AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 2007 REGISTRATION NO. 333-124440
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2/A
POST-EFFECTIVE AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AT&S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 7359 | 22-047244 |
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
3505 MANCHESTER TRAFFICWAY
KANSAS CITY, MISSOURI 64129
(816) 765-7771
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
RICHARD G. HONAN
CHAIRMAN
3505 MANCHESTER TRAFFICWAY
KANSAS CITY, MISSOURI 64129
(816) 765-7771
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
WILLIAM M. SCHUTTE
POLSINELLI SHALTON FLANIGAN SUELTHAUS PC
6201 COLLEGE BLVD., SUITE 500
OVERLAND PARK, KANSAS 66211
(913) 451-8788
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Approximate date of commencement of proposed sale to public:
As soon as practicable after this registration statement becomes effective.
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If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective date registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / /
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PROSPECTUS
AT&S HOLDINGS, INC.
$5,000,000 of Callable Subordinated Notes
We are offering up to $5,000,000 in aggregate principal amount of our callable subordinated notes on a continuous basis. We are not a bank or similar financial institution and the notes will not be insured against loss by the FDIC or any governmental or private agency. Our notes will be unsecured and will be subordinate to our existing indebtedness and any indebtedness we may incur in the future. The notes will be non-negotiable and cannot be transferred without our consent. Accordingly, no trading market will develop for the notes. There is no minimum amount of notes offered that need be sold and no escrow account. The notes will be sold on a best efforts basis, with no guarantee that we will sell any of the notes. This offering is not underwritten and no broker-dealers are involved in the sale of the notes. The notes will only be offered by our directors, officers, and selected employees who will not be compensated for such services. Proceeds received from the sale of the notes will be deposited directly into our general operating account. The offering will terminate on December 1, 2008, unless terminated earlier at our discretion.
Series 2005
Principal Amount $5,000,000
Issue Date Upon acceptance of subscription
Interest Rates (1) Fixed at issue date
Maturity Dates (1) 36-59 months, 60-84 months or 85-120 months
Price (2) $1,000 or more in additional increments of $1,000
Net Proceeds (3) $4,700,000
(1) You will select the maturity of the note (in months) from the date ranges at the time you subscribe to purchase the note. Interest rates will be determined based on the maturity you select as follows:
| | Interest rate for Principal Balances of |
| Maturity selected | $1,000 to $9,000 | $10,000 to $24,000 | $25,000 Or Greater |
| 36-59 months | 5.25% | 5.50% | 5.75% |
| 60-84 months | 8.00% | 8.50% | 8.75% |
| 85-120 months | 9.00% | 9.50% | 9.75% |
Principal balance will be calculated using the total aggregate balance of all notes held by the note holder. We may, from time to time, change interest rates in supplements to this prospectus. However, any such change will not affect the interest rates of any notes purchased prior to the effective date of the change.
(2) Notes will be offered at face amount in a denomination of $1,000 or more in additional increments of $1,000.
(3) We estimate that approximately $300,000 (assuming $5,000,000 of notes are sold) will be expended by us for expenses and fees in making this offering. A $1,000 note, less expenses incurred by us for this offering, will yield proceeds to us of $940 (assuming $5,000,000 of notes are sold). Assuming a nominal amount of notes are sold (estimated at 10% of the maximum), the net proceeds to us would be approximately $350,000 (net of $150,000 of expenses and fees of the offering), which would yield proceeds per note of $700.
An investment in the notes involves a great deal of risk. Before you purchase any notes, be sure you understand these risks. See “Risk Factors” beginning on page 4 of this prospectus for a discussion of certain of these risks. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Contact:
AT&S Holdings, Inc.
3505 Manchester Trafficway
Kansas City, Missouri 64129
(816) 765-7771 or
(888) 765-7771
This Prospectus is dated July 2, 2007
(This page has been left blank intentionally.)
PROSPECTUS SUMMARY
Our Company
This summary highlights selected information and does not contain all of the information that may be important to you. You should carefully read this prospectus, any related prospectus supplement and the documents we have referred you to in “Where You Can Find More Information” for information about us. In this prospectus, references to “AT&S,” the “Company,” “we,” “us” and “our” refer to AT&S Holdings, Inc., a Nevada corporation, and our subsidiary American Trailer & Storage, Inc., a Missouri corporation (“American Trailer”).
We began operations in May 1994. On December 26, 2003, we re-organized into a holding company structure with American Trailer being the operating company. We provide portable, temporary storage and transportation solutions to a broad range of industrial and commercial customers in the Midwestern United States, through our rental fleet of over 2,200 portable storage and trailer units. Approximately 75% of our revenue is generated through renting and leasing storage containers (predominantly consisting of shipping containers that meet International Organization for Standardization (ISO) standards for ocean-going shipping containers) and semi-trailers. Twelve percent of our revenue is generated through the sale of such equipment, and the remaining 13% is generated through ancillary services such as trucking fees (delivery and pick-up of our equipment) and maintenance fees. During 2006, approximately 34% of our revenue was generated by trucking industry customers, 18% from retail industry customers, 9% from wholesale-distribution industry customers, and 10% from construction industry customers. The remaining 29% was generated from customers in 73 other industries, none of which generates greater than 3% of our revenues. Our principal offices are located at 3505 Manchester Trafficway, Kansas City, MO 64129. Our telephone number is (816) 765-7771 or (888) 765-7771. Our website is located at www.americantrailerandstorage.com; however information on our website does not constitute part of this prospectus.
The Offering |
| Securities Offered…………………… | | We are offering up to $5,000,000 in aggregate principal amount of our callable subordinated notes. There is no required minimum amount of the notes to be sold. |
| Offering price per note………...…… | | The notes will be offered at face amount in denominations of $1,000 or more in additional increments of $1,000. |
| Offering period………………....…… | | The notes will be offered until December 1, 2008 unless earlier terminated. |
| Net proceeds to us…………………… | | Assuming all notes being offered are sold, our net proceeds will be approximately $4,700,000 after payment of expenses of the offering. |
The following table summarizes the financial data of our business. You should also read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this prospectus. Summary financial information derived from our consolidated financial statements included elsewhere in this prospectus for December 31, 2006 and 2005 and March 31, 2007 and 2006 is as follows:
| Balance Sheet information: | | | | December 31, 2006 | December 31, 2005 |
| Property and equipment, net | | | | $5,113,152 | $3,551,417 |
| Total assets | | | | 6,080,526 | 4,629,206 |
| Long-Term Debt | | | | 3,596,893 | 2,209,725 |
| Total liabilities | | | | 4,845,998 | 3,512,076 |
| Total stockholders’ equity | | | | 1,234,528 | 1,117,130 |
| | | | | | |
| | | | | | |
| Income Statement Information: | | | | Year ended December 31, 2006 | Year ended December 31, 2005 |
| Revenues | | | | $4,249,197 | $4,086,560 |
| Operating income | | | | 378,720 | 546,620 |
| Interest Expense | | | | 277,641 | 268,407 |
| Net income | | | | 117,397 | $314,375 |
| Net Income Per Share | | | | $.11 | $.31 |
| Balance Sheet information: | | | | March 31, 2007 | March 31, 2006 |
| Property and equipment, net | | | | $5,246,611 | $3,582,057 |
| Total assets | | | | 5,931,600 | 4,384,275 |
| Long-Term Debt | | | | 3,244,583 | 2,458,535 |
| Total liabilities | | | | 4,698,133 | 3,171,733 |
| Total stockholders’ equity | | | | 1,233,460 | 1,212,542 |
| | | | | | |
| Income Statement Information: | | | | Quarter ended March 31, 2007 | Quarter ended March 31, 2006 |
| Revenues | | | | $1,073,916 | $1,181,137 |
| Operating income (loss) | | | | 78,976 | 154,989 |
| Interest Expense | | | | 81,610 | 58,129 |
| Net income (loss) | | | | (1,062) | 95,413 |
| Net Income (Loss) Per Share | | | | ($.00) | $.09 |
RISK FACTORS
Our operations and your investment in the notes are subject to a number of risks. These risks are described below. If any of the adverse events or circumstances described below actually occurs our business, financial condition or operating results and our ability to pay interest and principal on the notes could be materially adversely affected.
Risks Specific to Our Business
Additional competition may decrease our profitability, which would adversely affect our ability to repay the notes.
The portable storage business is highly competitive. The Company competes and potentially competes with a variety of companies, many of which have significantly larger rental fleets and significantly greater financial resources, marketing resources, personnel and business diversity. Management is aware of similar entrepreneurial and publicly-traded companies, both national and regional, that compete directly with the Company. We estimate that approximately 20 companies rent portable storage equipment in the Kansas City market, with approximately 12 companies competing in the Saint Louis market. In both of these core markets, at least one competitor has substantially greater market share than we have. Further, the barriers to entry in the industry are relatively low, and from time to time new competitors will likely enter our markets. In such a competitive business, we may face pressure to reduce our rental rates or our sales prices in order to maintain or increase our client base. Any failure to maintain competitive pricing could result in significant declines in our business volume. Conversely, any reduction in pricing could result in reduced gross margins and could harm the Company’s net revenue and results of operations if not offset by an increase in business volume. Further, increased competition in our industry could increase demand for purchase of storage containers and trailers, which could increase our costs in purchasing units for rental or resale. These competitive pressures may negatively impact our profitability and impair our ability to pay interest and principal on the notes.
We are a company with a high amount of debt; therefore fluctuations in interest rates could increase our interest cost, decrease our profitability and limit our ability to pay interest and principal on the notes.
Our operations are capital intensive and we operate with a high amount of debt relative to our size. Our high amount of debt makes us vulnerable to increases in prevailing interest rates. Increases in interest rates will increase our overall interest costs and impact our ability to meet our obligations on the notes. As of May 15, 2007 the amount of our debt subject to floating rates is $184,887.88.
A slowdown in the economy could reduce demand from our customers, which would negatively impact our profitability and impair our ability to pay interest and principal on the notes.
The majority of our customers are in the retail, construction and trucking industries. These industries tend to be cyclical and particularly susceptible to slowdowns in the overall economy. If an economic slowdown occurs, particularly in our core markets of Kansas City and St. Louis, we are likely to experience less demand for rental and sales of our products. We depend heavily on our retail customers, therefore a significant and/or prolonged downturn in the retail industry would result in us losing substantial revenue and increase risk of accounts receivable bad debt losses. We would likely incur substantial operating losses depending on the length and severity of the downturn. Management believes these conditions would be a very serious concern and, if they occur, ultimately could lead to our inability to pay interest and principal on the notes.
Our operations are subject to seasonal fluctuations, which could result in cash flow deficiencies during periods of the year.
Demand for rental of our portable storage units is stronger from September through December because large retailers need to store more inventory for the holiday season. Our retail customers usually return rental units to us early in the following year. Demand from our trucking company customers is usually highest in the 3rd quarter and demand from the construction industry is highest in the 2nd and 3rd quarters. As a result, we experience lower rental fleet utilization rates during the first quarter of each year that may result in seasonal short-term cash flow deficiencies. Such deficiencies may adversely affect our ability to service our obligations under the notes.
Our cost of funds may be higher than our competition, which could have a substantial negative impact on our profitability or potentially cause us to incur financial losses that increase the likelihood that we may not be able to sustain our operations and impact our ability to pay interest and principal on the notes.
Our existing debt may carry higher interest rates than interest rates paid by other portable, temporary storage companies with better credit ratings than we have. As a result, we may be required to charge our customers higher monthly rentals than would be charged by a competitor whose cost of borrowing is lower than ours. Accordingly, we may operate at a competitive disadvantage relative to certain other renters of portable storage equipment and our profitability would be impacted negatively. Our competitors with greater available resources may challenge us in our current markets because of our significant level of debt relative to our size. Our management believes this could lead to decreases in revenue and/or gross margins due to pricing competition. If this situation were to occur, our ability to meet our obligations on the notes could be adversely affected.
Our profitability and future growth depend on our continued access to bank debt.
The profitability and growth of our business currently depends on our ability to access bank debt at competitive rates. While we believe that our relationship with our bank is good, we cannot guarantee that financing by this bank will be available in the future. If we are unable to renew or replace our current bank debt or find alternative financing at reasonable rates, we may be forced to liquidate. If we are forced to liquidate, there can be no assurance that we will be able to meet our obligations on the notes.
Our current debt agreements contain covenants and restrictions with which we must comply. Failure to comply could result in our lenders foreclosing on our assets so that we will not be able to pay interest and principal on the notes.
Under our current debt agreements with our lending facility, we must comply with a variety of covenants and restrictions. The more restrictive include the maintenance of minimum tangible net assets and interest coverage ratios. These covenants and restrictions could limit our ability to respond to market conditions and restrict our planned growth. Also, if we fail to comply with these covenants and restrictions, the lenders have the right to refuse to lend us additional funds, and they may require early payment of amounts owed to them. If this happens, we may be unable to fund our operations and we would have to scale back our rental activities. Furthermore, if we default, our lenders may foreclose on our assets. As a result, we may not have sufficient funds to pay outstanding interest and principal on the notes.
We are dependent on several key customers for a material portion of our revenues. We expect our three largest customers to produce a declining percentage of revenues in the years ahead.
Our largest customer, Satellite Specialized Transportation (SST) alone represented approximately 26% of our revenues for the year ended December 31, 2006 and 29% for 2005. Our second largest customer, Wal-Mart accounted for 13.5% of our revenue in 2006, and 10% in 2005. We are highly dependent on these customers for revenues, and therefore a material decrease in their business with us for any reason would immediately cause us to lose revenues and might lead to our failure if a large portion of these revenues are not replaced. We do not expect our largest customers to continue to represent such a significant share of our revenues. Indeed, SST rental demand is driven by its disaster relief activities and revenue from individual Wal-Mart stores has fluctuated on a year-to-year basis over the last three years as a result of changes in inventory levels and management. If we are unable to replace business from our significant customers from year to year, our business would be negatively affected. The loss of or diminution of these businesses as customers or the inability to continually replace business from them and our other significant customers would require immediate and substantial overhead cost reductions together with the disposal of excess equipment to mitigate the effects and prevent failure of our business. There can be no assurance that we would be able to effectively respond to any such customer loss. Management views this risk as very significant and should management not immediately implement overhead cost reductions and equipment dispersals, we would not be able to meet our obligations.
We are dependent on third parties who lease us many of the containers and trailers we use to generate revenues in our business. These leases are generally short-term and we are subject to the risk we will be unable to continue to obtain containers and trailers from third party lessors on commercially practicable terms, if at all.
Although we own most of the containers and trailers (approximately 76%) we use in our business to generate revenue, a significant number of our units are instead leased by us from various third parties under short-term contracts. Our ability to continue to lease units from third parties on terms that permit us to in turn re-lease the units to our customers at a profit is critical to maintaining flexibility in our operations and overall profitability. Because we do not have long-term contractual commitments from any of our lessors, there can be no assurance that we will continue to be able to lease containers and trailers from third parties on commercially practicable terms, if at all. If we are not able to do so, our business could be materially and adversely impacted, increasing the risk that we will be unable to meet our obligations.
There is uncertainty and risk in the supply and price of used ocean-going containers and storage trailers, which are a key component of our product line. Either a severe shortage or oversupply of containers or trailers could impair our ability to pay interest and principal on the notes.
We purchase new and used ocean-going containers and storage trailers in order to expand our rental fleet. The availability of these containers and trailers depend in part on the level and balance of international trade (particularly between the U.S. and China) and overall demand for containers and trailers in the domestic and ocean cargo shipping business. When shipping increases, the availability of used ocean going containers and trailers for sale often decreases and the price of available containers and trailers increases. Conversely, an oversupply of used ocean-going containers and trailers may cause their prices to fall. Further, the cost and availability of containers may be dependent upon prices for steel, aluminum and other raw materials. We are always seeking to increase and/or upgrade our rental fleet; therefore our business is affected constantly by these market pressures. Severe price fluctuations in shipping containers and trailers could harm our ability to maintain an optimum inventory of containers and trailers to operate our business, and thus adversely impact our financial results and our ability to meet our obligations on the notes.
Loss of key personnel could adversely impact our operations.
We are a small company and we have only 20 employees. We are especially dependent upon the efforts on our behalf of Richard G. Honan and Richard G. Honan II, who are executive officers and members of the board of both AT&S and American Trailer. These key employees are thoroughly knowledgeable about our industry and every aspect of our business. It is very unlikely that they could be replaced by other persons of comparable expertise or commitment. Although each of these key employees is a party to an employment agreement with us, there can be no assurance that they will continue their efforts on our behalf as directors, officers or in any other capacity. If either of these key employees was to leave us, our ability to continue to successfully continue our business, and our ability to meet our obligations, would be adversely affected.
Our principal shareholder has loaned us substantial amounts to fund our operations and growth in the past and he may be unwilling or unable to continue to provide us such borrowings in the future. Further, he may be unwilling to continue to defer payments due on loans already made. We may not be able to obtain adequate outside financing to fund our operations or historical level of growth.
Our continued growth is dependent on the availability of financing to support increases in the size of our rental fleet. Since inception, we have supported our fleet expansion primarily with proceeds from the issuance of debt including borrowings from our principal stockholder. We cannot assure you that our future cash flow will be sufficient to fund our historical levels of growth or sustain current operations, nor can we assure you that our principal stockholder will agree or be able to provide us with funding in the future. Further, although he has in the past repeatedly agreed to defer repayment of loans owed to him, he is under no obligation to do so in the future. To the extent we need to obtain additional financing, we cannot assure you that any such financing will be obtained on terms satisfactory to us or at all. Management views this as a serious risk and believes we would incur substantial increases in debt service costs and likely fail in the event that our principal shareholder requests full payment of his indebtedness and we could not find new sources of borrowing with comparable/reasonable terms.
Our current S corporation status may limit our ability to raise equity funds and expand our operations in the future.
We have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. See “Management Discussion and Analysis of Financial Condition on Resulting Operations – S Corporation Status.” Current S corporation rules limit the number of shareholders allowed in an S corporation to 100 and only allows one class of stock. In the future, these limitations may restrict our ability to raise equity funds and expand our operations. While we do not feel these limitations are a significant risk to internally growing our current operations, we may, however, miss out on a significant and/or sizable future acquisition opportunity if we cannot raise enough equity capital within the constraints of the S corporation rules. Should we decide to change our tax status to that of a C corporation, it would not have an immediate impact on our financial condition, results of operations, or cash flows. If we curtailed our equipment purchases, we would incur tax liabilities at the then-current corporate tax rate.
Changes in zoning laws restricting the use of storage units may adversely affect our profitability.
We are indirectly subject to local zoning laws regulating the use of our storage units. Most of our customers use our storage units on their own properties. Local zoning laws in certain markets prevent some customers from keeping storage units on their properties or only permit the containers if located out of sight from the street. Changes in local zoning laws in existing markets or prohibition of storage units by local zoning laws in prospective new markets could result in the closure of certain branches, depending on the specific locality of the law change. If customers of our largest branch (Kansas City) are significantly affected by such changes in zoning laws, our ability to pay interest and principal on the notes could be adversely affected.
