 2007
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934.
|
For
the
transition period from __________________ to
______________________.
Commission
file number 333-129830
GENERAL
FINANCE CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
32-0163571
(I.R.S.
Employer
Identification
No.)
|
260
S. Los Robles, Suite 217
Pasadena,
CA 91101
(Address
of Principal Executive Offices)
(626)
584-9722
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check whether the registrant: (1) filed all reports required to be filed
by
Section 13 or 15(d) of the Exchange Act 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:
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated
filer o Non-accelerated
filer x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
State
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 10,500,000 shares issued and outstanding as
of
April 30, 2007.
GENERAL
FINANCE CORPORATION
INDEX
TO FORM 10-Q
PART
I. FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
14
|
|
|
|
Item
4.
|
Controls
and Procedures
|
14
|
|
|
PART
II. OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings.
|
15
|
|
|
|
Item
1A.
|
Risk
Factors
|
15
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
15
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities.
|
15
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
15
|
|
|
|
Item
5.
|
Other
Information.
|
15
|
|
|
|
Item
6.
|
Exhibits.
|
15
|
PART
I.
FINANCIAL
INFORMATION
|
Item
1. Financial
Statements
|
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
(A
Development Stage Company)
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
March
31, 2007
(Unaudited)
|
|
December
31, 2006
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
155,365
|
|
$
|
37,713
|
|
Cash
equivalents held in trust account - restricted
|
|
|
68,080,657
|
|
|
68,055,252
|
|
Prepaid
insurance
|
|
|
—
|
|
|
19,125
|
|
Total
current assets
|
|
|
68,236,022
|
|
|
68,112,090
|
|
Office
equipment, net
|
|
|
2,610
|
|
|
2,871
|
|
Deferred
income taxes
|
|
|
475,800
|
|
|
198,300
|
|
Other
assets
|
|
|
1,010,613
|
|
|
814,547
|
|
Total
assets
|
|
$
|
69,725,045
|
|
$
|
69,127,808
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Current
liabilities:
|
|
|
Accounts
payable
|
|
$
|
631,825
|
|
$
|
462,224
|
|
Accrued
liabilities, including accrued interest of $48,928 in 2007 and $20,498
in
2006 on borrowings from related party
|
|
|
279,910
|
|
|
77,083
|
|
Income
taxes payable
|
|
|
176,193
|
|
|
597,500
|
|
Deferred
underwriting fees
|
|
|
1,380,000
|
|
|
1,380,000
|
|
Borrowings
from related party
|
|
|
2,000,000
|
|
|
1,280,000
|
|
Total
current liabilities
|
|
|
4,467,928
|
|
|
3,796,807
|
|
Common
stock subject to possible conversion,
|
|
|
1,724,138
shares at conversion value
|
|
|
13,240,500
|
|
|
13,168,200
|
|
|
|
|
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
|
|
|
51,742,833
|
|
|
51,708,433
|
|
Earnings
accumulated during the development stage
|
|
|
272,734
|
|
|
453,318
|
|
Total
stockholders’ equity
|
|
|
52,016,617
|
|
|
52,162,801
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
69,725,045
|
|
$
|
69,127,808
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
(A
Development Stage Company)
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Unaudited)
|
|
Quarter
Ended
March
31, 2007
|
|
Quarter
Ended March 31, 2006
|
|
October
14, 2005 (inception) to March 31, 2007
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
$
|
905,534
|
|
$
|
8,014
|
|
$
|
2,080,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(905,534
|
)
|
|
(8,014
|
)
|
|
(2,080,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
660,640
|
|
|
|
|
|
2,549,143
|
|
Interest
expense
|
|
|
(28,430
|
)
|
|
|
|
|
(48,928
|
)
|
Other,
net
|
|
|
(260
|
)
|
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
(273,584
|
)
|
|
(8,014
|
)
|
|
419,434
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
(93,000
|
)
|
|
|
|
|
146,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(180,584
|
)
|
$
|
(8,014
|
)
|
$
|
272,734
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
$
|
(0.00
|
)
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,500,000
|
|
|
1,875,000
|
|
|
|
|
Diluted
|
|
|
10,500,000
|
|
|
1,875,000
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
(A
Development Stage Company)
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’
EQUITY
|
(Unaudited)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
76,400
|
|
|
-
|
|
|
76,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
272,734
|
|
|
272,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2007
|
|
|
10,500,000
|
|
$
|
1,050
|
|
$
|
51,742,833
|
|
$
|
272,734
|
|
$
|
52,016,617