We are subject to various laws and regulations that govern and impose liability for activities and operations which may have adverse environmental effects. Our noncompliance with these laws and regulations could have a material adverse effect on our profitability.
We are subject to federal, state and local regulations that govern and impose liability for our activities and operation which may have adverse environmental effects, such as discharges to air and water as well as handling and disposal practices for hazardous substances or other wastes. Our operations may result in noncompliance with or liability for cleanup under these laws, regardless of our efforts to comply. In addition, the presence of hazardous substances, or failure to properly remediate any resulting contamination, may not allow us to sell, lease or operate our properties or to borrow money, using them as collateral. In addition, we may be subject to fines and other costs related to such events. We cannot assure you that such matters will not arise in the future. Management views a significant environmental liability as unlikely, but the potential magnitude of any such liability could be great and could adversely effect our profitability.
Risks Specific to the Notes Offered
The notes offered by this prospectus are not insured against loss by any third party, therefore investors can only depend on our earnings and assets for payment of interest and the repayment of principal.
Because the notes are not insured against loss by the FDIC or any governmental or private agency, you could lose your entire investment. An investor in the notes is dependent solely upon sources such as our earnings, proceeds from the sale of assets, our working capital and other sources of funds for repayment of principal at maturity and the ongoing payment of interest on the notes. If our sources of repayment are not adequate, we may be unable to pay the interest or repay the principal amount of notes at maturity and you could lose all or a part of your investment.
We are not required to set aside funds to repay the notes; therefore, investors can only depend on our continued cash flow for payment of interest and principal on the notes.
We do not contribute funds to a separate account, commonly known as a sinking fund, to repay the notes upon maturity. Because funds are not set aside periodically for the repayment of the notes over their term, note holders must rely on our cash flow from operations and other sources of financing for repayment, such as funds from bank loans and other credit facilities. To the extent cash flow from operations and other sources are not sufficient to repay the notes, you may lose all or a part of your investment.
Because the notes are not secured by any collateral, you are dependent upon our successful operations to service the interest and principal payments on the notes.
Substantially all of our assets have been pledged to our bank to secure our borrowings under our bank lending agreements. Accordingly, in the event of a default under our lending agreements, it is likely that our assets would be liquidated to repay our bank debt. Therefore, repayment of the notes is dependent on our continued successful operations. There can be no assurance that we will continue to operate successfully in the future.
Payment on the notes is subordinate to the payment of all our existing indebtedness and any future indebtedness we may incur, and the notes do not limit the amount of additional indebtedness we may incur.
The notes are subordinate in right of repayment to our other debt (see “Description of Notes” for definition) borrowed now, including the debt to our principal shareholder, and in the future. Upon the maturity of our indebtedness, by lapse of time, acceleration or otherwise, the holders of our other indebtedness have first right to receive payment in full prior to any payments being made to any note holders. Therefore, you would only be repaid if funds remain after the repayment of our other indebtedness. As of March 31, 2007, we had other debt of approximately $3,287,893, all of which is senior in right of payment to any notes issued at this time. There are no restrictions regarding the amount of indebtedness that we or American Trailer may incur.
Payment of interest and principal on the notes is effectively subordinate to the payment of the unsecured creditors of American Trailer.
Substantially all of our assets are held by our subsidiary, American Trailer. As a result, in the event of the liquidation of American Trailer, holders of preferred stock, if any, of American Trailer and the creditors of American Trailer would be paid prior to American Trailer distributing any amounts to us. While our bank lending agreements limit the amount of debt that American Trailer may incur, if American Trailer does not have sufficient funds to pay its debts, our ability to pay interest and principal on the notes would be impaired.
The notes do not contain extensive covenants to protect your investment in the notes.
The notes do not have the benefit of extensive covenants. The covenants in the notes are not designed to protect your investment if there is a material adverse change in our financial condition or results of operations. For example, the notes do not contain any restrictions on our ability to create or incur indebtedness or pay dividends or any financial covenants (such as a fixed charge coverage or minimum net worth covenants) to help ensure our ability to pay interest and principal on the notes. The notes do not contain provisions that permit note holders to require that we redeem the notes if there is a takeover, recapitalization or similar restructuring. In addition, the notes do not contain covenants specifically designed to protect note holders if we engage in a highly leveraged transaction.
Your ability to liquidate your investment in the notes is restricted; therefore investors cannot sell or transfer their notes under any conditions or circumstances prior to their maturity.
The notes offered are non-negotiable and are therefore not transferable without our prior written consent. Moreover, due to the lack of a market for our notes, you may be unable to liquidate your investment even if circumstances would otherwise warrant such a sale and if we permitted a transfer. Therefore you may lose all or part of your investment.
The notes can be redeemed at our discretion upon thirty days written notice.
The notes can be redeemed upon thirty days written notice by the company. This redeemable feature allows us the flexibility to redeem any or all of the notes should we deem necessary or desirable prior to maturity dates for any reason. This may occur if we obtain capital funding at a lower interest rate than the interest rate on the notes, if we have excess cash from operations or if our capital needs are less than anticipated. In case of redemption, you will only receive interest payments through the date of redemption and you may not be able to find comparable investments at the same interest rate.
USE OF PROCEEDS
The following table sets forth the intended use of the proceeds of this offering (all dollar figures in thousands), assuming the sale of 10%, 50%, 75% and 100% of the $5,000,000 of notes being offered.
| | | Percentage of Notes Sold | | |
DESCRIPTION -------------------------------------- | 10% | 50% | 75% | 100% |
| | | | | |
| Gross aggregate proceeds | $500 | $2,500 | $3,750 | $5,000 |
Less: estimated offering expenses (2) | 150 | 200 | 250 | 300 |
| | | | | |
| Net proceeds of offering | $350 | $2,300 | $3,500 | $4,700 |
| Use of proceeds: | | | | |
Purchase equipment (1) | $300 | $2,140 | $3,250 | $4,420 |
| Marketing costs | 50 | 160 | 250 | 280 |
| | | | | |
Total (3) | $350 | $2,300 | $ 3,500 | $4,700 |
| | ====== | ===== | ====== | ==== |
(1) We intend to utilize available funds for expansion of our fleet through the acquisition of additional ocean-going containers and storage trailers through the purchase of individual pieces of equipment or acquisition of other portable storage companies and to fund marketing costs. As of March 31, 2007, there were no probable or pending acquisitions of other portable storage companies. There is no minimum amount of notes offered that need be sold.
(2) The expenses of the offering are estimated to be $300,000, which includes filing fees, legal fees and expenses, accounting fees and expenses, advertising and travel, printing and engraving expenses. If proceeds of the notes approximate 10% of the maximum (or $500,000), the estimated offering expenses are anticipated to be reduced to approximately $150,000 primarily by reducing advertising, travel, and printing costs.
(3) Pending the application of the net proceeds as described above, the net proceeds from this offering will be placed in interest bearing bank accounts or invested in debt securities not necessarily of investment grade, certificates of deposits or commercial paper.
PLAN OF DISTRIBUTION
The notes will be sold at face amount directly by us on a “best efforts” basis through certain of our officers, directors, and employees, Richard G. Honan, Richard G. Honan II, and Steven W. Schutte. These individuals will not receive any commission in connection with the sale of the notes, although we will reimburse them for expenses incurred in connection with the offer and sale of the notes. These individuals will be relying on, and complying with, Rule 3a4-1 of the Securities Exchange Act of 1934, as amended, as a “safe harbor” from registration as a broker-dealer in connection with the offer and sale of the notes. In the future, we may hire other employees who will offer the notes for sale. No sales commission, finder’s fee, or other compensation will be paid for notes sold by us.
In the event we engage a broker-dealer to participate in the sale of our notes, we will file a post-effective amendment to advise you of such arrangements and the costs associated with such transaction.
There is no minimum amount of notes offered that are required to be sold through this offering. Payment for the notes may be made by check or money order made payable to “AT&S Holdings, Inc.” and will be placed in our corporate checking account until the subscription is approved. You may purchase notes by completing and manually executing a subscription agreement and delivering it, with your payment for the full face amount of the notes you wish to purchase, to our offices. Your subscription shall not become effective until accepted by us and approved by our counsel.
Upon acceptance of a subscription for notes, we will issue the notes to the purchasers. We may continue to offer the notes until December 1, 2008, unless terminated earlier at our discretion. During the offering period no subscriber will be entitled to any refund of any subscription.
We may conduct the offering by print advertisements, oral solicitations and other methods, all in compliance with applicable laws and regulations, including securities laws.
FORWARD LOOKING STATEMENTS
We have used words in this prospectus such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and other similar expressions, which identify forward-looking statements. Actual results or circumstances could differ materially from those suggested by these forward-looking statements. These forward-looking statements are based largely on our expectations and are subject to a number of risks, such as those discussed in the section entitled “Risk Factors,” and uncertainties, including:
| · | Our significant dependence on several key customers; |
| · | The highly competitive nature of our business; |
| · | The supply and price of used ocean-going containers and storage trailers; |
| · | Significant changes in interest rates; |
| · | Seasonal fluctuation in our business; |
| · | Our continued ability to access bank debt; and |
| · | Our dependence on third parties to lease us containers and trailers on favorable terms. |
Many of these factors are beyond our control.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the financial statements and the accompanying notes included elsewhere in this prospectus.
Overview
American Trailer was formed on May 15, 1994 under the laws of the State of Missouri under the name Financial Credit Corporation. Financial Credit Corporation conducted business under the fictitious names of Commercial Trailer and American Trailer & Storage. On December 9, 2003, the name was officially changed to American Trailer & Storage, Inc. American Trailer has been engaged solely in the business of renting and leasing storage containers and semi-trailers since inception and does not have any subsidiaries.
On December 31, 2003, we re-organized in a holding company structure. At that time AT&S became the parent of American Trailer. The Management’s Discussion and Analysis of Financial Condition and Results of Operations contained herein includes the consolidated financial information for American Trailer and AT&S thereafter.
We are a provider of portable storage and transportation solutions through our rental fleet of approximately 2,300 portable storage and transportation units through our subsidiary American Trailer. We currently have two branches and operate in Missouri, Kansas, and Illinois. We primarily concentrate on the Kansas City and St. Louis metropolitan regions. We feel there are opportunities for growth in other Midwestern markets when our capital and human resources are adequate to handle external branch expansion.
Our rental equipment provides secure, accessible temporary storage and transportation for a diversified client base of over 700 customers in 77 different industries. Our customers use our products for a wide variety of storage and transportation applications, including the storage of retail and manufacturing inventory, protection of construction materials and equipment, handling peaks in shipping cycles and transporting material to and from customers’ or their construction job sites. Our largest customer, Satellite Specialized Transportation (“SST”), constituted 26% of our revenue in 2006, 29% of our revenue in 2005 and 6% of our revenue in 2004. SST rents our equipment on a unit-by-unit, short-term basis. SST uses our equipment to haul cargo and freight long distances. In particular, SST has rented our equipment for transportation and storage of disaster relief supplies to victims of hurricanes and other disasters. In general, SST rents equipment for $500 per unit per month. We anticipate that SST will be our second largest customer after Wal-Mart for 2007 due to the continued large number of units rented to support disaster preparedness and the potential for damaging hurricanes in 2007. Because the disaster relief business is mainly short term, we do not purchase equipment specifically for this purpose and should not, therefore, have material amounts of idle equipment should natural disasters not occur in any given year. We mainly rent equipment owned by other entities under agreement with the other entities to supply SST with trailers. The trailers are turned back over to the other entities when SST is finished using them for disaster relief duties.
Our second largest customer, Wal-Mart, accounted for 13.5% of our revenue in 2006, 10% in 2005, 22% in 2004 and 27% in 2003. Wal-Mart rents our storage equipment on a store-by-store, unit-by-unit, short-term basis. Rental and trucking (delivery and pick-up of storage equipment) rates vary by store location. No single store accounts for more than 5% of our revenues. In general, a Wal-Mart store rents equipment on a four-week minimum term for $90-$135 per four weeks, depending on the type of unit and the quantity of containers rented by the particular store. The store also pays delivery and pick-up charges between $75-$400 each way, depending on the distance of the store from our locations. We believe that year-to-year fluctuations in revenues from Wal-Mart may be indicative of a trend resulting from improvements by Wal-Mart in its inventory management.
Aside from Wal-Mart, our other largest customers tend to vary significantly from year to year. We do not expect our largest customers to continue to represent such a significant share of our revenues. Indeed, SST rental demand is driven by its disaster relief activities and Wal-Mart is continually working to reduce inventory levels. If we are unable to replace business from our significant customers from year to year, our business would be negatively affected. The loss of or diminution of these businesses as customers or the inability to continually replace business from them and our other significant customers would require immediate and substantial overhead cost reductions together with the disposal of excess equipment to mitigate the effects and prevent failure of our business. There can be no assurance that we would be able to effectively respond to any such customer loss. Management views this risk as very significant and should management not immediately implement overhead cost reductions and equipment dispersals, we would not be able to meet our obligations. We do not expect a significant impact to our financial condition in the next 12 months resulting from a decrease in business from our largest customers. We expect SST to continue to rent equipment on a seasonal, on-going basis for disaster preparedness; and disaster relief efforts, should conditions warrant such. We do not expect Wal-Mart’s demand for equipment to decrease in a significantly short period of time. We also anticipate the demand for equipment in other industries to cyclically increase from year to year, as has occurred in the past, and we anticipate that these increases will be substantial enough to replace revenues from industries that demand has declined in a given year.
We primarily obtain our portable storage units by purchasing new and used ocean-going containers and purchasing new and used trailers from the trucking industry. We offer a wide range of products in varying lengths and widths with an assortment of differentiated features such as security systems, multiple doors, electrical wiring and shelving. In addition to our rental operations, we sell new and used portable storage units and provide ancillary services. Although our primary business is rental of storage units and trailers, we sell units from time to time when the customer demand for purchase exists and we are able to sell at prices that exceed our cost of replacing the unit or where we have excess inventory.
Our primary revenue source is the rental and sale of portable storage and transportation units with our focus being on the rental rather than sale of such equipment.
As noted above, our discussion and analysis in this report, and other reports that we file with the Securities and Exchange Commission, in our press releases and in public statements of our officers and corporate spokes-persons contain forward-looking statements. In this report, we have used words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect” and other similar expressions, which identify forward-looking statements. Forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. We undertake no obligation to update any forward-looking statement. We provide the following discussion of risks and uncertainties relevant to our business. These are factors that we think could cause our actual results to differ materially from expected or historical results. We could also be adversely affected by other factors besides those listed here.
Year ended December 31, 2006 Compared to 2005
Total revenues approximated $4,249,000 in 2006. The increase of $163,000 over 2005 total revenues represents a 4% increase. Approximately 88% of total revenue was derived from equipment rental and related service revenues (delivery, pick-up, maintenance revenues, etc.). Approximately 12%, or $514,000, of total revenues was derived from the sale of equipment, compared to $580,000, or 14% of total revenues, in 2005. This increase in rental and related revenues is primarily due to a general increase in demand for our services from companies in varied industries offset by a decrease in demand from our largest customer for over the road equipment used to haul disaster relief supplies.
Rental revenues increased $215,000, or 7%, mainly the result of a sharp increase in demand from construction and retail industry customers of 44% and 15% respectfully. Rental revenues from the trucking and wholesale industries declined 13% and 8% respectfully. Revenues from companies in 73 other industries was essentially flat. Equipment sales decreased $66,000 in 2006 versus 2005 due to a concentrated effort to focus on increasing rental revenues because the margins on equipment rentals are higher than the margins on equipment sales. Because we routinely sell rental equipment as a course of our business, equipment sales includes both units sold from the rental fleet and units purchased for re-sale (sale inventory). The cost of the equipment (included in the cost of goods sold) was the net book value, after depreciation, of the equipment at the time of sale. (The line item “Gain on Sale of Equipment’ on the Statement of Cash Flows is the net gain on the sale of rental equipment and is deducted from our net income when calculating “Net Cash Provided by Operating Activities.” The proceeds from the sale of the rental equipment is then included in the “Proceeds from the Sale of Equipment,” together with the proceeds from the sale of non-rental equipment, when used to calculate “Net Cash Used by Investing Activities” on the Statement of Cash Flows.
Drayage (trucking) revenue decreased approximately $26,000, or 6%, from the previous year. This decline is primarily due to a reduced number of units picked up from customer locations as units on rent tended to stay on rent for longer periods. Other revenues, which consist primarily of on-site equipment storage fees, repair charges for customer-damage to equipment, late fees, damage-waiver fees and property tax fees increased $16,000, or 40%, due primarily to an increase in demand for our services and equipment from the trucking and construction industries. We anticipate continued strong demand from varied industries, including trucking, construction and other varied industries. We also anticipate increasing our market share of the retail industry’s equipment rental expenditures in our markets (as of February 28, 2007, rental revenue generated from our retail customers is up approximately 30% compared to the same time period in 2006).
Cost of sales for the twelve months ended December 31, 2006 totaled $2,003,000, an increase of 2.5%, as compared to the same period in 2005. Cost of sales represented 47% of total revenues in 2006 versus 48% in 2005. The cost of equipment sold decreased $9,000, or 15%, due to the decrease in total number of units sold. Fleet maintenance expenses (included in “equipment rental” expense item) increased by approximately $77,000, or 35%, due mainly to the increase in the number of company-owned semi-trailers, which require more maintenance than containers. Fleet maintenance expenses mainly cover the expenses, not charged to our customers, to repair and maintain the rental fleet of containers and trailers. It is anticipated that fleet maintenance expense will increase as we continue purchasing more equipment in 2007 and work to improve the material condition of the equipment to our standards. Our three tractors did not require significant repairs in 2006. Depreciation expense increased by $63,000, or 19%, from 2005 due to an increase in the size of the rental fleet. Depreciation expenses will continue to increase as we continue to purchase equipment and expand our rental fleet. Drayage expenses increased 7%, or $22,000, during the twelve months of 2006 versus 2005. This increase is mainly due to an increase in fuel costs. We expect our drayage expenses as a percentage of overall revenue to hold steady or decline in 2007. Maintenance expenses related to repairs charged to customers decreased $7,000 or 20%, mainly a result of the decreased demand for semi-trailers used in disaster relief. Gross profits increased by $114,000, or 5.3%, in 2006 versus 2005, representing 53% of total revenues. We anticipate that the gross margins will remain between 50 and 55% for 2007.
Operating expenses increased $282,000, or 18%, over 2005. Operating expenses represented 44% of total revenues in 2006 versus 39% in 2005. The primary reasons for the increase are an increased amount of personnel, an increase in salaries and commissions, health insurance, marketing, property taxes, and bad debt expenses. We expect operating expenses to remain under 45% of total revenues for 2007, as we plan to increase the number of rental units in the fleet and the number of units on rent at any given time, without increasing operating expenses.
Overall interest expenses increased $9,000, or 3.4%, from 2005 to 2006 to $277,641. Interest expense constituted 7% of total revenues in 2006 and 2005. This increase was primarily due to an increase in the balance of loans owed to our senior lender and an increase in interest rates on our lines of credit. “Interest expense – Related Party” (interest accrued due our principal shareholder) decreased $15,204, or 26.6% due to a decrease in the amount owed to the related party. “Interest Expense – Other” (interest accrued to our bank) increased $24,313, or 11.5% due to increased balances owed to our bank and increased interest rates on our floating lines of credit. We anticipate our interest expenses to increase as we expect to finance equipment purchases with bank financing. Continued increases in interest rates may also increase our interest expenses; however, these increases will likely be minimal compared to the increases due to increased balances owed as the majority of our balances have fixed interest rates.
We had a net income of $117,000 for the twelve-month period ended December 31, 2006 versus $314,000 in 2005. Net income represented 3% of total revenues for the period versus 8% of total revenues in 2005. The decrease was mainly the result of decreased revenues from high margin rental of equipment used for disaster relief. Because we have the support infrastructure in place in Kansas City and St. Louis capable of handling a larger fleet without much additional personnel or resources, we should be able to increase our operating margins by increasing revenues in Kansas City and St. Louis without marginally increasing expenses. We anticipate that net income and net margin will increase in 2007.
Three months ended March 31, 2007 versus March 31, 2006
Our revenues totaled $1,073,917 for the three months ended March 31, 2007. The decrease of $107,221 versus the same period in 2006 represents a 9.08% decrease. Approximately 78.8%, of total revenues were derived from equipment rental and related service revenues (delivery, pick-up, maintenance revenues, etc.).
Approximately 9.06%, or $97,300, of total revenues was derived from the sale of equipment, compared to $156,011, or 13.21% of total revenues during the same period in 2006. Revenues from equipment sales decreased during the period due to a general decrease in demand for equipment purchases from companies in varied industries. Because we routinely sell rental equipment as a course of our business, equipment sales includes both units sold from the rental fleet (revenue producing equipment / fixed assets) and units purchased for re-sale (sale inventory). The cost of the equipment (included in the cost of goods sold) was the net book value, after depreciation, of the equipment at the time of sale. The line item “Gain on Sale of Equipment” on the Statement of Cash Flows is the net gain on the sale of rental equipment and is deducted from our net income when calculating “Net Cash Provided by Operating Activities.” The proceeds from the sale of the rental equipment is then included in the “Proceeds from the Sale of Equipment,” together with the proceeds from the sale of non-revenue producing equipment, when used to calculate “Net Cash Used by Investing Activities” on the Statement of Cash Flows.
We generated rental revenues of $846,321 during the three month period ending March 31, 2007 versus $865,404 during the same period in 2006. The decrease in rental revenue of $19,083, or 2.21%, was a result of a decrease in demand for our equipment from the trucking industry, offsetting increases in demand from the retail, wholesale distribution and sub-contractor industries. Drayage (trucking) revenue decreased $18,230, or 19.07%, to $77,349 during the three-month period versus the previous year. This decrease is due to a decrease in the numbers of pick-ups and deliveries due to the decrease in the number of rentals. We anticipate that drayage rates will hold steady. Maintenance revenues, charges to customers for customer related equipment damages the cost of which are included in maintenance expenses, decreased $14,708 or 27.76% during the period due to the general decrease in rental activity.
Cost of goods sold for the three months ended March 31, 2007 totaled $498,889, a decrease of 14.17%, as compared to the same period in 2006. Cost of goods sold represented 46.46% of total revenues for the period versus 49.21% during the same period 2006. The cost of equipment sold decreased $31,745 or 34.93% due to the decrease in the number of units sold offset by an increase in the cost of the units sold. Gross margins on equipment sales, as a result, decreased from 41.7% to 39.2% as we were not able to marginally increase our prices commensurate with our costs. We expect that availability of used trailers and containers will remain limited as the shipping industries continue to experience high demand. Equipment rental expense, which includes costs to maintain the rental fleet not related to customer damages, rent paid to third parties for equipment re-rented to our customers, and licensing and titling fees, decreased by $104,132, or 33.5%, for the period. The decrease was primarily due to the decrease in number of over-the-road semi-trailers and over-the-road refrigerated semi-trailers rented from third parties and then rented to customers in the trucking industry versus the same period in 2006. We expect the equipment rental expense to hold steady or decline over the next six months as we have increased the number of trailers available in our owned rental fleet. We will, however, continue to re-rent over-the-road equipment for customers when profitable opportunities present themselves. Maintenance expenses increased $17,858 or 219.04% during the period to $26,011. This increase is primarily the result of an increase in the number of units returned by customers with damages requiring additional maintenance to ensure rental worthiness for the new customers. These costs are recouped from customers as shown in the maintenance revenue line item.
Depreciation expense increased $37,090, or 43.00%, due to an increase of owned units in the rental fleet. Depreciation expense will further increase as a result of purchasing more equipment as the fleet continues to grow. Drayage expenses increased $1,407, or 1.65% during the period due to an increase in fuel cost. Drayage expenses will likely increase during the upcoming 12 months due to rising fuel expenses. Our three semi-tractors do not typically require significant repair expenses.
Gross profits decreased by $24,885, or 4.15%, during the three months ended March 31, 2007 versus 2006, representing 53.54% of total revenues and totaling $575,027. The decrease in gross profits is mainly due to the decrease in revenue partially offset by a larger decrease in cost of goods sold. As the availability of new and used shipping containers decreases, we should to be able to continue to command higher prices for our equipment, however, this will also cause us to pay higher prices for our equipment sold and additions to our rental fleet. We anticipate that our gross profit margin will be above 50% for the 12 months of 2007, as the third and fourth quarters typically have higher utilization and profitability.
Operating expenses increased $51,128, or 11.49%, during the three month period ended March 31, 2007 versus the same period in 2006. Operating expenses represented 46.19% of total revenues versus 37.67% for the same period in 2006. The increase is primarily due to increases in salaries, employee benefits including health insurance, and professional fees. We had 14% more employees in 2007 compared to the same period in 2006. Marketing expenses decreased $13,596, or 31.27% due to a decrease in direct mail advertising. We expect operating expenses to be under 45% of total revenues for 2007, as the third and fourth quarters have historically seen increases in demand for rental equipment, without marginally increasing operating expenses.
Overall, interest expense increased $23,062 or 37.75%, during the three months ended March 31, 2007 versus the same period in 2006 to $84,151. Interest expense constituted 7.84% of total revenues versus 5.17% during the same period in 2006. This increase is primarily due to an increase in the amount of our bank debt for purchases of new equipment and to an increase in subordinated debt. “Interest Expense – Other” (primarily interest accrued to our bank) increased $27,610, or 56.15% due primarily to increased balances owed to our bank and increased interest rates on our floating lines of credit, and due, to a much lesser extent, issuance of subordinated debt. We expect interest expenses to increase as we expand our fleet through increases in borrowing and as interest rates continue to increase over the previous year.
We had a net loss of $1,062 for the three-month period ended March 31, 2007 versus a net gain of $95,412 for the same period in 2006. This net loss represents 0.1% of total revenues for the period versus a net gain representing 8.08% of total revenues during the same period in 2006. The decrease in net income is primarily attributable to the decrease in revenues and an increase in operating and other expenses as described above. We anticipate a positive net income for 2007 as gross profits historically increase each quarter and operating expenses should not marginally increase.
Liquidity and Capital Resources
Growing our rental fleet is very capital intensive. The amount of capital needed is dependent on the number of units we plan to purchase in a given period to continue growth and on building the infrastructure to support such growth. Over the year, our fleet size has been steadily increasing in size as we focused on purchasing newer equipment and selling, older, non-utilized units. Purchases of new equipment and additional staff have primarily been funded through the issuance of subordinated debt to our principal owner and equipment financing on a collateralized basis.
A note payable to the majority shareholder had a balance of $180,292 at December 31, 2006 and $144,824 at March 31, 2007, and is subordinate to our bank loans. This note was originally due January 1, 2004 and then extended to January 1, 2005. On July 15, 2004, other loans to shareholder (which originally had due dates of August 15, 2004 and September 20, 2004) were combined with this loan, and the due date of the new loan, which required monthly payments of principal and interest, was February 15, 2008. This loan agreement was amended on March 15, 2005. The amended agreement required monthly payments of interest only and the principal amount was due April 15, 2006. That agreement was further amended on September 30, 2006 by changing the maturity date to April 15, 2008. Our majority shareholder also purchased 2005 series subordinated notes in 2005 totaling $45,000. Due to bank financing covenants, the principal owner cannot be repaid the balance of the subordinated notes if the total debt to net worth ratio exceeds the bank’s maximum limit after any such repayment.
Operating Activities: Cash provided by operating activities for the three-month period ended March 31, 2007 was $319,979 compared to $133,627 during 2006. This increase was mainly due to an increase in depreciation and a decrease in accounts receivable partially offset by a decrease in net income.
Investing Activities: Net cash used by investing activities during the three-month period ended March 31, 2007 was $239,581. This was the result of net purchase of equipment versus proceeds received from the sale of equipment, $323,881 versus $84,300 respectively. This compares to approximately $86,912 net cash used by investing activities during 2006 as a result of net purchase of equipment versus proceeds received from the sale of equipment, $192,073 versus $105,161 respectively. Proceeds from the sale of equipment includes proceeds from both the rental fleet (revenue equipment) and non-revenue equipment. We plan to continue selling non-utilized or under-utilized equipment and purchase more equipment to meet the demands of our customers and we anticipate that purchases will outpace sales of equipment in 2007.
Financing Activities: Net cash used by financing activities was $212,682 during the three-month period ended March 31, 2007 versus $205,690 net cash used in 2006. Approximately $724,616 provided from proceeds of new financing supplemented cash generated from operations to provide funds for the purchase of equipment during the three-months ended March 31, 2007. Approximately $937,298 and $246,690 in the three-months ended March 31, 2007 and 2006, respectively, was used to pay down principal of long-term senior and subordinated debt.
Banking Arrangements:
We have entered into a financing agreement with Bank of the West, Lee’s Summit, Missouri. The financing agreement provides us with a reducing revolving line-of-credit, an equipment purchase line-of-credit, two fixed interest rate term notes, and a working capital line-of-credit.
| · | Reducing Revolving Line-of-Credit – The current maturity date of our reducing revolving line-of-credit is March 30, 2008. The monthly reduction in availability is $26,690 with an interest rate of 6.70%. As of March 31, 2007, the outstanding balance on this line of credit was $1,654,044 with $293,572 available funds. |
| · | Equipment Purchase Line-of-Credit – The equipment purchase line-of-credit provides us with capital to purchase revenue producing equipment. The interest rate on this line of credit is prime (8.25% as of March 31, 2007). As of March 31, 2007, the outstanding balance on this line-of-credit was $440,053 with $309,947 available. This line of credit expires March 28, 2008. |
| · | Working Capital Line-of-Credit – The working capital line-of-credit provides capital to cover short-term cash flow needs. The interest rate on this line of credit is prime (8.25% as of March 31, 2007). As of March 31, 2007, the outstanding balance on this line-of-credit was $0 with $250,000 available. |
| · | Fixed Interest Rate Term Note – The fixed interest rate term note was used to finance the acquisition of Ace Trailer and Storage on October 26, 2006. The interest rate on this note is 7.3%. This note requires monthly payments of principal and interest of $16,377.60 and the outstanding principal is due October 31, 2013. As of March 31, 2007, the outstanding balance on this note was $1,021,175. |
| · | Fixed Interest Rate Term Note – The fixed interest rate term note was used to finance equipment purchases from April 2005 through March 2006. The interest rate on this note is 7.15%. The note requires monthly payments of principal and interest of $8,904.71 and the outstanding principal is due March 30, 2009. As of March 31, 2007, this note had a balance of $518,412. |
| · | Fixed Interest Rate Term Note – The fixed interest rate term note was used to finance equipment purchases in January 2007. The interest rate on this note is 7.3%. The note requires monthly payments of principal and interest of $1,647.48 and the outstanding principal is due February 15, 2014. As of March 31, 2007, this note had a balance of $108,119. |
The following table summarizes our banking lines-of-credit and term loans:
| Credit Facility | Interest Rate | Amount Available as of March 31, 2007 | Balance outstanding as of March 31, 2007 |
| Reducing Revolving Line-of-Credit | 6.70% | $293,572 | $1,654,044 |
| Equipment Purchase Line-of-Credit | prime* | $309,947 | $440,053 |
| Working Capital Line-of-Credit | prime* | $250,000 | $0 |
| Fixed Interest Rate Term Note | 7.30% | $0 | $1,021,175 |
| Fixed Interest Rate Term Note | 7.15% | $0 | $518,412 |
| Fixed Interest Rate Term Note | 7.3% | $0 | $108,119 |
*8.25% as of March 31, 2007.
On April 4, 2007 the balance of $440,053 on the equipment purchase line of credit was transferred to a term loan bearing an interest rate of 6.9% with a maturity date of April 4, 2010. This loan requires monthly payments of interest and principal of $6,642.66.
All of the notes and lines of credit are subject to the provisions of a Security Agreement dated September 18, 2003. Covenants of this agreement provide for the personal guarantees of our majority shareholder and his wife as well as subordination of our debt obligations to the majority shareholder.
The agreement also requires us to meet certain financial covenants.
Financial Covenants
Compliance with our financial covenants under our financing agreement is determined as of December 31 of each year. We were in compliance with two of three restrictive covenants as of December 31, 2006. We anticipate being in compliance as of all three covenants as of December 31, 2007. Per the terms of our business loan agreements, we must comply with the following three financial covenants and ratios:
| 1. | Debt Service Coverage Ratio. Maintain a ratio of Debt Service Coverage in excess of 1.250 to 1.000. The term “Debt Service Coverage Ratio” means our Net Operating Income (Net Income + Depreciation + Amortization + Interest Expense) divided by our required principal payments (or Prior year CMLTD) + Interest Expense. This coverage ratio will be evaluated as of year-end. |
The formula is EBITDA/CMLTD + interest expense. EBITDA (Earnings before interest, taxes, depreciation, and amortization) will be calculated as operating income (before interest and taxes) plus any depreciation or amortization expenses. CMLTD (current maturities of long term debt plus interest expense) will be computed as: the current maturities (principle payments due within the following 12 months) of all term debt plus all interest expenses from the previous 12 months associated with all debt (term, lines of credit, subordinated, etc.) plus any lease payments due within the following 12 months.
The current principle balances of any other lines of credit or subordinated debt will not be included in CMLTD. This is tested annually from audited financial statements.
| 2. | Debt / Worth ratio. Maintain a ratio of Debt / Worth not in excess of 4.0 to 1.0. The ratio “Debt / Worth” means our Total Liabilities (less any subordinated debt) divided by our Tangible Net Worth (plus any subordinated debt). This leverage ratio will be evaluated as of year-end. |
| 3. | Maintain a positive current ratio. Current ratio to be calculated based on current assets divided by current liabilities less current maturities of subordinated debt less any outstanding balance on the equipment purchase Line of Credit. |
Our trailing twelve month debt service coverage ratio for the period ended March 31, 2007 is 1.19 : 1.
As of March 31, 2007, our working capital ratio was .76.
As of March 31, 2007, our debt-to-equity ratio was 2.49.
We are in compliance with all restrictive covenants as of the most recent date required to be tested; the audited financial statements as of and for the year ended December 31, 2006.
All three financial covenants are tested annually using our audited year-end financial statements.
The reducing line-of-credit is collateralized by a blanket lien on our assets as well as the personal guarantee by the principal owner, Richard G. Honan, and his wife, Kathleen M. Honan.
We believe our credit facilities provide us with both short and long-term liquidity, the flexibility to acquire revenue equipment on an as needed basis, and lower our overall capital costs.
We expect to acquire at least $500,000 of additional revenue equipment during 2007. As of May 4, 2007 we have agreements to purchase $415,000 of delivery and rental equipment in the second and third quarters of 2007.
We believe that our working capital, together with our cash flows from operations, borrowings under our working capital and equipment purchase lines-of-credit and other available funding sources will be sufficient to fund our operations and planned growth for at least 12 months.
Seasonality
The demand for our equipment is somewhat seasonal. This is due mainly to the seasonal demands of the retail, trucking and construction industries. Retailers demand more equipment in the third and fourth quarters of each year to handle peak inventory demands of the holiday shopping season. The trucking industry generally demands more equipment in the third and fourth quarters, and the construction industry generally demand more equipment in the second and third quarters. Most of the equipment rented by the retailers is returned early in January of each year, resulting in decreased cash flow from operations during the first half of every year. We expect this trend to continue.
Off-Balance Sheet Arrangements
We do not engage, nor plan to engage, in any off-balance sheet financing arrangements.
S Corporation Status
We have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. As such, we have not provided any income tax provision in the financial statements because, as an S corporation, net earnings and losses are passed-through to the shareholders. Provided below is a pro forma condensed consolidated income statement of earnings for the most recent fiscal year and subsequent interim period that depicts our financial results of operations to the extent that we would no longer meet the requirements of an S corporation.
Pro Forma Condensed Consolidated Statements Of Earnings |
| |
| | | Year Ended | | Three Months Ended |
| | | December 31, 2006 | | March 31, 2007 |
| Revenues | | $4,249,195 | | $1,073,916 |
| Cost of Sales | | 2,003,551 | | 498,889 |
| Gross profit | | 2,245,644 | | 575,027 |
| | | | | |
| Selling , general and administrative expenses | | 1,866,925 | | 479,917 |
| Operating Profit | | 378,719 | | 78,976 |
| Other (Expense) | | (261,322) | | (80,038) |
| Earnings before income taxes | | 117,397 | | (1,062) |
| Income taxes | | | | |
| Currently payable | | 0 | | 0 |
| Deferred | | 45,786 | | 0 |
| | | 45,786 | | 0 |
| Net Earnings | | $76,409 | | $(1,062) |
| BASIC Earnings per share | | $0.07 | | $(0.0) |
| Weighted average number of shares | | 1,084,167 | | 1,084,167 |
| | | | | |
| DILUTED Earnings per share | | $0.07 | | $(0.00) |
| Weighted average number of shares | | 1,084,167 | | 1,084,167 |
We currently have three shareholders. We chose S Corporation status because the significant tax losses generated due to the equipment depreciation on a tax basis are passed through to the shareholders. This has allowed our shareholders to defer some personal taxes and invest those saving into the business. Current S-corporation rules limit the number of shareholders allowed in an S corporation to 100 and only allow one class of stock. In the future, these limitations may limit our ability to raise equity funds and expand our operations. We do not feel these limitations are a significant risk to internally growing our current operations, however, we may miss out on a significant and/or sizable future acquisition opportunity if we could not raise enough equity capital within the constraints of S-corporation rules.
Should we decide to change our tax status to that of a C-Corporation, it would not have an immediate impact on our financial condition, results of operations, or cash flows. If we curtailed our equipment purchases, we would incur tax liabilities at the then-current corporate tax rate.
Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in Note B to our audited financial statements included in this Prospectus. The following discussion addresses our most critical accounting policies, some of which require significant judgment.