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
|
(A
Development Stage Company)
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Quarter
Ended March 31, 2007
|
|
Quarter
Ended
March
31, 2006
|
|
October
14, 2005 (inception) to March 31, 2007
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(180,584
|
)
|
$
|
(8,014
|
)
|
$
|
272,734
|
|
Depreciation
and amortization
|
|
|
353
|
|
|
|
|
|
1,075
|
|
Share-based
compensation expense
|
|
|
34,400
|
|
|
|
|
|
76,400
|
|
Deferred
income taxes
|
|
|
(277,500
|
)
|
|
|
|
|
(475,800
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
19,125
|
|
|
|
|
|
|
|
Other
assets
|
|
|
(2,683
|
)
|
|
(94,730
|
)
|
|
(6,371
|
)
|
Accounts
payable and accrued liabilities
|
|
|
372,428
|
|
|
|
|
|
911,735
|
|
Income
taxes payable
|
|
|
(421,307
|
)
|
|
|
|
|
176,193
|
|
Interest
deferred for common stock subject to possible conversion, net of
income
tax effect
|
|
|
72,300
|
|
|
|
|
|
382,700
|
|
Net
cash provided (used) by operating activities
|
|
|
(383,468
|
)
|
|
(102,744
|
)
|
|
1,338,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Deposit
related to proposed acquisition
|
|
|
(193,475
|
)
|
|
|
|
|
(1,004,795
|
)
|
Purchases
of office equipment
|
|
|
|
|
|
|
|
|
(3,132
|
)
|
Cash
equivalents held in trust account
|
|
|
(25,405
|
)
|
|
|
|
|
(68,080,657
|
)
|
Net
cash used by investing activities
|
|
|
(218,880
|
)
|
|
|
|
|
(69,088,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Borrowings
from revolving line of credit with related party
|
|
|
720,000
|
|
|
|
|
|
2,000,000
|
|
Proceeds
from sale of units, net
|
|
|
|
|
|
|
|
|
64,955,283
|
|
Proceeds
from private placement
|
|
|
|
|
|
|
|
|
700,000
|
|
Proceeds
from sale of common stock to initial stockholder
|
|
|
|
|
|
|
|
|
250,000
|
|
Net
cash provided by financing activities
|
|
|
720,000
|
|
|
|
|
|
67,905,283
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
117,652
|
|
|
(102,744
|
)
|
|
155,365
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
37,713
|
|
|
175,375
|
|
|
|
|
Cash
at end of period
|
|
$
|
155,365
|
|
$
|
72,631
|
|
$
|
155,365
|
|
Non-cash
financing activity:
|
|
|
|
|
|
|
|
|
|
|
Accrued
deferred underwriting fees
|
|
$
|
1,380,000
|
|
$
|
1,380,000
|
|
$
|
1,380,000
|
|
Accrued
deferred offering costs
|
|
|
|
|
|
137,044
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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. The Company has selected December 31 as its fiscal
year-end.
As
of
March 31, 2007, the Company had not yet commenced any operations and is
therefore a development-stage company. All activity through March 31, 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.
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. Pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”), certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been omitted or condensed. It
is
management’s belief that the disclosures made are adequate to make the
information presented not misleading and reflect all significant adjustments
(consisting primarily of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations for the periods
presented. It is recommended that these consolidated financial statements be
read in conjunction with the financial statements and notes thereto included
in
the Company's Annual Report on Form 10-K for the year ended December 31, 2006.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, GFN Australasia Finance Pty Limited 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 (see Note 3).
Deferred
Underwriting Fees
Deferred
underwriting fees of up to $1,380,000 accrued in connection with the IPO are
payable if and when the Company effects a business combination (see Note
3).
Common
Stock Subject to Possible Conversion
Common
stock subject to possible conversion is convertible into cash in an amount
equal
to 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 Note 3).
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 and 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
Statement of Financial Accounting Standards (“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 March 31, 2007,
a
deferred tax asset of $198,300 and $475,800, respectively, has been recorded.
This asset relates to certain expenses reported in these financial statements
that must be capitalized and amortized for income tax reporting purposes. As
of
March 31, 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 options (see Notes 3 and 8). For both the quarters
ended March 31, 2006 and 2007, these potential dilutive securities were not
considered in the calculation of diluted net income per common share due to
the
net loss incurred during those periods.