The preparation of the financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect the amounts reported in the financial statements and the notes to those statements. These estimates and assumptions are based upon our evaluation of historical results and anticipated future events. Actual results could differ from those estimates. For purposes of this section, critical accounting policies are those that are, in our management’s view, most important to our financial condition and results of operations and that require significant judgments and estimates. Our management believes our most critical accounting policies relate to the following:
We recognize revenue from the sale of equipment upon delivery. Lease and lease ancillary revenues and related expenses generated under portable storage units and trailers are recognized monthly which approximates a straight-line basis. We recognize revenue from delivery, pick-up and other rental-related activities when the service is provided.
We depreciate our rental equipment on a 10 or 15-year term with 20% residual values. Trailers are depreciated over a 10-year period and containers are depreciated over a 15-year period using the straight-line method. Our management periodically evaluates our depreciation policy against several factors including appraisals from independent parties, profit margins from the sale of depreciated assets, and larger competitor’s depreciation policies.
OUR BUSINESS
We provide portable, temporary storage and transportation solutions to a broad range of industrial and commercial customers in the Midwestern United States through our rental fleet of over 2,200 portable storage and trailer units. We own approximately 78% of these units, while the remaining 22% are leased by us from third parties, generally under short-term rental arrangements. During 2006, approximately 75% of our revenue was generated through renting and leasing storage containers (primarily shipping containers that meet International Organization for Standardization (“ISO”) standards for ocean-going shipping containers) and semi-trailers. Approximately 93% of the containers in our fleet meet ISO standards. Twelve percent of our revenue was generated through the sale of such equipment, and the remaining 13% was generated through ancillary services such as trucking (delivery and pick-up of our equipment) fees and maintenance fees. During 2006, approximately 34% of our revenue was generated by trucking industry customers, 18% from retail industry customers, 9% from wholesale-distribution industry customers, and 10% from construction industry customers. The remaining 30% was generated from customers in 73 other industries, none of which generates greater than 3% of our revenues. While we currently have two branches and operate in three states (Missouri, Kansas, and Illinois), we primarily concentrate our operations on the Kansas City and St. Louis metropolitan regions.
Our business began operations in May 1994. Our products provide secure, accessible temporary storage and transportation for a diversified client base of over 700 customers, from 77 different industries, including retail, construction, trucking, wholesale distribution, and business services. Our customers use our products for a wide variety of storage and transportation applications, including the storage of retail and manufacturing inventory, protection of construction materials and equipment, the handling of peaks in shipping cycles and transportation of material to and from customers or their construction job sites. We primarily obtain our portable storage units by purchasing new and used ocean-going containers and purchasing new and used trailers from the trucking industry. We offer a wide range of products in varying lengths and widths with an assortment of differentiated features such as security systems, multiple doors, electrical wiring and shelving. In addition to our rental operations, we sell new and used portable storage units and provide ancillary services.
We focus on renting instead of selling our portable storage and transportation units. We believe this focus allows us to achieve strong growth, improved profitability and increased predictability of our business. Renting equipment to our customers generates higher profit margins than does selling the same equipment; thus, as we continue to focus on generating more rental revenue, we expect our profitability to improve. Although most of our customer rental agreements are short-term in nature, our average customer keeps a unit on rent for approximately eight months; thus we are better able to predict future rental revenues than equipment sales. We believe our rental model is highly attractive because portable storage and transportation units:
· | Provide predictable, recurring revenues from rentals, |
| · | Have average monthly rental rates which recoup our unit investment within an average of 24 months (assuming continuous rental at market rates), |
| · | Our average acquisition cost per container in our rental fleet is $2,320 |
| · | Our average acquisition cost per trailer in our rental fleet is $4,382 |
| · | Have useful lives exceeding 10 years, low maintenance and high residual values. |
Since our inception we have increased our revenues every year. Our revenues have increased from approximately $600,000 in 1997 to approximately $4.25 million in 2006.
Industry Overview
The storage industry includes three principal segments, fixed self-storage, warehousing and portable storage.
The fixed self-storage segment consists of permanent structures located away from customer locations. Fixed self-storage is used primarily by consumers to temporarily store excess household goods. This segment is highly fragmented but includes several large national companies. We do not have any fixed self-storage facilities.
The warehousing segment consists of permanent structures located away from customer locations. Primarily commercial customers use warehousing for temporary storage of excess inventory or to provide a distribution location. This segment is highly fragmented but includes several large national companies. We do not have any warehouse facilities.
The portable storage segment differs from the fixed self-storage and warehousing segment because it brings the storage solution to the customer’s location and addresses the need for secure, temporary storage with immediate access. The advantages of portable storage include convenience, immediate accessibility, better security and lower price. In contrast to fixed self-storage, the portable storage segment is primarily used by businesses. This segment is highly fragmented with no truly national participants. Although there are no published estimates of the size of the portable storage segment, we believe the size of the market is expanding due to increasing awareness of the advantages of portable storage. We rent, lease, and sell storage containers and semi-trailers to accommodate the portable storage needs of our customers.
The transportation equipment rental industry (over-the-road semi-trailers in particular) is much less fragmented than the portable storage industry. There are two large, national companies that compete in the industry and each have branches in Kansas City and St. Louis. There are also a few small, local competitors in each market. The large national companies typically focus on long-term leasing of semi-trailers to large national trucking companies or companies with large trucking fleets. The local companies tend to service the regional fleets underserved by the national competitors. The higher cost of semi-trailers can be a significant barrier to growth for smaller companies.
Our goal is to be a leading provider of portable storage and transportation equipment solutions in the greater Kansas and City and St. Louis markets. We will also consider strategic expansion opportunities in other midwestern markets, either through internal growth or acquisitions of existing businesses, if and only if we believe we can achieve significant market penetration. We believe that our competitive strengths and growth strategy, as outlined below, will enable us to achieve our goals.
Growth Strategy
Our growth strategy consists of the following:
FOCUS ON CORE PORTABLE STORAGE RENTAL BUSINESS IN THE KANSAS CITY AND ST. LOUIS MARKETS. We will continue to focus on growing our rental business in our core Kansas City and St. Louis markets. We believe the rental business provides predictable, recurring revenue and high margins. During 2006, we experienced gross profit margins of 53%. We expect this percentage to remain stable because we do not anticipate lowering rental rates and we feel that we will be able to maintain or improve upon 2006’s fleet utilization rate of 68%. Additionally, we do not expect costs to significantly increase due to an ample supply of companies to choose from that provide repair and maintenance services.
We have the necessary overhead infrastructure in place in Kansas City and St. Louis to accommodate further revenue growth in these markets with lower marginal overhead expenses. We believe we can also increase our service and other ancillary revenues; however our core business will continue to be the rental of temporary, portable storage and transportation units. We believe there is substantial demand for our portable storage units throughout the Kansas City and St. Louis markets, which are our target markets.
GENERATE HIGH LEVELS OF INTERNAL GROWTH IN THE KANSAS CITY AND ST. LOUIS MARKETS. We will continue to focus on increasing the number of portable storage units we rent out from our Kansas City and St. Louis branches to both new and repeat customers. We have historically been able to generate strong internal growth within these markets through aggressive marketing and rental fleet growth. We believe that by increasing awareness of the benefits of portable storage through our targeted marketing and advertising programs, we can continue to increase our rental revenues and generate strong internal growth in these markets. We believe we can increase our market share in Kansas City and St. Louis and increase revenues in these two markets. We intend to increase our fleet size in these two markets by purchasing additional equipment with funds provided by a subordinate notes offering, cash generated from operations and existing bank financing.
BRANCH EXPANSION. We intend to use our branch model to expand to new markets throughout the Midwestern United States on a limited and very selective basis. We intend to identify new markets in the Midwestern United States where we believe demand for portable storage units is underdeveloped and where we believe we can achieve significant market penetration and a competitive market share. Small local competitors are currently serving these markets. Whenever feasible, we intend to enter a new market by acquiring the storage units and rentals of a small, local portable storage business in order to generate immediate revenue to cover overhead and forego typical branch start-up expenses. We are actively seeking such acquisitions, however, we are in the early stages of the process and are engaged in only preliminary any negotiations with a few acquisition target companies. Any acquisition will have to meet very stringent economic requirements and justification developed by our management in consultation with the Board of Directors.
Products and Services
We primarily obtain our portable storage units by purchasing or leasing new and used ocean-going containers and purchasing new and used trailers from the trucking industry. We offer a wide range of products in varying lengths and widths with an assortment of differentiated features such as security systems, multiple doors, electrical wiring and shelving. In addition to our rental operations, we sell new and used portable storage units and provide ancillary services.
We provide a wide range of products and services to meet the temporary storage needs of our customers, specifically:
Portable Storage and Transportation Products:
| o | Containers – We purchase or lease new, used and refurbished shipping containers from rental companies, brokers, and shipping lines. These containers are 8’ wide, 8’6” to 9’6” high and 20’ or 40’ long. The condition and age of the containers vary widely to meet the needs of our customers. We can customize containers for customers by adding such items as high security lock boxes, shelving, lighting, and electrical hook-ups. |
| o | Storage trailers – We purchase or lease used semi-trailers from trucking companies, rental firms and other companies with trailer fleets. These trailers are no longer useful for long, over-the-road transportation of goods. With minor repairs, these trailers are utilized for in-town cartage and storage at customers’ lots or docks, or at one of our lots. The inside dimensions range from 96”-110” wide, 96”-108” high, and 20’, 28’, 40’, 45’, 48’ or 53’ long. |
| o | Over-the-road trailers – We also purchase new and used semi-trailers that are capable of long-distance transportation. These units have the same dimensions as the storage trailers. |
Services:
| o | Delivery, pick-up and general cartage – We have the equipment to properly and safely deliver, position, and pick up shipping containers and semi-trailers. We are able to provide prompt service to our customers through an extensive network of trucking companies that we hire to complement our own drayage assets (semi-tractors and specialized semi-trailers designed to lift containers from the ground as well as transport the container) and personnel. |
Each customer’s needs are different. Some may need a tractor-trailer to pick up material from a warehouse for drop at a third party site where the trailer will act as storage for several months. We believe we provide such cartage services in a timely and efficient manner.
| o | On-site storage – We provide space on our own lots for storage of containers and trailers rented from us as an ancillary service to the rental of our equipment. This allows customers additional flexibility. For example, several customers use one of our lots and equipment for storage of excess merchandise because of space or zoning restrictions at our customer’s location. When a customer needs a particular unit, they call us to arrange delivery. Our trailers serve as a distribution center for certain of our customers, without the added handling and overhead costs of warehouse space. |
Branch Operations
Within each market, we have located our branches in areas that allow for easy delivery of portable storage units to our customers. We also seek locations that are visible from high traffic roads as an effective way to advertise our products and our name. Our branches maintain an inventory of portable storage and transportation units available for rent, and some of our branches also provide on-site storage of units under rent. The following table shows information about our branches and locations of equipment as of February 2, 2007:
| Location | Functions | Rental Units | Company Personnel | Approximate Lot Size |
| Kansas City, MO/KS | Rental, sales, administration, on-site storage [*] | 1,458 | 15 | 12 acres |
| St. Louis, MO/IL | Rental, sales, on-site storage [*] | 791 | 5 | 6 acres |
| St. Joseph, MO | Remote rental | 45 | 0 | 1 acre |
| Total | | 2,294 | 18 | |
[*] Customers who have the need to store semi-trailers on our lot due to space limitations at their location are permitted to do so as part of the rental service. We allow customers access to their rental equipment during regular business hours. We do not have fixed storage or warehouse space.
The following tables summarize the acquisition and disposition of units in our rental fleet:
2005 | Start of Year | Units Bought or Rented | Units Sold or Returned | End of Year |
| Owned Containers | 647 | 213 | 73 | 787 |
| Rented Containers | 365 | 55 | 26 | 394 |
| Owned Trailers | 525 | 178 | 72 | 631 |
| Rented Trailers | 173 | 318 | 299 | 192 |
| Total Units | 1,710 | 764 | 470 | 2,004 |
2006 | Start of Year | Units Bought or Rented | Units Sold or Returned | End of Year |
| Owned Containers | 787 | 269 | 101 | 955 |
| Rented Containers | 394 | 45 | 80 | 359 |
| Owned Trailers | 631 | 281 | 46 | 866 |
| Rented Trailers | 192 | 187 | 216 | 163 |
| Total Units | 2,004 | 782 | 443 | 2,343 |
Our Kansas City Branch provides overall supervisory responsibility for all activities at both branches. The St. Louis branch has a branch operations manager that is responsible for operational management of that branch, in addition to sales persons, driver and maintenance personnel.
All of our lots are fenced, gated and locked during non-business hours with the exception of St. Joseph, MO, which has 24-hr security.
Sales and Marketing
As of the date of this report, we have four people at our Kansas City branch and two in St. Louis that conduct sales and marketing on a full-time basis. We utilize the following methods of advertising to target potential customers:
| | Commercial | Residential |
| Direct Mail | X | |
| Outside Sales | X | |
| Trade Shows | X | |
| Fleet Decals | X | X |
| Internet Advertising | X | X |
| Print Advertising | X | |
| Yellow Pages | X | X |
All methods are reviewed and evaluated for effectiveness. The mix of advertising will continually change as we determine which methods best match target markets.
Our sales and marketing force provides information about our products to prospective customers by handling inbound calls and by initiating cold calls. Our sales and marketing employees are compensated on a salary plus commission basis.
Customers
Our customer base is diverse and consists of businesses in a broad range of industries. During 2006, we rented our equipment to more than 700 customers in 77 different industries. Our largest single customer, Satellite Specialized Services, (“SST”) accounted for 26% of our total revenue in 2006, and 29% in 2005. SST rents our equipment on a unit-by-unit, short-term basis. SST uses our equipment to haul freight and cargo for disaster relief efforts. Our second largest customer, Wal-Mart, accounted for 13.5% of our revenue in 2006, and 10% in 2005. Wal-Mart rents our storage equipment on a store-by-store, unit-by-unit, short-term basis. Rental and trucking (delivery and pick-up of storage equipment) rates vary by store location. No single Wal-Mart store accounts for more than 5% of our revenues. No other customer accounted for more than 4% of total revenue in 2006.
We target customers who can benefit from our portable storage solutions either for seasonal, temporary or long-term storage needs. Because most of our customers rent equipment on a temporary basis, we anticipate and expect annual shifts in our top customers as a percentage of revenue, depending on which customers and industries experience the greatest demand in a given period. Customers use our portable storage units for a wide range of purposes. The following table provides an overview at December 31, 2006 of our customers and how they use our portable storage and transportation units:
| Industry* | % 2006 Revenues | Typical Customers | Typical Applications |
| Trucking | 34.0% | Truck lines, Moving Companies | Transportation of goods, storage at distribution centers |
| General Retail | 17.7% | Mass merchandisers, Department Stores, Discount Chains | Storage of seasonal and excess merchandise | |
| Wholesale Distributors | 8.8% | Auto Parts Distributors, Construction Materials, Wood Products, General Wholesale goods | Storage of excess and seasonal inventory | |
| Construction | 9.7% | General and sub-contractors | Storage of materials and equipment on job-sites | |
| All others** (73 different industries) | 29.7% | N/A | N/A | |
| *Based on 2 digit SIC codes | **No other industry constituted greater than 3% of revenues | |
Seasonality
Due to the business practices of our trucking and retail industry customers, our highest demand for rental of our portable storage and transportation units occurs generally from September through December. Many of these trucking and retail customers return the rental units to us early in the following year. As a result, we experience seasonal fluctuation in cash flow during our first and fourth quarters.
Management Information Systems
Our current management information systems have substantially more capacity than we currently need, but provides a system capable of expanding with our business. The fully integrated system performs functions for rental and sales operations and analysis, accounts receivable, accounts payable, general ledger, purchasing, and equipment maintenance. The software runs on an IBM iseries server. This server was upgraded in April 2007.
We utilize an Application Service Provider (“ASP”) for our customer relations management. The ASP allows our employees instant, worldwide access to customer and sales pipeline information.
A new branch can become fully integrated with the home office, with just a personal computer and an Internet connection.
Rental Terms
The majority of our customer rental agreements provide month-to-month terms. Our average monthly effective rental rate was $187 in 2006 compared to $142 in 2005. Most of our portable storage units rent for $60 to $225 per month. Over-the-road trailers may rent for as much as $550 per month. Each rental agreement provides that the customer is responsible for the cost of delivery at inception and pickup at termination. Our rental contracts specify that the customer is liable for any damage done to the unit beyond ordinary wear and tear. The customer’s possessions stored within the portable storage unit are the responsibility of the customer. Trailers used for over-the-road purposes require that the customer provide appropriate insurance coverage and related documentation to cover us as loss payee and additional insured.
Our Markets and Competition
We face competition from several local and national companies in all of our current markets. Our competitors include lessors of storage units, over-the-road and storage trailers and other structures used for portable storage. We also compete with conventional fixed self-storage facilities to a lesser extent. We compete primarily in terms of product quality and availability, rental rates and customer service. Some of our competitors have less debt, greater market share and greater financial resources and pricing flexibility than we possess. Sometimes, a competitor will lower its rental rates in one of our markets to try to gain market share. This may require us to reduce our rental rates as well, which could reduce our profitability in those markets.
In the Kansas City market, including our St. Joseph, Missouri location, we compete with approximately 19 companies that rent either portable storage equipment or semi-trailers. We estimate that we have the second largest fleet of portable storage equipment in Kansas City and maintain approximately 15% of the market. We estimate that the largest competitor maintains 30% of the container market. Competition in the Kansas City market is highly fragmented. Five of the competitors are branch operations of larger companies with ten or more branches across the U.S. Two of the competitors are branch operations of companies with less than five branches. Portable storage rental is not the main business of five of the competitors, but rather a sideline to another, main business such as trucking. We estimate that only the four largest providers of portable storage products have enough equipment to effectively compete for large commercial and industrial customers. While the barriers to enter our business are relatively low, the capital requirements and local business relationships necessary to win and maintain large commercial and industrial accounts that rent more than 50 units at a time are high. Therefore, we do not anticipate a significant increase in the number of competitors able to compete for large accounts within the next 12-24 months.
Our revenues decreased by approximately 1.2% in the Kansas City market in 2006 over 2005. This was due to a decrease in demand for over-the-road equipment from our largest customer in 2005, SST, which uses our equipment to haul and store relief supplies to and in areas affected by natural disasters offset by a general increase in demand for portable storage products and transportation equipment and an increase in market share. We anticipate continued growth and demand for portable storage equipment, as customers become more aware of portable storage options. We also anticipate maintaining or slightly increasing our market share in Kansas City.
In the St. Louis market, we compete with approximately 12 companies that rent portable storage equipment or semi-trailers. We estimate that we have the second largest fleet of portable storage equipment in St. Louis and maintain approximately 20% of the market. We estimate that our largest competitor maintains 35% of the market. Competition in the St. Louis market is not as fragmented as in the Kansas City market. Portable storage rental is the main business of most of the competitors. Five of the competitors are branches of larger operations with 10 or more locations. We estimate that only the three largest providers of portable storage products have enough equipment to effectively compete for large commercial and industrial customers. While the barriers to enter our business are relatively low, the capital requirements and local business relationships necessary to win and maintain large commercial and industrial accounts that rent more than 50 units at a time are high. Therefore, we do not anticipate a significant increase in the number of competitors able to compete for large accounts within the next 12-24 months.
Our revenues increased by approximately 45.5% in the St. Louis market in 2006 over 2005. This was mainly due to a significant increase in our market share and a general increase in demand from customers in varied industries. We anticipate growth in 2007 in demand for portable storage equipment, as customers become more aware of portable storage options. We also anticipate maintaining or slightly increasing our market share in St. Louis, through increased advertising and product awareness.
We sometimes rent equipment from third parties in those markets to service regional customers who prefer to have us handle the logistics of rental equipment in other Midwestern markets. Combined, these markets accounted for 2% of our 2006 revenues. We feel these markets may present future expansion opportunities if an acquisition of a local portable storage company becomes available under favorable terms.
Because we feel that Kansas City and St. Louis offer our company the greatest potential for growth and sustained profitable operations, we will continue to focus our resources on increasing revenues and market share in these markets. Combined, these two markets accounted for 98% of 2006 revenues. As we continue to concentrate our efforts in these two markets, our revenues and market share are likely to decline in the other geographical markets where we have a limited presence.
In addition to competition for customers, we face competition in purchasing used ocean-going containers and trailers, which we in turn use to generate rental income in our core business or resell in our secondary business of equipment sales. Several types of businesses purchase used ocean-going containers and trailers, including various freight transportation companies, freight forwarders and commercial and retail storage companies. Some of these companies have greater financial resources than we do. As a result, if the number of available containers and trailers for sale decreases, these competitors may be able to absorb an increase in the cost of equipment, while we may not be able to. If used equipment prices increase substantially, we may not be able to grow our fleet. These price increases also could increase our expenses and reduce our earnings. During 1999-2003, we did not experience a shortage of equipment available to purchase. We began to notice the supply of shipping containers decrease in 2004. This did not affect our ability to find suitable units available for sale and/or to add to our rental fleet in 2006 and prices for these containers were approximately 7% lower than 2005. We anticipate this trend to continue in 2007. We anticipate that we will be able to find enough containers to satisfy the demand in 2007. During 2006, we experienced a decrease in supply of used semi-trailers available for purchase. We expect this trend to continue in 2007.
Competition in our markets may increase significantly in the future. New competitors may enter our markets and may have greater marketing and financial resources than we do. This may allow them to gain market share at our expense. We may have to lower our rental rates because of greater competition. This would lower our profit margins. If our competitors have greater financial resources or lower operating costs, they may be able to sustain these pricing pressures better than we can. Prolonged price competition is likely to have a material adverse effect on our business and results of operations.
We have experienced competitive pricing pressure in both the Kansas City and St. Louis markets during the past four years without negatively impacting our revenues.
Employees
As of the date of this report, we had approximately 20 full-time employees. Our employees are represented by the following major categories:
| Management | 2 |
| Administrative | 4 |
| Sales and Marketing | 6 |
| Drivers | 4 |
| Operations/Maintenance | 4 |
Our employees are not represented by a labor union. We consider our relations with our employees to be good. We increased our staff by approximately 12% in 2006 versus 2005. We anticipate that the new employees will help us reduce expenses as they take on work that was previously performed by outside vendors at higher costs and continue to increase revenues as we have relived more operational and administrative tasks from the sales personnel, allowing them to spend more time with current and potential customers.
In addition to our own employees, we retain several third-party vendors to perform work on our behalf. The type of work these vendors perform is trucking, repair and maintenance of the rental fleet, and buildings and grounds maintenance. These vendors are hired on an as-needed basis. For example, we hire third-party trucking companies to deliver and pick-up company equipment to/from our customers when we are not able to handle the workload with our own assets and employees in a timely manner. Third-party vendors perform a significant amount of our repair and maintenance work. Our vendors bill us either on an hourly basis or on a per job (repair job or specific trucking run) basis. We do not have any long-term contracts with any of our third-party vendors. Approximately four different vendors routinely provide trucking services for us and approximately five companies routinely provide repair and maintenance services for us.
Government Regulations
During the past five years in several municipalities in our geographic markets, our customers have been limited in the number of storage units allowed on their property and/or the length of time the equipment was stored on their properties. Although some potential revenues were lost due to such zoning regulation, we were able to provide service to most of these customers by storing the customers’ material in trailers on our lot, which were rented to them, and delivering the trailers to their location when needed. This resulted in additional trucking revenues.
DESCRIPTION OF OUR PROPERTIES
We do not own any real property as we lease all of our locations. We believe that satisfactory alternative properties can be found in all of our markets at the end of the lease agreements, if necessary. The following is a summary of our leased locations:
| Location | Functions | Rent Paid in 2006 | Property Owner | Lease Termination Date |
| Kansas City, MO/KS | Rental, on-site storage, sales, administration | $168,000 | Manchester Properties, LLC | April 2009 |
| St. Joseph, MO | Kansas City support lot | $9,600 | Deffenbaugh Industries, Inc | Month-to-month |
| St. Louis, MO/IL | Rental, on-site storage, sales | $46,944 [*] | Bi-State Group, LLC | December 2008 |
Our locations are used primarily to store our storage containers and trailers when they are not on lease off –site for a customer. We do not store idle equipment at any of the other locations. Company owned equipment that comes off rent is returned to Kansas City or St. Louis.
LEGAL PROCEEDINGS
January 4, 2007, American Trailer received service of process with respect to a civil action brought against it by Jeffery N. Orr, a former officer, director and employee of American Trailer. Orr currently owns more than 5% of our outstanding common stock.
In his civil proceeding, which was brought in the Circuit Court of Jackson County, Missouri, Orr contends American Trailer breached its written employment contract with him as a result of nonpayment of compensation and benefits. Mr. Orr seeks damages in the amount of $200,000 for such alleged breach.
In the same action, Orr has also brought civil claims against our current officers and directors, Richard G. Honan and Richard G. Honan, II. More specifically, Orr contends that Richard G. Honan and Richard G. Honan, II, as directors and shareholders of American Trailer, breached fiduciary duties they owed to him. According to Orr’s complaint, these individuals failed to discharge their fiduciary obligations by causing American Trailer to grant warrants and issue promissory notes to Richard G. Honan without adequate consideration and by diluting Mr. Orr’s ownership in the Company. Orr also asserts that these individuals breached their fiduciary obligations by dissipating corporate assets and by removing Mr. Orr from the American Trailer board of directors. Orr seeks damages in excess of $75,000 for such alleged breaches. Mr. Orr further contends that Richard G. Honan and Richard G. Honan, II made various fraudulent and/or negligent statements to Mr. Orr about future compensation and benefits that Orr would be entitled to receive from American Trailer and the amount of loans that Richard G. Honan had made to American Trailer. Orr contends these statements were made for the purpose of inducing him to consent to certain corporate actions and enticing him to make capital investments and to forego salary and other benefits. With respect to these claims, Mr. Orr seeks compensatory and punitive damages from these individuals.
In addition to these monetary claims, Orr seeks an order from the court requiring Richard G. Honan, Richard G. Honan, II and American Trailer to provide a corporate accounting as required by Missouri law. Moreover, Mr. Orr seeks a court order that American Trailer be judicially dissolved and liquidated and that a receiver be appointed to take possession of American Trailer’s assets.
February 15, 2007, American Trailer filed a motion to dismiss three of the four counts in which American Trailer is a defendant in the case of Jeffrey N. Orr vs. American Trailer & Storage, Inc. in the Circuit Court of Jackson County, Missouri, on the grounds that each of the causes of action fail to state a claim for relief against them that may be granted as a matter of law.
In the same motion, our current officers and directors, Richard G. Honan, and Richard G. Honan, II also requested dismissal of all of the counts brought against them in the same lawsuit also on the grounds that each of the causes of action fail to state a claim for relief against them that may be granted as a matter of law.
We believe that all of Orr’s claims are completely without merit both factually and legally. We will continue to vigorously defend against the claims. Richard G. Honan and Richard G. Honan, II have both advised us that they believe Mr. Orr’s claims against them are without basis and that they will continue to vigorously defend against these claims.
On February 15, 2007, we filed a civil action against Orr. In this civil proceeding, which was brought in the District Court of Clark County, Nevada, we seek declaratory relief and damages.
We are seeking a declaration that (i) we own 100% of the outstanding shares in American Trailer and that no shares are owned by Orr; that (ii) there are no other shares of stock, stock rights, options, warrants or other similar claims of ownership of American Trailer; that (iii) under the laws of the State of Nevada, as the owner of all outstanding shares of American Trailer, we are the only party entitled to bring claims arising from the ownership of shares of our wholly owned subsidiary; that (iv) we have no contractual or other legal obligation to purchase any of the outstanding shares owned by Orr; that (v) removal in 2005 of Orr as a director was accomplished in accordance with the By-Laws of our corporation and the Law of the State of Nevada; that (vi) removal of Defendant Orr in 2005 as an officer of our corporation was accomplished in accordance with our By-Laws and the laws of the State of Nevada; that (vii) the decisions of our Board of Directors and officers in borrowing money and the distribution of profits either in us or our wholly-owned subsidiary are controlled by the business judgment rule and the laws of the State of Nevada; and that (viii) we are not presently indebted to Orr.
We also seek to recover our costs and fees associated with the prosecution of this action, and for damages or any further or additional relief which we are entitled to recover as a result of the acts and omissions of Orr.
OUR MANAGEMENT
Directors and Executive Officers
Our executive officers and directors, including their ages as of the date of this report, are as follows:
| NAME | | AGE | | POSITION |
| | | | | |
| Richard G. (Dick) Honan | | 71 | | Chairman of the Board of Directors, Chief Executive Officer, and Treasurer |
| | | | | |
| Richard G. (Rick) Honan II | | 36 | | Director, Chief Financial Officer, Chief Operating Officer and President |
Our by-laws provide for the Board of Directors to be composed of two directors. Each director serves until the next annual shareholders’ meeting and thereafter until his or her successor is duly elected and qualified. Board members receive no compensation for service as a Board Member; however reasonable costs and expenses for attending Board meetings are reimbursed. Our Board of Directors, on an annual basis in conjunction with the annual shareholders’ meeting, appoints our executive officers.
Richard G. (Dick) Honan- Mr. Honan received a Bachelor of Arts degree from the University of Kansas. Mr. Honan has been the Chairman of the Board of Directors, Chief Executive Officer and Treasurer of AT&S Holdings, Inc. since its formation (December 2003). He was one of the original founders of our subsidiary, American Trailer & Storage, Inc. in 1994 and has served as its Chief Executive Officer, Treasurer and Chairman of the Board of Directors since its inception (May 1994). Mr. Honan also served in the United States Marine Corps. Mr. Honan is the founder of the National Portable Storage Association (NPSA), a not-for-profit industry association that currently has over 300 member companies. He served as the NPSA’s first Chairman from inception to September 2005. Mr. Honan has owned and operated several small to medium sized companies, including a manufacturers’ representative company, a proprietary trade school that trained persons for the trucking industry and a truck service and repair center. Mr. Honan has never been a director or officer of any other public reporting company. Mr. Honan is the father of Richard G. Honan II, who is our Chief Financial Officer, Secretary and a member of the Board of Directors. He is also currently the President of Capital Enterprises, II, a real estate and finance company owned by him and his wife since formation in 1991. He has not been involved with any other companies during the past ten years.
Richard G. (Rick) Honan II- Mr. Honan received a Bachelor of Arts degree from the University of Kansas through a Naval Reserve Officer’s Training Corps (NROTC) Scholarship and attended the University of Maryland’s Business School. Mr. Honan has been a member of the Board of Directors and Chief Financial Officer of AT&S Holdings, Inc. since its formation (December 2003). Mr. Honan became Chief Operating Officer and President of AT&S Holdings, Inc. in June 2005. He has also served as the Chief Financial Officer, Secretary and a member of the Board of Directors of our subsidiary, American Trailer & Storage, Inc., since 2001. American Trailer has employed Mr. Honan since 1999. He has worked in operations and sales, and is currently involved with marketing, information systems management, and finance. He currently serves as Vice-President of the Kansas City Transportation Association. Mr. Honan also served on active duty in the United States Navy as a Supply Officer from 1994-1999 and served in the reserves from 1999-2007. Mr. Honan held the rank of Lieutenant Commander, was recalled to active duty in 2003 for six months and served in the Middle East. Mr. Honan has never been a director or officer of any other public reporting company. Mr. Honan is the son of Richard G. Honan, who is our Chief Executive Officer and the Chairman of the Board of Directors.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote;
| · | Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| · | Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the SEC and in other public communications made by an issuer; |
| · | Compliance with applicable governmental laws, rules and regulations; |
| · | The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| · | Accountability for adherence to the code. |
We have adopted a corporate code of ethics that applies to our principal executive officer, principal accounting officer, or persons performing similar functions.
Terms of Office
Our current Board members will continue to retain their position until the next annual shareholders meeting.
Indemnification
Our By-Laws provide for indemnification to all of our officers and directors against any and all expenses, judgments and fines in connection with any threatened, pending or completed action, suit or proceeding arising out of their service as our officer or director.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to our directors, officers and controlling persons, pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission (the “SEC”) such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
OUR PRINCIPAL OWNERS
The following table provides information concerning the beneficial ownership of our common stock as of the date of the prospectus, for (a) each person known to us to be a beneficial owner of the common shares in excess of 5%; (b) each director; (c) each executive officer designated in the section captioned “Management--Executive Compensation;” and (d) all directors and executive officers as a group. Except as otherwise noted, each person named below had sole voting and investment power with respect to such securities.
| Name and address of beneficial owner (1) | Number of shares | Percentage of ownership |
| | | | | |
Richard G. (Dick) Honan 3505 Manchester Trfwy. Kansas City, Missouri 64129 | 856,200 | 78.97% |
| | | | | |
Jeffrey N. Orr 11732 E. 72nd Street Kansas City, Missouri 64133 | 124,121 | 11.45% |
| | | | | |
Richard G. (Rick) Honan II 3505 Manchester Trfwy. Kansas City, Missouri 64129 | 103,846 | 9.58% |
| | | | | |
All directors and executive officers as a group (2 people) | 960,046 | 88.55% |
| (1) | The securities “beneficially owned” by an individual are determined in accordance with the definition of “beneficial ownership” set forth in the regulations of the SEC. Accordingly they may include securities owned by or for, among others, the spouse and/or minor children or the individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or has the right to acquire under outstanding stock options within 60 days after the date of this table. Beneficial ownership may be disclaimed as to certain of the securities. |
The following table sets forth the total compensation earned by our principal executive officer and principal financial officer (the “Named Executive Officers”) during the 2006 fiscal year. We have no other executive officers.
SUMMARY COMPENSATION TABLE
| Name and principal position | Year | Salary | All other compensation | Total |
| Richard G. (Dick) Honan, Director, CEO, Chairman & Treasurer | 2006 | $95,255 | $11,097 | $106,352 |
| | | | | |
| Richard G. (Rick) Honan, II, Director, CFO, COO and President | 2006 | $105,000 | $9,423 | $114,423 |
-----------------------------------------
The amounts listed under “all other compensation” reflect payments made by us on behalf of each Named Executive Officer for health insurance premiums and the amounts paid by us to each Named Executive Officer’s SIMPLE IRA plan in matching contributions.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
| Equity Compensation Plan Information |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights. (Column a) | Weighted-average exercise price of outstanding options, warrants and rights (Column b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column a) |
| | (a) | (b) | (c) |
| Equity compensation plans approved by security holders | -0- | -0- | 5,000,000 |
| Equity compensation plans not approved by security holders | -0- | -0- | -0- |
| Total | -0- | -0- | 5,000,000 |
Options Grants
On January 5, 2004, we established a Stock Option and Incentive Plan (the “Plan”), covering all of our employees and the employees of American Trailer. The Plan is designed to attract, retain and motivate individuals (employees, directors, consultants and advisors) for the purpose of devoting themselves to our future success. All employees, members of the Board of Directors, consultants and advisors are eligible to participate in the Plan, subject to the discretionary approval of the Board of Directors. The maximum number of shares which may be granted pursuant to the Plan is 5,000,000. Specific terms of each grant are to be determined by the Board at the date of each grant. As of March 31, 2007, no awards or grants under this plan have been granted or approved by the Board of Directors.
Employment Agreements
All of our officers, including our chief executive officer, have employment agreements. All of these agreements are substantially similar (except for compensation amounts). The terms of the employment agreements are effective on the date of the agreements and continue after termination of employment, with respect to non-competition and confidentiality covenants for periods ranging from eighteen months to thirty-six months. The agreements define the employment duties of the officer and establish compensation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard G. Honan has provided loans to us on several occasions prior to the last fiscal year. On December 31, 2006 the aggregate balance of these borrowings was $180,292. This amount is evidenced by a single note, due April 15, 2008 (as amended), that combines and represents three notes previously outstanding (the “Note”). The aggregate outstanding principal balances, as of December 31, 2003, of the three notes was $512,863. The Note bears interest at 15.5%, and is subordinate to our primary lender. Since August 15, 2004 we have made monthly payments of $14,000, and will continue to make these monthly payments to Mr. Honan under the terms of the Note. Our final payment of $16,442 will be due on April 15, 2008. Our majority shareholder also purchased 2005 series subordinated notes in 2005 totaling $45,000.
Due to bank financing covenants, Mr. Honan cannot be repaid the balance of Note if the total debt to net worth ratio exceeds the bank’s maximum limit after any such repayment. Mr. Honan is under no obligation to continue to provide us loans in the future.
On December 31, 2003, to effect our re-organization into a holding company structure, our Board of Directors approved and completed a stock exchange agreement with American Trailer. Our Board of Directors, officers and shareholders were identical to those of American Trailer at the date of the transaction and therefore the companies were under common control. The exchange agreement provided for us to issue 984,167 shares of its common stock for 100% of the outstanding shares of American Trailer. Subsequent to that transaction, we became the parent of American Trailer.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 30,000,000 shares of $.001 par value common stock. As of December 31, 2006 and 2005, shares totaling 1,284,167 of our common stock were issued and outstanding.
Each shareholder of our common stock is entitled to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of our common stock are entitled to one vote for each share of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of our directors or any other matter. Therefore, the holders of more than 50% of the shares can elect all of the directors. The holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors from funds legally available therefore.
Cash dividends are at the sole discretion of our Board of Directors. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of our liabilities and after provision has been made for each class of stock, if any, having any preference in relation to our common stock. Holders of shares of our common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to our common stock.
Our company has paid dividends in recent years. However, we do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our lenders.
Our Articles of Incorporation and our Bylaws do not contain any provisions that were included to delay, defer, discourage or prevent a change in control.
We are not offering our common stock by means of this prospectus.