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 their 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.
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.
The
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 will be distributed to the Company (subject to stockholder
claims described below) upon consummation of a business combination with one
or
more operating businesses (the “Business Combination”) whose collective market
value is at least 80% of the Company's net assets at the time of the
acquisition. The Company may use the funds in the Trust Account to complete
the
Business Combination or for such purposes as the Company determines following
the Business Combination. If the Company does not consummate a Business
Combination by October 5, 2007 (or April 5, 2008 if certain extension criteria
have been satisfied), the funds in the Trust Account will be distributed to
the
stockholders then holding the shares issued in the IPO (the “Public
Stockholders”). Pending distribution to the Company or the Public Stockholders,
the funds in the Trust Account may be invested in government securities and
certain money market funds.
The
Company has agreed to submit the Business Combination for approval of its
stockholders even if the nature of the transaction would not require stockholder
approval under applicable state law. The Company will not consummate the
Business Combination unless it is approved by a majority of the Public
Stockholders and Public Stockholders owning less than 20% of the shares issued
in the IPO vote against the Business Combination and exercise the conversion
rights described below. The Company's stockholders prior to the consummation
of
the IPO (the “Pre-IPO Stockholders”) have agreed to vote their shares of common
stock owned prior to the IPO in accordance with the vote of the majority in
interest of the Public Stockholders. These voting provisions will not be
applicable after the consummation of the first Business
Combination.
With
respect to a Business Combination that is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares into cash. The per share conversion price
will
equal the amount in the Trust Account, calculated as of two business days prior
to the consummation of the proposed Business Combination, divided by the number
of shares of common stock held by Public Stockholders at the consummation of
the
IPO. Accordingly, a Business Combination may be consummated with Public
Stockholders holding 19.99% of the aggregate number of shares owned by all
Public Stockholders converting such shares into cash from the Trust Account.
Such Public Stockholders are entitled to receive their per-share interest in
the
Trust Account computed without regard to the shares held by the Pre-IPO
Stockholders.
The
Company's Certificate of Incorporation provides for mandatory liquidation of
the
Company in the event that the Company does not consummate a Business Combination
within the dates set forth above.
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. At March 31, 2007, the Company had cash
on deposit exceeding the insured limit by $55,365. Marketable securities
(restricted cash equivalents) held at March 31, 2007 consisted of United States
Treasury Bills that matured on April 5, 2007.
Note
5.
|
Limited
Recourse Revolving Line of
Credit
|
The
Company has 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 may from time to time borrow up to $3,000,000 outstanding
at one time. The line of credit terminates upon the earliest to occur of: (i)
the completion of the Business Combination, (ii) the liquidation of the Company,
or (iii) April 5, 2008, except that advances may be made after April 5, 2008
solely to pay reasonable costs and expenses in connection with the liquidation
of the Company.
The
line
of credit bears interest at 8% per annum and will not be payable from the funds
in the Trust Account, which funds will be distributed to the Public Stockholders
if the Company does not consummate the initial Business Combination within
the
required time periods. As of December 31, 2006 and March 31, 2007, $1,280,000
and $2,000,000, 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 has a limited recourse revolving line of credit agreement with Mr.
Valenta (see Note 5).
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 a Business Combination
by
the Company, the affiliates have 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 to be significant.
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.
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 is subject to approval
of stockholders. 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 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 $76,400 related to these
options was recognized in the statements of operations, with a corresponding
benefit to additional paid-in capital. As of March 31, 2007, there remains
$611,800 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 March 31, 2007, none of these options had vested.
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.
|
Proposed
Acquisition
|
On
September 12, 2006, the Company and its newly formed indirect Australian
subsidiary, GFN Australasia Finance Pty Limited (“GFN Australasia”), entered
into a Share Sale Deed (the “Acquisition Agreement”) with the shareholders (the
“Sellers”) of RWA Holdings Pty Limited, an Australian company (“RWA” and
collectively, with its subsidiaries, “Royal Wolf”), pursuant to which the
Company agreed to purchase all of the outstanding shares of capital stock of
RWA
(the “Acquisition”). The Sellers of RWA consist of Equity Partners Two Pty
Limited, an Australian private equity firm (“Equity Partners”), and four
founding shareholders of RWA (“Management Shareholders”). Royal Wolf leases and
sells portable storage containers, portable container buildings and freight
containers in Australia; and operates customer service centers in every state
in
Australia.