Callable Subordinated Notes
Our notes have been designated by us as series 2005 and are issued pursuant to a resolution of our board of directors, without an indenture. A specimen copy of our note certificate was filed as an exhibit to our post-effective amendment to the registration statement filed with the SEC on July 27, 2006. You can obtain a specimen copy of the note from us. The following is the summary of the terms of the notes:
Date, Interest, and Payment. Our notes will mature in between 36 and 120 months from the date of issue and will bear interest from the date issued. The exact maturity of each note within that range will be chosen by holder of the note at the time of purchase. Interest at the annual rate (on the basis of a 365-day year), stated on the face of the note will be compounded annually or payable, at the option of the holder selected at the time of purchase, quarterly, semi-annually or annually. To determine the applicable interest rate, principal balance will be calculated using the total aggregate balance of all notes held by the note holder. The holder may choose to receive monthly interest payments in return for a .50% reduction in the interest rate of the note. If interest payments are compounded, the holder may choose to be paid earned but unpaid interest one time during the term of the note with not less than 30 days written notice to the company. Payments of interest will be made to the person or persons in whose name such note is registered. Principal and interest will be mailed from our principal office to the callable subordinated note holder on the date due as called for on the subordinated note. The notes will be issued only in registered form without coupons.
Subordination. The indebtedness evidenced by the notes is subordinated and subject to prior payment in full of any other of our debts so that (a) upon insolvency, bankruptcy, or other marshaling of assets and liabilities of us, no payment may be made in respect to the notes unless our other debts should be paid in full; and (b) upon the maturity of any other debt, all amounts payable in respect to such other debt shall be paid in full before any payments may be made on the notes.
For purposes hereof “other debt” means all indebtedness of us for money borrowed, whether outstanding at the date of the resolution or incurred hereafter, which is not expressed to be subordinate or junior in right of payment to any other indebtedness of us for borrowed money. There is no limit of the amount of additional borrowings we may incur.
Restrictive Provisions. No note issued hereunder shall provide any restriction on us for the payment of cash dividends, redemption or issuance of any class of stock, or the amount of other securities, which may be redeemed, purchased, or issued by us.
Transfer Restriction. The notes offered hereby are non-negotiable and are therefore nontransferable without our prior written consent. Due to the non-negotiable nature of the callable subordinated notes and the lack of a market for the sale of the callable subordinated notes, even if we permitted a transfer, investors may be unable to liquidate their investment in the notes even if circumstances would otherwise warrant such a sale.
Redemption. The notes offered hereby may be redeemable at our option, at any time as a whole, or from time to time, in part, on any date prior to maturity, upon not less than 30 days notice to you of our intent to redeem the note. The notes to be selected for redemption will be arbitrarily determined by us. We will consider many factors when determining whether to redeem all or a part of the notes including, but not limited to: 1) current interest rates offered for similar maturities (i.e. current interest rates are less than the rate paid on outstanding notes), 2) our current liquidity and funding needs, 3) the interest rate, maturity and terms of other debt financing available to us (i.e. other senior or subordinated debt available to us bears a lower interest rate or longer maturity than the notes outstanding), and 4) funds generated from operations (i.e. we have positive cash flows and cash reserves available to pay down outstanding notes).
After 36 months from the purchase date of the note, the holder may redeem their note prior to maturity upon 60 days written notice to the company. The date of redemption becomes the new maturity date of the note. If the new maturity date results in a lower interest rate than the company had been paying the holder based on the company’s then current interest schedule and the note’s corresponding new maturity date, then the company will withhold the amount of overpaid interest from the redemption payment. A penalty equal to six months interest will also be assessed for early redemption by the holder of the note.
While we believe this summary describes all of the material provisions of the notes, the summary is not complete and you should read the entire note certificate for provision that may be important to you.
Transfer agent and registrar of the Notes
We will act as our transfer agent and registrar for the notes.
UNITED STATES INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax considerations relating to the purchase, ownership and disposition of the notes, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This discussion is based on provisions of the Internal Revenue Code of 1986, applicable regulations thereunder, judicial authority and current administrative rulings now in effect, all of which are subject to change, potentially with a retroactive effect.
This summary applies only to United States holders that are beneficial owners of the notes as “capital assets,” within the meaning of Code Section 1221. This discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules such as (i) banks, thrifts, regulated investment companies, or other financial institutions or financial service companies, (ii) S corporations, (iii) holders subject to the alternative minimum tax, (iv) tax-exempt organizations, (v) insurance companies, (vi) foreign persons or entities, (vii) brokers or dealers in securities or currencies, (viii) holders whose “functional currency” is not the U.S. dollar, or (ix) persons that will hold the notes as a position in a hedging transaction, “straddle,” “conversion transaction” (as defined for tax purposes) or persons deemed to sell the notes under the constructive sale provisions of the Code. This summary discusses the Federal income tax considerations applicable to the initial purchase of the notes and does not discuss the tax considerations of a subsequent purchase of the notes. Each prospective purchaser of notes should consult his or her own tax advisor.
The interest income earned on the notes will be taxable income to the holders of the notes. The holder will report the interest income earned on the note in accordance with the holder’s method of accounting for Federal income tax purposes. Holders of monthly notes using the cash basis of accounting will report the interest income in the year the interest is actually or constructively received. Because a note holder may require monthly payment of interest income on the note, the interest income will be treated as constructively received on each interest payment date. Holders of notes using the accrual basis of accounting will include the interest income ratably over the term of the note.
Upon the sale, exchange or redemption of a note, a holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption (except to the extent such amount is attributable to accrued interest income not previously included in income, which will be taxable as ordinary income, or is attributable to accrued interest that was previously included in income and not added to the note’s basis, which amount may be received without generating further income) and (ii) such holder’s adjusted tax basis in the note. A holder’s adjusted tax basis in a note generally will equal the cost of the note to such holder less any principal payments received by the holder. Such capital gain or loss will be long-term capital gain or loss if the holder’s holding period in the note is more than one year at the time of sale, exchange or redemption. Long-term capital gains recognized by some noncorporate holders, including individuals, will generally be subject to taxation at reduced rates. The deductibility of capital losses is subject to limitations.
Under the Code, we must report the interest earned on notes with respect to each holder to the Internal Revenue Service. No portion of interest generally will be withheld for holders who properly provide us with a taxpayer identification number on Forms W-8 or W-9. If a note holder does not provide us with a taxpayer identification number on Forms W-8 or W-9, we are required to withhold tax on any interest paid. The withholding rate is presently 30% of the interest, but the rate is to reduce over time in stages to 27% in 2006. It is our policy not to sell to anyone refusing to provide a taxpayer identification number on a Form W-8 or W-9.
LEGAL MATTERS
The validity of the callable subordinated notes offered by this prospectus will be passed upon by Polsinelli Shalton Flanigan Suelthaus PC, Overland Park, Kansas.
EXPERTS
Our consolidated financial statements as of December 31, 2006 and for the years ended December 31, 2006 and 2005 included in this prospectus, have been audited by Harold J. Nicholson, Chartered, independent auditors, as stated in their reports appearing herein and has been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement, including all amendments, exhibits and schedules, on Form SB-2 under the Securities Act with respect to the callable subordinated notes offered. This prospectus, which constitutes a part of the registration statement, omits some of the information contained in the registration statement and the exhibits and financial schedules thereto. Reference is made to the registration statement and related exhibits and schedules for further information with respect to the subordinated debt and us.
Statements contained in this prospectus concerning the provisions of any document are not necessarily complete, and in each instance that reference is made to a copy of the document filed as an exhibit to the registration statement. Each such statement is qualified in its entirety by such reference.
You may read and copy any reports, statements, including the registration statement and other information we file at the SEC’s public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operations of the Public Reference Room. Our SEC filings are also available on the SEC’s Internet site (http://www.sec.gov). Except as indicated above, the information on this web site is not and should not be considered part of this document and is not incorporated into this prospectus by reference. This web address is, and is only intended to be, an inactive textual reference.
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| Notes to Consolidated Financial Statements | | F-7 |
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Board of Directors
AT&S Holdings, Inc.
We have audited the accompanying consolidated balance sheet of AT&S Holdings, Inc. (a Nevada corporation) and its subsidiary as of December 31, 2006, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.
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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AT&S Holdings, Inc. at December 31, 2006, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
//s// Harold J. Nicholson, Chtd.
Harold J. Nicholson, Chtd
Overland Park, Kansas
March 16, 2007
|
| CONSOLIDATED BALANCE SHEET |
| December 31, 2006 |
| |
| ASSETS |
| |
| CURRENT ASSETS | | |
| Cash (note B9) | | $158,876 |
| Accounts and notes receivable | | |
| Customers (note B5) | | 480,258 |
| Other | | 4,338 |
| | | 484,596 |
| Allowance for doubtful accounts (note B5 & B11) | | 80,000 |
| | | 404,596 |
| Inventory (note B6) | | 17,334 |
| Prepaid expenses | | |
| Advertising (note B4) | | 22,286 |
| Other | | 351,398 |
| | | 373,684 |
| Total Current Assets | | 954,491 |
| | | |
| PROPERTY AND EQUIPMENT - AT COST (note B7, B11 and C) |
| Revenue equipment | | 6,354,304 |
| Delivery equipment | | 278,377 |
| Vehicles | | 121,981 |
| Information systems and equipment | | 210,492 |
| Office equipment | | 47,566 |
| Leasehold improvements | | 67,000 |
| | | 7,079,720 |
| Accumulated depreciation | | 1,966,568 |
| | | 5,113,152 |
| | | |
| OTHER ASSETS | | |
| Deposits | | 10,110 |
| | | |
| Deferred loan fees (note B13) | | 50,000 |
| Accumulated amortization | | 47,227 |
| | | 2,773 |
| | | 12,883 |
| Total Assets | | 6,080,526 |
The accompanying notes are an integral part of this statement. |
| AT&S HOLDINGS, INC. |
| CONSOLIDATED BALANCE SHEET |
| December 31, 2006 |
| |
| LIABILITIES |
| | | |
| CURRENT LIABILITIES | | |
| Current maturities of long-term debt - other (note C) | | $535,889 |
| Line of credit (note C) | | 429,988 |
| Accounts payable | | |
| Trade | | 225,307 |
| Sales tax payable | | 12,995 |
| | | 238,302 |
| Accrued liabilities | | |
| Salaries | | 15,604 |
| Payroll taxes and other | | 1,194 |
| Interest payable | | 27,628 |
| Security deposits | | 500 |
| | | 44,926 |
| Total Current Liabilities | | 1,249,105 |
| | | |
| LONG-TERM DEBT, less current maturities (note C) | | |
| Related party | | 180,292 |
| Subordinated debentures – related party | | 45,000 |
| Subordinated debentures – other | | 264,000 |
| Other | | 3,107,601 |
| | | 3,596,893 |
| | | |
| COMMITMENTS (note E) | | - |
| | | |
| STOCKHOLDERS' EQUITY | | |
| Common stock - authorized 30,000,000 shares of $.001 par value; | |
| issued and outstanding 1,084,167 shares (notes F and G) | 1,084 |
| Additional paid-in capital (note G) | | 1,081,690 |
| Retained earnings | | 151,754 |
| | | 1,234,528 |
| Total Liabilities and Stockholders’ Equity | | $6,080,526 |
| |
| |
| The accompanying notes are an integral part of this statement. |
|
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| Years Ended December 31, |
| | | | | |
| | | 2006 | | 2005 |
| Revenues | | | | |
| Equipment sales | | $513,875 | | $579,613 |
| Equipment rental | | 3,183,795 | | 2,969,089 |
| Drayage | | 404,579 | | 431,060 |
| Maintenance | | 90,134 | | 66,075 |
| Other | | 56,814 | | 40,723 |
| Total revenues | | 4,249,197 | | 4,086,560 |
| | | | | |
| Cost of sales | | | | |
| Equipment | | 275,722 | | 323,664 |
| Equipment rental | | 969,929 | | 964,218 |
| Depreciation | | 388,143 | | 325,108 |
| Drayage | | 327,568 | | 305,654 |
| Maintenance | | 42,188 | | 36,159 |
| Total Cost of Sales | | 2,003,550 | | 1,954,803 |
| Gross profit | | 2,245,647 | | 2,131,757 |
| Costs and expenses | | | | |
| Selling, general and administrative expense | | 1,808,798 | | 1,504,740 |
| Depreciation | | 58,129 | | 80,397 |
| | | 1,866,927 | | 1,585,137 |
| Operating Profit | | 378,720 | | 546,620 |
| | | | | |
| Other Income (Expense) | | | | |
| Interest expense - related party | | (41,986) | | (57,278) |
| Interest expense - other | | (235,655) | | (211,129) |
| Other income | | 5,366 | | 39,057 |
| Gain (loss) on sale of non-revenue equipment | | 10,953 | | (2,895) |
| | | (261,322) | | (232,245) |
| Net Earnings | | $117,397 | | $314,375 |
| | | | | |
| BASIC Earnings per share | | $0.11 | | $0.31 |
| Weighted average number of shares | | 1,084,167 | | 998,688 |
| | | | | |
| DILUTED Earnings per share | | $0.11 | | $0.31 |
| Weighted average number of shares | | 1,084,167 | | 998,688 |
The accompanying notes are an integral part of these statements |
|
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
| | | | | | | | | | |
| | | | | | Additional | | | | |
| | Common Stock | | Paid | | Retained | | |
| | Shares | | Amount | | in Capital | | Earnings | | Total |
| | | | | | | | | | |
| Balance at January 1, 2005 | 984,167 | | $984 | | $1,031,790 | | ($280,019) | | $752,755 |
| | | | | | | | | | |
| Issuance of stock (note G) | 100,000 | | 100 | | - | | - | | 100 |
| | | | | | | | | | |
| Additional paid in capital (note G) | - | | - | | 49,900 | | - | | 49,900 |
| | | | | | | | | | |
| Net earnings for the year | - | | - | | - | | 314,375 | | 314,375 |
| | | | | | | | | | |
| Balance at December 31, 2005 | 1,084,167 | | $1,084 | | $1,081,690 | | $34,356 | | $1,117,130 |
| | | | | | | | | | |
| | | | | | | | | | |
| Net earnings for the year | - | | - | | - | | 117,398 | | 117,398 |
| | | | | | | | | | |
| Balance at December 31, 2006 | 1,084,167 | | $1,084 | | $1,084,167 | | $151,754 | | $1,234,528 |
| | | | | | | | | | |
| |
| |
| The accompanying notes are an integral part of these statements. |
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
| | |
| CONSOLIDATED STATEMENTS OF CASH FLOW | | |
| Years Ended December 31, | | |
| | | | | | | |
| | | 2006 | | 2005 | | |
| | | | | | | |
| Cash Flows from Operating Activities | | | | | | |
| Net income | | $117,398 | | $314,375 | | |
| Adjustments to reconcile net income to cash | | | | | | |
| provided by operating activities: | | | | | | |
| Gain on sale of equipment | | (200,768) | | (193,977) | | |
| Depreciation | | 446,272 | | 405,505 | | |
| Provision for losses on accounts receivable | | 69,704 | | 93,453 | | |
| Change in operating assets and liabilities: | | | | | | |
| (Increase) Decrease in accounts and notes receivable | 84,324 | | (183,160) | |
| (Increase) in prepaid expenses | | (140,875) | | (88,454) | | |
| Decrease in deferred loan fees (net) | | 11,231 | | 12,744 | | |
| Increase (Decrease) in accounts payable and accrued liabilities | (177,253) | | 128,447 | |
| Net Cash Provided by Operating Activities | | 210,033 | | 488,933 | | |
| | | | | | | |
| Cash Flows from Investing Activities | | | | | | |
| Proceeds from sale of equipment | | 432,990 | | 535,890 | | |
| Purchase of property and equipment | | (2,240,229) | | (924,153) | | |
| Net Cash (Used) by Investing Activities | | (1,807,239) | | (388,263) | | |
| | | | | | | |
| Cash Flows from Financing Activities | | | | | | |
| Proceeds from new financing | | 2,138,634 | | 821,680 | | |
| Principal payments of long & short term debt | | (627,459) | | (783,132) | | |
| Sale of common stock (note G) | | 0 | | 100 | | |
| Additional paid in capital (note G) | | 0 | | 49,900 | | |
| Net Cash Provided by Financing Activities | | 1,511,175 | | 88,548 | | |
| | | | | | | |
| INCREASE (DECREASE) IN CASH | | (86,031) | | 189,218 | | |
| Cash - beginning of year | | 244,908 | | 55,690 | | |
| Cash - end of year | | $158,877 | | $244,908 | | |
| | | | | | | |
| Interest Paid During Year | | | | | | |
| Related party | | $43,286 | | $57,572 | | |
| Other | | 197,389 | | 204,831 | | |
| Total | | $240,675 | | $262,403 | | |
| | | |
| | | |
NOTE A – ORGANIZATION
AT&S Holdings, Inc. (the “Company” or “AT&S”) (a Nevada corporation), was incorporated on December 10, 2003. The Company was formed by the shareholders of American Trailer & Storage, Inc. (“American Trailer”), and was organized to serve as a holding company for American Trailer.
American Trailer (a Missouri corporation) was incorporated on May 12, 1994, and was organized for the purpose of buying, selling and leasing transportation and portable storage equipment.
On December 31, 2003, the Company entered into an exchange agreement with American Trailer in which 100% of American Trailer’s outstanding common stock shares were exchanged for 984,167 of the Company’s shares. Subsequent to this transaction, AT&S became the parent company of American Trailer.
As defined in Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, the above exchange is not considered a business combination. The assets and liabilities of American Trailer were initially recognized at their carrying amount in accordance with SFAS No. 141, Appendix D, paragraph 12 and 18.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
| 1) | Consolidated Statements |
Per procedural guidance in SFAS No. 141, Business Combinations, Appendix D, the accompanying statements combine the financial data of AT&S and American Trailer.
The effects of intercompany transactions on the balance sheet and income statements have been eliminated.
American Trailer adopted SEC Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements, effective October 1, 2000. The adoption of SAB 101 did not materially affect the results of operations or financial position. American Trailer’s recognition of revenue criteria meet the four criteria enumerated in SAB 101 which are persuasive evidence an arrangement exists, delivery or services rendered, fixed or determinable price and reasonable assurance of collectibility.
American Trailer recognizes revenues from sales of containers upon delivery. Lease and leasing ancillary revenues (supported by rental agreements) and related expenses generated for portable
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2) Revenue Recognition – (Continued)
storage units are recognized monthly which approximates a straight-line basis. Revenues and expenses from the delivery and hauling of portable storage units are recognized when these services are rendered.
For the year ended December 31, 2006, 26% of revenues was generated by one customer whose business is transporting freight and 13.5% was generated by another customer whose business is retail sales. For the year ended December 31, 2005, 29% of revenues was generated by one customer whose business is transporting freight, 10% was generated by another customer whose business is retail sales, and 5% was generated by a third customer whose business is the rental of portable storage containers.
Cost of sales in the statements of operations includes the cost of units sold on the specific
identification method.
All advertising is non-direct response advertising and the costs are expensed as incurred. Those costs for advertising, paid in advance, that extend beyond the year end are recorded as a prepaid expense. Advertising expense was $147,681 and $108,664 in 2006 and 2005, respectively.
Accounts receivable consist of amounts due from customers from the lease or sale of containers and trailers. The Company records an estimated provision for bad debts and reviews the provision monthly for adequacy. Specific accounts are written off against the allowance when management determines the account is uncollectible.
Inventory consists of transportation and portable storage equipment, and is stated at the lower of cost or market value. Cost is determined under the specific identification method and market is the lower of replacement cost or net realizable value.
| 7) | Property, Plant and Equipment and Depreciation |
Property, plant and equipment assets are stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over the assets’ estimated useful lives for
all assets, except for vehicles which use the declining balance method. Residual values of Revenue Equipment are determined when the property is acquired and range up to 20%. In the
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| 7) | Property, Plant and Equipment and Depreciation – (continued) |
opinion of management, estimated residual values do not cause carrying values to exceed net
realizable value. Normal repairs and maintenance to property and equipment are expensed as incurred. When non-revenue property or equipment is retired or sold, the net book value of the asset, reduced by any proceeds, is charged to gain or loss on the retirement of fixed assets.
For financial reporting purposes, depreciation is recorded over the following useful lives:
Revenue Equipment - Trailers 10 years
Revenue Equipment - Containers 15 years
Vehicles 5 years
Office Equipment 10 years
Information Systems & Equipment 4-10 years
Beginning on December 31, 2003, AT&S elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. American Trailer elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code as of January 1, 1996. As such the individual shareholders are taxed personally on the results of operations of each company. Therefore, no provision or liability for income taxes is reflected on the books of the company.
The company considers all highly liquid investments with a maturity of three months or less when purchased to be “cash equivalents”.
10) | Statements of Cash Flows |
The Company uses the “indirect method” of reporting operating cash flows, which, in accordance with SFAS No. 95, Statement of Cash Flows, requires disclosure of certain amounts paid during the reporting periods, including interest and income taxes.
As previously discussed, the Company pays no income taxes because it is a Subchapter S Corporation.
The preparation of the financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that
affect the amounts
reported in the financial statements and the notes to those statements. Actual results could
differ from those estimates. The most significant estimates included within the financial
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| 11) | Use of Estimates – (continued) |
| | statements are the allowance for doubtful accounts, the estimated useful lives and residual values of trailers and containers, property and equipment and other asset impairments. |
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-LivedAssets, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. If this review indicates the carrying value of these assets will not be recoverable, as measured based on estimated undiscounted cash flows over their remaining life, the carrying amount would be adjusted to fair value. There has not been any recognition of impairment losses during the years ended December 31, 2006 and 2005.
Included in other assets are deferred loan financing fees of $50,000 associated with the cost of obtaining new financing from a bank on September 18, 2003. These fees are being amortized over the original term of the related debt (43 months), using the interest rate method, and are included in “interest expense – other” in the statement of operations. As more fully explained at Note C, the loan associated with these deferred loan fees was refinanced March 30, 2005. The difference in amortization of the fees due to the change in terms is not material and has not been changed.
| 14) | Impact of Recently Issued Accounting Standards |
In November 2004, SFAS No. 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4, was issued and becomes effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
In December 2004, SFAS No. 152, Accounting for Real Estate Time-Sharing Transactions – an amendment of FASB Statements No. 66 and 67, was issued and becomes effective for financial statements for fiscal years ending after June 15, 2005.
In December 2004, SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29, was issued and becomes effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005.
In December 2004, SFAS No. 123, Accounting for Stock-Based Compensation, was revised and becomes effective for awards granted, modified, repurchased or cancelled in interim or annual reporting periods beginning after December 15, 2005.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
14) Impact of Recently Issued Accounting Standards – (continued)
In May, 2005, SFAS No. 154, Accounting Changes and Error Corrections – a replacement ofAPB Opinion No. 20 and FASB Statement No. 3, was issued and becomes effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005.
In February, 2006, SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140, was issued and becomes effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.
In March, 2006, SFAS No. 156, Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140, was issued and becomes effective at the beginning of an entity’s first fiscal year that begins after September 15, 2006.
In September, 2006, SFAS No. 157, Fair Value Measurements, was issued and becomes effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
In September, 2006, SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R), was issued. Different sections of this standard become effective at different times, none earlier than the end of the fiscal year ending after December 15, 2006.
In February, 2007, SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, was issued and becomes effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007.
None of these Standards are applicable to the operations of the Company at December 31, 2006.
The Company has adopted SFAS No. 128, Earnings per Share. Pursuant to SFAS No. 128, basic earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods reported. Diluted earnings per common share are determined assuming the potential dilution of the exercise of warrants into common stock.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
| 15) | Earnings Per Share – (continued) |
Below are the required disclosures pursuant to SFAS No. 128 for:
| | Year ended |
| | December 31, |
| | 2006 | 2005 |
| BASIC: | | |
| Common shares outstanding, | | |
| beginning of period | 1,084,167 | 984,167 |
| Effect of weighting shares: | | |
| Weighted common shares issued | - | 14,521 |
| Weighted average number of | | |
| common shares outstanding | 1,084,167 | 998,688 |
| Net earnings | $117,398 | $314,375 |
| Earnings per share | $0.11 | $0.31 |
| | | |
| DILUTED: | | |
| Common shares outstanding, | | |
| beginning of period | 1,084,167 | 984,167 |
| Effect of weighting shares: | | |
| Weighted common shares issued | - | 14,521 |
| Weighted average number of | | |
| common and common equivalent | | |
| shares outstanding | 1,084,167 | 998,688 |
| Net earnings | $117,398 | $314,375 |
| Earnings per share | $0.11 | $0.31 |
| NOTE C - LONG-TERM DEBT | | | |
| | | | |
| Long-term debt at the respective dates consist of: | | | |
| | 2006 | | 2005 |
| | | | |
| Note payable to a bank, collateralized by all inventory, chattel paper | | | |
| accounts, all equipment consisting of containers and trailers, | | | |
| vehicles and general intangibles and personal guarantee of the | | | |
| majority shareholder, monthly reduction in availability of $26,690, | | | |
| interest at 6.7%, due on March 30, 2008. | $2,023,976 | | $2,166,276 |
| | | | |
| NOTE C - LONG-TERM DEBT - CONTINUED | | | |
| | | | |
| | 2006 | | 2005 |
| | | | |
| Note payable to a bank, collateralized by all inventory, chattel paper | | | |
| accounts, all equipment consisting of containers and trailers, | | | |
| vehicles and general intangibles and personal guarantee of the | | | |
| majority shareholder, payable in monthly installments of $8,905 | | | |
| plus interest at 7.15%, due on March 30, 2009. | 541,342 | | - |
| | | | |
| Note payable to a bank, collateralized by all inventory, chattel paper | | | |
| accounts, all equipment consisting of containers and trailers, | | | |
| vehicles and general intangibles and personal guarantee of the | | | |
| majority shareholder, payable in monthly installments of $16,378 | | | |
| plus interest at 7.3%, due on October 31, 2013. | 1,061,216 | | - |
| | | | |
| Note payable to a financial institution, collateralized by a pick-up | | | |
| truck, payable in monthly installments of $480, including | | | |
| interest at 6.99%, due on September 26, 2008. | - | | 14,351 |
| | | | |
| Note payable to a financial institution, collateralized by a pick-up | | | |
| truck, payable in monthly installments of $524, including | | | |
| interest at 3.9%, due on August 3, 2009. | 16,956 | | - |
| | | | |
| | | | |
| Subordinated debentures issued to the majority shareholder | | | |
| with various interest rates and due at various dates. | 45,000 | | 45,000 |
| | | | |
| Subordinated debentures issued with various interest rates and due | | | |
| at various dates. | 264,000 | | - |
| | | | |
| Note payable to the majority stockholder, payable in monthly | | | |
| installments of interest only at 15.5%, due on April 15, 2008. | 180,292 | | 309,264 |
| | 4,132,782 | | 2,534,891 |
| Less current maturities | | | |
| Related party | - | | - |
| Other | 535,889 | | 325,166 |
| | $3,596,893 | | $2,209,725 |
| | | | |
NOTE C – LONG-TERM DEBT (CONTINUED)
Line of Credit Arrangements
The company has four line of credit arrangements, with a financial institution, that have been modified on several occasions. The first line of credit arrangement, in the amount of $750,000, is used for the purchase of revenue equipment. Interest rates on advances were 8.25% (prime rate ) at December 31, 2006, and 7% (prime rate plus .25%) at December 31, 2005. The maturity date is March 30, 2007. There were advances of $429,988 and $516,704 on this line of credit at December 31, 2006 and December 31, 2005, respectively.
The second line of credit arrangement in the amount of $250,000 is used for working capital purposes. Interest rates on advances were also 8.25% (prime rate) at December 31, 2006, and 7% (prime rate plus .25%) at December 31, 2005. The maturity date is also March 30, 2007. There were no advances on this line of credit at December 31, 2006 and 2005.
The Company’s third line of credit arrangement is an offering line of credit in the amount of $150,000 to be used for the purchase of automobiles. The interest rate to be charged will be the bank’s automobile financing rate at the closing date with principal and interest payable monthly. There were no advances on this line of credit at December 31, 2006 and 2005.
On October 26, 2006, the company entered into a fourth line of credit agreement with the same institution in the amount of $113,121 to finance the purchase of revenue equipment which was part of an asset purchase agreement entered into on October 26, 2006 with a competitor. As part of that transaction, the company also assumed various lease purchase options which were exercised in January, 2007. The interest rate on this line of credit is 7.3%. There were no advances on this line of credit at December 31, 2006.
Long Term Financing
The company has a reducing revolving line of credit at a financial institution that was refinanced on March 30, 2005 with a maturity date of March 30, 2008. The balance of this debt was $2,023,976 and $2,166,276 at December 31, 2006 and 2005, respectively. The interest rates were 6.7% and 7% at December 31, 2006 and 2005, respectively
On March 28, 2006, advances in the amount of $584,771 on the equipment line of credit were refinanced to long term financing that matures on March 30, 2009 with an interest rate of 7.15%. The balance was $541,342 at December 31, 2006.
On October 26, 2006, the company borrowed $1,070,000 at an interest rate of 7.3% to finance the purchase of revenue equipment from a local competitor. The loan matures on October 31, 2013. The balance was $1,061,216 at December 31, 2006.
All of the lines of credit and financing arrangements were subject to the provisions of a Security Agreement dated September 18, 2003 and updated on October 26, 2006. Covenants of this Agreement provide for the personal guarantees of the majority shareholder of the company and his wife as well as subordination of the
NOTE C – LONG-TERM DEBT (CONTINUED)
company’s debt obligations to the majority shareholder of the company and the following three financial covenants and ratios:
| 1) | The company is required to have a minimum debt service coverage ratio of 1.25. This ratio is calculated as EBITDA divided by CMLTD plus interest expense. EBITDA is defined as earnings before interest, depreciation, and amortization and CMLTD plus interest expense is defined as current maturities, at the beginning of the year, of all term debt plus all interest expenses associated with all debt. |
| 2) | The company is to maintain a maximum debt to net worth ratio of 4:1 which is calculated as Total Liabilities less subordinated debt to Total Net Worth plus subordinated debt. |
| 3) | The company is to maintain a positive current ratio which is to be calculated based upon current assets divided by current liabilities less current maturities of subordinated debt less any outstanding balance on the $750,000 equipment purchase line of credit. |
The Company was in compliance with all covenants (as amended) as of the required measurement dates of December 31, 2006 and 2005.
Shareholder Financing Arrangements
The note payable to the majority shareholder, of $180,292 at December 31, 2006 and $309,264 at December 31, 2005 is subordinate to the bank loan. The loan agreement, requiring monthly payments of principal and interest and due February 15, 2008, was amended on March 15, 2005. The amended agreement required monthly payments of interest only and the principal amount was due April 15, 2006. That agreement was further amended on September 30, 2005, which changed the maturity date to April 15, 2007, and amended on September 30, 2006, which changed the maturity date to April 30, 2008.
Subordinated Debentures
Effective May 13, 2005, AT&S Holdings, Inc. began offering subordinated notes to the public. The notes vary in amount, interest rate, and length of time. The aggregate principal amount of the notes is not to exceed five million dollars. The notes are unsecured and subordinate to any and all other indebtedness.
At December 31, 2005, a note in the amount of $20,000, including interest at 9.5% and due November 2, 2015 had been issued to the majority shareholder and a note in the amount of $25,000, including interest at 9.75% and due December 7, 2015, had been issued to a company owned by the majority shareholder.
During 2006 there were notes in the amount of $264,000 issued to unrelated parties.
NOTE C – LONG-TERM DEBT (CONTINUED)
The aggregate amounts of maturities for all long-term borrowings are as follows:
Year Ending Long-term Debt
December 31 Requirements
2007 $ 535,889
2008 $ 715,025
2009 $ 855,766
2010 $ 473,571
2011 $ 592,310
NOTE D – COMMITMENTS
American Trailer leases office and yard space at 3505 Manchester Trafficway, Kansas City,
Missouri, from an unrelated party. The rent was $13,000 per month through March of 2005, and in
April, 2005, the rent increased to $14,000 per month. The lease expires on March 31, 2009. Rent
expense on this property was $168,000 and $165,000 for the years ended December 31, 2006 and
2005, respectively.
In addition, American Trailer leases various facilities and yard space on a monthly basis from various
other companies. Related rent expense was $56,628 and $66,138 for the years ended December 31,
2006 and 2005, respectively.
Future minimum rental commitments are as follows:
Year Ended
December 31, Amount
2007 $177,000
2008 $180,000
2009 $ 45,000
2010 -
2011 -
NOTE E - RETIREMENT PLAN
A Simple IRA Plan to which both American Trailer and eligible employees contribute was established on March 2, 1997. Employee contributions, which are based upon compensation, are voluntary and cannot exceed the annual maximum amount allowed by the Internal Revenue Code. American Trailer matches 100% of employee contributions up to 3% of employee compensation. Retirement contribution expense was $21,515, and $17,504 for the years ended December 31, 2006, and 2005, respectively.
NOTE F – STOCK OPTION AND INCENTIVE PLAN
On January 5, 2004, the Company established a Stock Option and Incentive Plan, (the Plan), covering all employees of the Company and its affiliates. The Plan is designed to attract, retain and motivate individuals (employees, directors, consultants and advisors) for the purpose of devoting themselves to the future success of the Company. All employees, members of the Board of Directors, consultants and advisors shall be eligible to participate in the Plan, subject to the discretionary approval of the Board of Directors.
The aggregate maximum number of shares for which stock, stock appreciation rights or options may be granted pursuant to the plan is 5,000,000. Specific terms of each grant are to be determined by the Board at the date of each grant. The plan was adopted and approved on January 5, 2004.
No stock, stock appreciation rights or options have been issued or granted at December 31, 2006.
NOTE G – RELATED PARTY TRANSACTIONS
On November 9, 2005, an officer of the Company purchased 100,000 shares of the Company’s registered common stock at the offering price of $.50 per share ($50,000).
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
ASSETS:
| | | December 31, 2006 | | March 31, 2007 | |
| | | (Audited) | | (Unaudited) | |
| CURRENT ASSETS | | | | | |
| Cash | | $ | 158,876 | | $ | 26,593 | |
| Accounts and notes receivable | | | | | | | |
| Customers | | | 480,258 | | | 334,464 | |
| Other | | | 4,338 | | | 4,551 | |
| | | | 484,596 | | | 339,015 | |
| Allowance for doubtful accounts | | | 80,000 | | | 80,000 | |
| | | | 404,596 | | | 259,015 | |
| Inventory | | | 17,334 | | | 13,134 | |
| Prepaid Advertising | | | 22,286 | | | 16,077 | |
| Other Prepaid Expenses | | | 351,399 | | | 359,826 | |
| Total Current Assets | | | 954,491 | | | 674,645 | |
| | | | | | | | |
| PROPERTY AND EQUIPMENT - AT COST |
| Revenue equipment | | | 6,354,304 | | | 6,444,646 | |
| Delivery equipment | | | 278,377 | | | 441,377 | |
| Vehicles | | | 121,980 | | | 121,980 | |
| Information systems and equipment | | | 210,492 | | | 210,492 | |
| Office equipment | | | 47,566 | | | 51,835 | |
| Leasehold improvements | | | 67,000 | | | 67,000 | |
| | | | 7,079,719 | | | 7,337,330 | |
| Accumulated depreciation | | | 1,966,568 | | | 2,090,719 | |
| | | | 5,113,151 | | | 5,246,611 | |
| OTHER ASSETS | | | | | | | |
| Deposits | | | 10,110 | | | 10,110 | |
| | | | | | | | |
| Deferred loan fees | | | 50,000 | | | 50,000 | |
| Accumulated amortization | | | 47,227 | | | 49,767 | |
| | | | 2,773 | | | 233 | |
| | | | 12,883 | | | 10,343 | |
| Total Assets | | $ | 6,080,525 | | $ | 5,931,599 | |
The accompanying notes are an integral part of these statements.
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
LIABILITIES AND STOCKHOLDERS' EQUITY:
| | | December 31, 2006 | | March 31, 2007 | |
| CURRENT LIABILITIES | | (Audited) | | (Unaudited) | |
| Current maturities of long-term debt - related party | | $ | | | | | |
| Current maturities of long-term debt - other | | | 535,889 | | $ | 582,011 | |
| Line of credit | | | 429,988 | | | 130,000 | |
| Outstanding checks in excess of cash balance | | | 0 | | | 73,926 | |
| Accounts payable | | | | | | | |
| Trade | | | 225,306 | | | 212,274 | |
| Sales tax payable | | | 12,995 | | | 10,694 | |
| | | | 238,301 | | | 222,968 | |
| Accrued liabilities | | | | | | | |
| Salaries | | | 15,604 | | | 28,869 | |
| Payroll taxes and other | | | 1,194 | | | 2,208 | |
| Interest payable | | | 27,628 | | | 15,073 | |
| Security deposits | | | 500 | | | 500 | |
| Property taxes | | | - | | | 4,500 | |
| | | | 44,926 | | | 51,150 | |
| Total Current Liabilities | | | 1,249,104 | | | 1,060,055 | |
| | | | | | | | |
| LONG-TERM DEBT, less current maturities | | | | | | | |
| Related party | | | 180,292 | | | 144,824 | |
| Subordinated debentures – related party | | | 45,000 | | | 45,000 | |
| Other | | | 3,107,601 | | | 3,174,253 | |
| Subordinated debentures – other | | | 264,000 | | | 274,000 | |
| | | | 4,845,997 | | | 4,698,132 | |
| | | | | | | | |
| COMMITMENTS | | | | | | | |
| | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | |
| Common stock - authorized 30,000,000 shares of | | | | | | | |
| $.001 par value; issued and outstanding | | | | | | | |
| 1,084,167 shares | | | 1,084 | | | 1,084 | |
| Additional paid-in capital | | | 1,081,690 | | | 1,081,690 | |
| Retained earnings | | | 151,754 | | | 150,692 | |
| | | | 1,234,528 | | | 1,233,466 | |
| Total Liabilities and Stockholders’ Equity | | $ | 6,080,525 | | $ | 5,931,598 | |
The accompanying notes are an integral part of these statements.