The
Acquisition would constitute a Business Combination for purposes of releasing
the funds from the Trust Account (see Note 3).
On
March
29, 2007, the Company entered into an amended and restated Share Sale Deed
that
superseded the Acquisition Agreement (such Deed, as amended and restated, the
“Amended Acquisition Agreement”) with the Sellers and a new party, Bison Capital
Australia LP, a partnership among Bison Capital Equity Partners and GE Asset
Management Incorporated and/or their affiliates (“Bison-GE”). Pursuant to the
Amended Acquisition Agreement, Bison-GE acquired approximately 80% of the shares
of RWA; consisting of all of the RWA shares owned by Equity Partners and
approximately 50% of the RWA shares held by the Management Shareholders, for
purchase consideration equivalent to the consideration (pro-rated for the
percentage of shares acquired) that the Company negotiated with the Sellers
as
set forth in the original Acquisition Agreement.
Bison-GE
and the Management Shareholders have agreed in the Amended Acquisition Agreement
to sell all of their RWA shares to the Company promptly following the
satisfaction or waiver of certain conditions, including principally the approval
of the Company’s stockholders (see Note 3). The Company will pay a purchase
price of approximately $60 million for the RWA shares and 1.5% per month on
such
amount from March 29, 2007 to the closing. The Company will pay the
purchase price in cash, less $1.0 million of non-refundable deposits previously
paid and less $6.7 million that will be paid with shares of capital stock of
GFN
Australasia representing 13.8% of its outstanding common shares. As a result,
the Company will indirectly own 86.2% of RWA. The amount the Company
will pay for the RWA shares will be affected if the actual levels of Royal
Wolf’s defined net
debt,
working capital, net tangible assets, container rental equipment and outstanding
obligations under a certain container lease program as of the initial
closing on March 29, 2007 vary from the estimated amounts used in determining
the purchase price described above. These amounts are currently in the process
of being determined by RWA and confirmed by the parties.
If
for
any reason the Company does not acquire RWA, under a separate agreement, Ronald
F. Valenta has agreed to acquire the RWA shares on the same terms and
conditions. The Company has not paid, and has not agreed to pay, any
compensation or consideration to Mr. Valenta for his agreement to purchase
the
RWA shares.
For
convenience, Australian dollar denominated were has been converted into U.S.
dollars using the March 31, 2007 exchange rate. On that date, one
Australian dollar was equivalent to 0.8080 U.S. dollars. The currency exchange
rate in effect as of the completion of the Acquisition or at any future date
may
differ; therefore any converted U.S dollar amounts may change.
The
Acquisition will be accounted for as a reverse acquisition and equity
recapitalization of Royal Wolf, with the Company treated as the “acquired”
company for financial reporting purposes. The Acquisition consideration to
be
paid to Bison-GE and the Management Shareholders will be reflected as a
distribution to them, and will result in a reduction of stockholders'
equity.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
This
Quarterly Report on Form 10-Q includes 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. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to known
and
unknown risks, uncertainties and assumptions about us that may cause our
actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In
some
cases, you can identify forward-looking statements by terminology such as
“may,”
“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “continue,” or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other Securities
and
Exchange Commission filings.
Overview
General
Finance Corporation (“we” or the “Company”) was formed 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. We
completed our initial public offering of securities in April 2006 (the “IPO”).
Substantially all of the net proceeds of the IPO were deposited in a trust
account pending completion of a business combination or liquidation of the
Company if we do not complete a business combination by October 5, 2007 (or
April 5, 2008 if certain extension criteria have been satisfied).
See
Notes
1, 3 and 5 of Notes to Consolidated Financial Statements for an overview of
our
business and the IPO.
Proposed
Acquisition
We
have
entered into an agreement to acquire RWA Holdings Pty Limited, a private
Australian company that leases and sells portable storage containers, portable
container buildings and freight containers in Australia; and operates customer
service centers in every state in Australia (“Royal Wolf”).
See
Note
9 of our Consolidated Financial Statements for a discussion of this proposed
initial business combination.
Critical
Accounting Estimates
There
have been no changes in our critical accounting policies since our Annual Report
on Form 10-K for the year ended December 31, 2006.