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| | | THREE MONTHS ENDED | |
| REVENUE: | | | March 31, 2006 | | | March 31, 2007 | | |
| Equipment sales | | $ | 156,011 | | $ | 97,300 | | |
| Equipment rental | | | 865,404 | | | 846,321 | | |
| Drayage | | | 95,579 | | | 77,349 | | |
| Maintenance | | | 52,984 | | | 38,276 | | |
| Other | | | 11,159 | | | 14,670 | | |
| Total revenue | | | 1,181,137 | | | 1,073,916 | | |
| | | | | | | | | |
| COST OF SALES: | | | | | | | | |
| Equipment | | | 90,879 | | | 59,134 | | |
| Equipment rental | | | 310,864 | | | 206,732 | | |
| Depreciation | | | 86,263 | | | 123,353 | | |
| Drayage | | | 85,066 | | | 83,659 | | |
| Maintenance | | | 8,153 | | | 26,011 | | |
| Total cost of sales | | | 581,225 | | | 498,889 | | |
| Gross profit | | | 599,912 | | | 575,027 | | |
| | | | | | | | | |
| COSTS AND EXPENSES: | | | | | | | | |
| Selling, general and administrative expenses | | | 431,307 | | | 479,917 | | |
| Depreciation expense | | | 13,616 | | | 16,134 | | |
| | | | 444,923 | | | 496,051 | | |
| Operating profit | | | 154,989 | | | 78,976 | | |
| | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | |
| Interest expense - related party | | | (11,921 | ) | | (7,373 | ) | |
| Interest expense - other | | | (49,168 | ) | | (76,778 | ) | |
| Gain (Loss) on sale of non-revenue equipment | | | 0 | | | 0 | | |
| Other income | | | 1,512 | | | 4,113 | | |
| | | | (59,577 | ) | | (80,038 | ) | |
| | | | | | | | | |
| Net Earnings (Loss) | | $ | 95,412 | | $ | (1,062) | | |
| | | | | | | | | |
| BASIC net earnings (loss) per share | | $ | 0.09 | | $ | (0.00) | | |
| Weighted average shares outstanding | | | 1,084,167 | | | 1,084,167 | | |
| | | | | | | | | |
| DILUTED net earnings (loss) per share | | $ | 0.09 | | $ | (0.00) | | |
| Weighted average shares outstanding | | | 1,084,167 | | | 1,084,167 | | |
The accompanying notes are an integral part of these statements.
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
MARCH 31, 2007
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Common | | Stock | | | | | | | |
| | | Shares | | Amount | | Additional Paid In Capital | | Retained Earnings | | Total | |
| | | | | | | | | | | | |
| Balance at January 1, 2007 | | | 1,084,167 | | $ | 1,084 | | $ | 1,081,690 | | $ | 151,754 | | $ | 1,234,528 | |
| | | | | | | | | | | | | | | | | |
| Net earnings for the period (unaudited) | | | - | | | - | | | - | | $ | (1,062) | | $ | (1,062) | |
| | | | | | | | | | | | | | | | | |
| Balance at March 31, 2007 (unaudited) | | | 1,084,167 | | $ | 1,084 | | $ | 1,081,690 | | $ | 150,692 | | $ | 1,233,466 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these statements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006 AND 2007
| | THREE MONTHS ENDED | |
| | | March 31, 2006 | | March 31, 2007 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net earnings (loss) | | | $95,412 | | | $(1,062) | |
| Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: | | | | | | | |
| Gain on sale of equipment | | | (43,607) | | | (33,366) | |
| Depreciation | | | 99,879 | | | 139,487 | |
| Provision for losses on accounts receivable | | | 4,254 | | | 1,709 | |
| | | | | | | | |
| Change in operating assets and liabilities: | | | | | | | |
| Decrease in accounts and notes receivable | | | 213,303 | | | 143,872 | |
| (Increase) decrease in prepaid expenses | | | (103,921) | | | 1,982 | |
| Decrease in deferred loan fees (net) | | | 2,959 | | | 2,540 | |
Increase (decrease) in accounts payable and accrued liabilities | | | (134,652) | | | 64,817 | |
| Net cash and cash equivalents provided by operating activities | | | 133,627 | | | 319,979 | |
| | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | |
| | | | | | | | |
| Proceeds from sale of equipment | | | 105,161 | | | 84,300 | |
| Purchase of property and equipment | | | (192,073) | | | (323,881) | |
| Net cash and cash equivalents provided (used) by investing activities | | | (86,912) | | | (239,581) | |
| | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | |
| Proceeds from new financing | | | 41,000 | | | 724,616 | |
| Principal payments on long and short-term debt | | | (246,690) | | | (937,298) | |
| Net cash and cash equivalents (used) by financing activities | | | (205,690) | | | (212,682) | |
| | | | | | | | |
| (DECREASE) IN CASH | | | (158,975) | | | (132,284) | |
| Cash - beginning of period | | | 244,908 | | | 158,876 | |
| Cash - end of period | | $ | 85,933 | | $ | 26,592 | |
| | | | | | | | |
| Interest paid during the period: | | | | | | | |
| Related party | | $ | 12,584 | | $ | 7,602 | |
| Other | | | 45,678 | | $ | 86,564 | |
| Total interest | | $ | 58,262 | | $ | 94,166 | |
The accompanying notes are an integral part of these statements.
AT&S HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2006 and 2005
AT&S HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT PRESENTATION
We are providing herein the unaudited historical financial statements of AT&S HOLDINGS, INC. as of March 31, 2007, and for the three months ended March 31, 2007 and 2006. The interim financial statements presented herein have been prepared 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 accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with our annual financial statements, notes and accounting policies included in the Company's most recent annual report on Form 10-KSB as filed with the Securities and Exchange Commission.
The information furnished in this report reflects all adjustments (consisting of only normal recurring accruals), which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The results of operations for the three month period ended March 31, 2007, are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2007.
The effects of inter-company transactions on current assets, current liabilities, revenue, and cost of sales for periods presented and on retained earnings at the beginning of the periods presented have been eliminated.
BANKING ARANGEMENTS
On April 4, 2007, we changed the terms of our lines of credit and signed an additional term loan with our current bank. Our operating and equipment purchase lines of credit were extended to March 30, 2008. The balance of the equipment purchase line of credit, $440,053, was transferred to a new term loan. The new term loan is a fixed interest rate loan in the amount of $440,053 dated April 4, 2007 with a maturity date of April 4, 2010. This loan requires 35 consecutive monthly payments of interest and principal of $6,642.66 each, beginning May 4, 2007 with interest on the unpaid balances at an interest rate of 6.9%, and one principal and interest payment of $284,013.40 on April 4, 2010, with interest on the unpaid balances at an interest rate of 6.9%.
SUBORDINATED NOTES
We filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission, whereby we registered subordinated notes at $1,000 par for up to $5,000,000 for sale to the public. The net proceeds of these notes (approximately $4,700,000 assuming all notes are sold and after offering expenses) are intended to fund the purchases of revenue equipment. The Commission declared the registration statement effective on May 13, 2005. The offering of notes is not underwritten and is being sold on a best-efforts basis. From May 13, 2005 to March 31, 2007, we sold 13 notes in the aggregate principal amount of $319,000. For the quarter ended March 31, 2007 we sold one note in the principal amount of $10,000. Costs incurred with the preparation of the initial registration statement were approximately $100,000. Our expenses incurred in connection with the issuance and distribution of the notes from the date our registration statement became effective, May 13, 2005 through March 31, 2007 were approximately $288,000.
No person has been authorized by us to give any information or to make any representation not contained in this Prospectus in connection with the offering described herein, and, if given or made, such information or representation must not be relied upon as having been authorized. This Prospectus does not constitute an offer in any jurisdiction to any person to whom such offer would be unlawful or an offer of any securities other than the registered securities to which it relates. Delivery of this Prospectus at any time does not imply that information herein is correct as of any time subsequent to its date as set forth on the cover hereof. _______________________ TABLE OF CONTENTS Page Prospectus Summary 3 Risk Factors 5 Use of Proceeds 9 Plan of Distribution 10 Forward Looking Statement 10 Management’s Discussion and Analysis of Financial Condition and Result of Operations 11 Our Business 19 Description of Our Properties 26 Legal Proceedings 27 Our Management 28 Our Principal Owners 29 Executive Compensation 30 Certain Relationships and Related Transactions 31 Description of Securities 31 United States Income Tax Consequences 33 Legal Matters 33 Experts &# 160; 33 Additional Information 34 Index to Financial Statements 35 | AT&S HOLDINGS, INC. $5,000,000 Callable Subordinated Notes |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The State of Nevada permits indemnification by a Nevada corporation of with respect to indemnification of officers, directors, employees and agents against liabilities incurred by reason of the fact that such person is or was a director, officer, employee or agent of the corporation.
Consistent therewith, Article XI of the Registrant’s Bylaws contains a provision that indemnifies directors for all liabilities accruing to him or her because of their status as a director except where their alleged acts may be classified as fraud. This provision effectively relieves the director of liability for monetary damages resulting from a breach of fiduciary duty, except in certain circumstances involving certain wrongful acts, such as a breach of a director’s duty of loyalty or acts or omissions that involve intentional misconduct or a knowing violation of law. This provision does not limit or eliminate the rights of American Trailer or any shareholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s fiduciary duty. This provision will not alter a director’s liability under federal securities laws.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth expenses and costs payable by the Registrant which are expected to be incurred in connection with the issuance and distribution of the securities described in this registration statement. All amounts are estimated except for the Securities and Exchange Commission's registration fee.
| | Amount |
| Registration fee under Securities Act | $ 460 |
| Legal fees and expenses | 30,000 |
| Accounting fees and expenses | 20,000 |
| Printing expenses | 5,000 |
| Advertising | 174,000 |
| Miscellaneous expenses | 1,000 |
Total | $ 230,460 |
Item 26. Recent Sales of Unregistered Securities.
Since May 1, 2003, the Issuer has sold unregistered securities in the following transactions:
| · | On July 8, 2003, American Trailer & Storage, Inc. issued Richard G. Honan a warrant to purchase 711,594 shares of common stock of American Trailer & Storage, Inc. at the exercise price of $0.44 per share. As a result of a share exchange that occurred on December 31, 2003 (see below), the warrant issued to Mr. Honan represented the right to purchase 711,594 shares of common stock of A&TS Holdings, Inc. |
| · | On December 1, 2003, Mr. Honan exercised the Warrant described above, purchasing 711,594 shares of common stock for $315,087 ($.44 per share). |
| · | On December 31, 2003, AT&S Holdings, Inc. issued 856,200 shares of common stock, 124,121 shares of common stock and 3,846 shares of common stock to Richard G. Honan, Jeffrey M. Orr and Richard G. Honan II, respectively (the then-shareholders of AT&S Holdings, Inc.) pursuant to a shares exchange agreement whereby the shareholders of American Trailer & Storage, Inc. exchanged all their shares of American Trailer & Storage, Inc. common stock for an equivalent number of shares of common stock of AT&S Holdings, Inc. |
The shares were issued in reliance upon the exemption from registration contained in Section 4(2) of the Act, as a private offering of securities. Certificates representing the shares have an appropriate legend prohibiting transfer without compliance with the Act. These share transactions were completed in reliance upon the exemption contained in Section 4(2) of the Securities Act of 1933, as each offeree was determined to be an accredited investor. There were no offerees other than the foregoing investors. Each of the offerees described above in these transactions were given complete and unfettered access to our books and records. We further determined that each offeree was accredited and therefore had knowledge and experience in financial and business matters and that he, she or it was capable of evaluating the merits and risks of the investment.
Item 27. Exhibits
The following documents are filed as exhibits to this registration statement:
| Exhibit Number | Description |
| 3.01 | Articles of Incorporation of AT&S (Incorporated by reference to Exhibit 3.01 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 3.02 | Bylaws of AT&S (Incorporated by reference to Exhibit 3.02 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 4.01 | Form of subscription agreement. (Incorporated by reference to Exhibit 4.01 to the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on April 29, 2004). |
| 4.02 | Form of callable subordinated note. (Incorporated by reference to Exhibit 4.02 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on August 18, 2006). |
| 4.03 | Stock Option/incentive plan and option agreement (2004). (Incorporated by reference to Exhibit 4.02 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 5* | Opinion re legality of callable subordinated notes. |
| 10.01 | Form of container rental agreement. (Incorporated by reference to Exhibit 10.01 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.02 | Form of trailer rental agreement. (Incorporated by reference to Exhibit 10.02 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.03 | Lease agreement dated February 21, 2002 by and between Financial Credit Corporation D/B/A American Trailer & Storage and Manchester Properties, LLC. (Incorporated by reference to Exhibit 10.03 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.04 | $2,534,796 term loan agreement dated March 30, 2005 by and between American Trailer & Storage, Inc. and Commercial Federal Bank. (Incorporated by reference to Exhibit 10.04 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on March 31, 2005). |
| 10.05 | $650,000 equipment purchase line of credit agreement dated March 30, 2005 by and between American Trailer & Storage, Inc. and Commercial Federal Bank.. (Incorporated by reference to Exhibit 10.05 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on March 31, 2005). |
| 10.06 | $250,000 working capital line of credit agreement dated March 30, 2005 by and between American Trailer & Storage, Inc. and Commercial Federal Bank. (Incorporated by reference to Exhibit 10.06 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on March 31, 2005). |
| 10.07 | Business Loan Agreement dated March 30, 2005 by and between American Trailer & Storage, Inc. and Commercial Federal Bank. (Incorporated by reference to Exhibit 10.07 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on March 31, 2005). |
| 10.08 | Commercial Security Agreement dated September 18, 2003 by and between Financial Credit Corporation D/B/A American Trailer & Storage, Inc. and Commercial Federal Bank. (Incorporated by reference to Exhibit 10.08 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.09 | Commercial Guarantee Agreement dated September 18, 2003 by and between Financial Credit Corporation D/B/A American Trailer & Storage, Inc., Richard G. Honan and Commercial Federal Bank. (Incorporated by reference to Exhibit 10.09 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.10 | Exchange agreement dated December 31, 2003 by and between Richard G. Honan and AT&S Holdings, Inc. (Incorporated by reference to Exhibit 10.15 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.11 | Exchange agreement dated December 31, 2003 by and between Richard G. Honan II and AT&S Holdings, Inc. (Incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.12 | Exchange agreement dated December 31, 2003 by and between Jeffrey N. Orr and AT&S Holdings, Inc. (Incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2004 (Commission No. 333-111715)). |
| 10.13 | Subordinated loan agreement dated March 15, 2005 by and between Richard G. Honan and AT&S Holdings, Inc. (Incorporated by reference to Exhibit 10.13 of the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2005 (Commission No. 333-111715)). |
| 10.14 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Commercial Federal Bank dated September 27, 2005 relating to the promissory note in the principal amount of $750,000 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.14 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 15, 2005). |
| 10.15 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Commercial Federal Bank dated September 27, 2005 relating to the promissory note in the principal amount of $2,401,345.71 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.15 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 15, 2005 (Commission No. 333-111715)). |
| 10.16 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Commercial Federal Bank dated September 27, 2005 relating to the promissory note in the principal amount of $250,000 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.16 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 15, 2005 (Commission No. 333-111715)). |
| 10.17 | Lease agreement dated January 6, 2006 by and between American Trailer & Storage, Inc. and Bi-State Group, LLC. (Incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-QSB filed with the Securities and Exchange Commission on January 5, 2006). |
| 10.18 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Bank of the West dated March 28, 2006 relating to the promissory note in the principal amount of $750,000 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.18 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2006). |
| 10.19 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Bank of the West dated March 28, 2006 relating to the promissory note in the principal amount of $2,534,795.71 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.19 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2006). |
| 10.20 | Change in Terms Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Bank of the West dated March 28, 2006 relating to the promissory note in the principal amount of $250,000 dated March 30, 2005 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.20 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2006). |
| 10.21 | Business Loan Agreement between AT&S Holdings, Inc. and American Trailer & Storage, Inc. and Bank of the West dated March 28, 2006 relating to the promissory note in the principal amount of $584,771 dated March 28, 2006 of AT&S Holdings, Inc. and American Trailer & Storage, Inc. and related documents. (Incorporated by reference to Exhibit 10.21 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2006). |
| 10.22 | Promissory Note from AT&S Holdings, Inc. and American Trailer & Storage, Inc. to Bank of the West dated March 28, 2006 in the principal amount of $584,771. (Incorporated by reference to Exhibit 10.22 of the Registrant’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 15, 2006). |
| 10.23 | Asset Purchase Agreement dated October 26, 2006, between American Trailer & Storage and Ace Trailer and Storage (incorporated by reference to the Exhibit 9.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2006). |
| 10.24 | Promissory Note from AT&S Holdings, Inc. and American Trailer and Storage, Inc. to Bank of the West dated October 28, 2006, in the principal amount of $1,070,000 dated March 28, 2006 (incorporated by reference to Exhibit 10.23 of the Registrant’s Annual Report on 10-KSB filed with the Securities and Exchange Commission on April 2, 2007). |
| 10.25 | Business Loan Agreement dated October 26, 2006 by and between AT&S Holdings, Inc. and American Trailer and Storage, Inc. and Bank of the West. (Incorporated by reference to Exhibit 10.24 of the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 2, 2007). |
| 10.26 | Promissory Note from AT&S Holdings, Inc. to Richard G. Honan, dated September 30, 2006, in the principal amount of $214,420.18. (Incorporated by reference to Exhibit 10.23 of the Registrant’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on April 2, 2007). |
| 21.01 | Subsidiaries of the registrant. (Incorporated by reference to Exhibit 21.01 of the Registrant’s Registration Statement on Form SB-2, as amended, filed with the Securities and Exchange Commission on January 6, 2006). |
| 23.01* | Consent of Harold J. Nicholson, Chartered. |
| 23.03 | Consent of Polsinelli Shalton Flanigan Suelthaus PC (included in Exhibit 5). |
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorizes this post-effective amendment to the registration statement to be signed on its behalf by the undersigned in the City of Kansas City, State of Missouri, on July 3, 2007.
AT&S HOLDINGS, INC.
By: /s/ RICHARD G.HONAN
Richard G. Honan
Chairman
Pursuant to the requirements of the Securities Act of 1933, this post effective amendment to the registration statement has been signed by the following persons in the capacities indicated and on the dates indicated.
| Name | Title | Date |
/s/ RICHARD G. HONAN Richard G. Honan (Chairman) | Chairman and Chief Executive Officer | July 3, 2007 |
/s/ RICHARD G. HONAN II Richard G. Honan II | Director, Principal Accounting Officer and Secretary | July 3, 2007 |