Results
of Operations, Financial Condition and Liquidity
Our
operating expenses totaled $905,500 and $2,080,500 for the quarter ended
March 31, 2007 and for the period from October 14, 2005 (inception) to
March 31, 2007, respectively. Operating expenses for the quarter ended March
31,
2007 and for the period from inception to March 31, 2007 included costs of
$473,500 and $1,257,200, respectively, related to the proposed acquisition
of
Royal Wolf; with the remaining operating expenses comprised primarily of
accounting, legal and other professional services, liability insurance and
payroll. Acquisition costs are charged to expense as incurred since we will
be
treated as the “acquired” company for financial reporting purposes. We also
incurred over $594,000 of offering costs in connection with the IPO, all of
which has been applied against paid-in capital.
We
had
net interest income earned on marketable securities held in the trust account
of
$660,600 and $2,549,100 for the quarter ended March 31, 2007 and for the period
from inception to March 31, 2007, respectively. Interest income excludes
earnings on funds held in the trust account associated with common stock subject
to possible conversion and, except for amounts equal to any taxes payable by
us
relating to such interest earned, will not be released from the trust account
until the earlier of the completion of a business combination or the expiration
of the time period during which we may complete a business
combination.
Interest
expense for the quarter ended March 31, 2007 and for the period from inception
to March 31, 2007 of $28,400 and $48,900, respectively, relates to borrowings
under our revolving line of credit.
We
provide for interim income taxes using an annual effective rate and have
recorded a federal income tax benefit for the pretax loss incurred during the
quarter ended March 31, 2007. The effective tax rate of slightly over 34% on
an
inception to-date basis is primarily because of state income taxes and the
nondeductible portion of travel and entertainment expenses.
We
had
not commenced any operations as of March 31, 2007, but had entered into an
agreement to acquire Royal Wolf (see Note 9). Completion of the acquisition
of
Royal Wolf would fulfill the conditions of a business combination required
to
release the funds held in the trust account to us. If this business combination
is not completed, we intend to immediately resume the search for another
suitable business combination; however, there is no assurance that such a
suitable business combination would be identified and consummated within the
requisite time periods. In the event one is not, the Company would be required
to distribute the funds held in the trust account to the holders of the
securities purchased in our IPO.
We
believe that our existing cash resources, including cash on-hand and available
borrowings under our revolving line of credit, will be sufficient to cover
operating costs and expenses until the proposed acquisition of Royal Wolf is
consummated. However, if we do not complete this acquisition, we would be
required to obtain additional financing to continue the search for another
suitable business combination and continue as a going concern.
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.
Item
3. Quantitative
and Qualitative Disclosures About Market Risk
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. We are not presently engaged in and, if we do not consummate a suitable
business combination prior to the prescribed liquidation date of the trust
fund,
we may not engage in, any substantive commercial business. Accordingly, we
are
not and, until such time as we consummate a business combination, we will not
be, 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 may be
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 do not view the interest rate risk to be significant.
Item
4. Controls
and Procedures
Ronald
F.
Valenta (our principal executive officer) and Charles E. Barrantes (our
principal financial officer) carried out an evaluation of the effectiveness
of
our disclosure controls and procedures as of March 31, 2007. Based upon that
evaluation, they concluded that our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act of 1934 (the “Exchange
Act”) is recorded, processed, summarized and reported, within the time periods
specified under the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures, no matter how well designed and implemented,
can provide only reasonable assurance of achieving an entity's disclosure
objectives. The likelihood of achieving such objectives is affected by
limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns
in
internal control can occur because of human failures such as simple errors
or
mistakes or intentional circumvention of the established process.
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 March 31, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART
II.
OTHER
INFORMATION
Item
1. Legal
Proceedings.
None.
Item
1A. Risk
Factors.
There
have been no material changes to the risk factors disclosed in our Annual Report
on Form 10-K for the year ended December 31, 2006.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds.
None.
Item
3. Defaults
Upon Senior Securities.
Not
applicable.
Item
4. Submission
of Matters to a Vote of Security Holders.
Not
applicable.
Item
5. Other
Information.
Not
applicable.
Item
6. Exhibits.
See
Exhibit Index attached.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
Date:
May 11, 2007
|
GENERAL
FINANCE CORPORATION
|
|
|
|
|
By: |
/s/
Ronald F. Valenta |
|
Ronald
F. Valenta
Chief
Executive Officer
|
|
|
|
|
By: |
/s/
Charles E. Barrantes |
|
Charles
E. Barrantes
Chief
Financial Officer
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Exhibit
Description
|
2.1
|
|
Deed
of Variation No. 3 dated March 30, 2007, which amends and restates
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
|
|
|
|
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
|