x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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27-0223495
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.)
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Incorporation or Organization)
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21860 Burbank Boulevard, Suite 300 South
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||
Woodland Hills, CA
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91367
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(Address of Principal Executive Offices)
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(Zip Code)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨
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Smaller reporting company x
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(Do not check if a smaller reporting company)
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Page
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PART I. FINANCIAL INFORMATION
|
||
Item 1.
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Unaudited Financial Statements
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3
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Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010
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3
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Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010
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4
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Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the nine months ended September 30, 2011
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5
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Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2011 and 2010
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6
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Notes to Condensed Consolidated Financial Statements
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7
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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25
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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39
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Item 4.
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Controls and Procedures
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39
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PART II. OTHER INFORMATION
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||
Item 1.
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Legal Proceedings
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39
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Item 1A.
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Risk Factors
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40
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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45
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Item 3.
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Defaults Upon Senior Securities
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45
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Item 4.
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(Reserved)
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45
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Item 5.
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Other Information
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45
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Item 6.
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Exhibits
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45
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Signatures
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46
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September 30,
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December 31,
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|||||||
2011
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2010
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|||||||
(Unaudited)
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||||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 16,420 | $ | 20,080 | ||||
Restricted cash
|
5,373 | — | ||||||
Accounts receivable, net
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12,391 | 3,087 | ||||||
Advances against customer contracts
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15,906 | 3,063 | ||||||
Goods held for sale or auction
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12,907 | 13,504 | ||||||
Note receivable - related party
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3,224 | 5,930 | ||||||
Deferred income taxes
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5,128 | 5,463 | ||||||
Prepaid expenses and other current assets
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2,785 | 1,353 | ||||||
Total current assets
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74,134 | 52,480 | ||||||
Property and equipment, net
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1,059 | 1,369 | ||||||
Goodwill
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5,688 | 5,688 | ||||||
Other intangible assets, net
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140 | 221 | ||||||
Deferred income taxes
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9,972 | 11,372 | ||||||
Note receivable | — | — | ||||||
Other assets
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727 | 1,144 | ||||||
Total assets
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$ | 91,720 | $ | 72,274 | ||||
Liabilities and Stockholders' Equity (Deficit)
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||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued liabilities
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$ | 19,304 | $ | 10,631 | ||||
Auction and liquidation proceeds payable
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— | 1,712 | ||||||
Mandatorily redeemable noncontrolling interests
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3,434 | 2,858 | ||||||
Revolving line of credit
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1,694 | — | ||||||
Current portion of long-term debt
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3,142 | 1,724 | ||||||
Notes payable
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19,332 | 12,014 | ||||||
Current portion of capital lease obligation
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27 | 27 | ||||||
Total current liabilities
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46,933 | 28,966 | ||||||
Capital lease obligation, net of current portion
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22 | 42 | ||||||
Long-term debt, net of current portion
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52,207 | 52,169 | ||||||
Total liabilities
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99,162 | 81,177 | ||||||
Commitments and contingencies
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||||||||
Stockholders' equity (deficit):
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||||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued
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— | — | ||||||
Common stock, $0.0001 par value; 135,000,000 shares authorized; 31,001,609 and 30,559,036 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively
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4 | 4 | ||||||
Additional paid-in capital
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3,177 | 2,878 | ||||||
Retained earnings (deficit)
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(10,536 | ) | (11,792 | ) | ||||
Accumulated other comprehensive income (loss)
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(87 | ) | 7 | |||||
Total stockholders' equity (deficit)
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(7,442 | ) | (8,903 | ) | ||||
Total liabilities and stockholders' equity (deficit)
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$ | 91,720 | $ | 72,274 |
Three Months Ended
September 30,
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Nine Months Ended
September 30,
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|||||||||||||||
2011
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2010
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2011
|
2010
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|||||||||||||
Revenues:
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||||||||||||||||
Services and fees
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$ | 27,575 | $ | 13,499 | $ | 50,147 | $ | 26,408 | ||||||||
Sale of goods
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937 | 359 | 2,012 | 4,732 | ||||||||||||
Total revenues
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28,512 | 13,858 | 52,159 | 31,140 | ||||||||||||
Operating expenses:
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||||||||||||||||
Direct cost of services
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7,613 | 2,852 | 15,904 | 10,938 | ||||||||||||
Cost of goods sold
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974 | 561 | 2,287 | 6,098 | ||||||||||||
Selling, general and administrative expenses
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10,897 | 8,018 | 26,848 | 24,617 | ||||||||||||
Total operating expenses
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19,484 | 11,431 | 45,039 | 41,653 | ||||||||||||
Operating income (loss)
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9,028 | 2,427 | 7,120 | (10,513 | ) | |||||||||||
Other income (expense):
|
||||||||||||||||
Other income (expense)
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(3 | ) | — | (13 | ) | — | ||||||||||
Interest income
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119 | 157 | 409 | 334 | ||||||||||||
Income (loss) from equity investment in Great American Real Estate, LLC
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(174 | ) | (401 | ) | (522 | ) | (1,268 | ) | ||||||||
Interest expense
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(2,921 | ) | (848 | ) | (3,874 | ) | (2,640 | ) | ||||||||
Income (loss) before income taxes
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6,049 | 1,335 | 3,120 | (14,087 | ) | |||||||||||
(Provision) benefit for income taxes
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(2,018 | ) | (880 | ) | (1,864 | ) | 4,955 | |||||||||
Net income (loss)
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$ | 4,031 | $ | 455 | $ | 1,256 | $ | (9,132 | ) | |||||||
Weighted average basic shares outstanding
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28,650,980 | 28,160,667 | 28,491,812 | 28,020,733 | ||||||||||||
Weighted average diluted shares outstanding
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29,519,141 | 29,129,099 | 29,359,973 | 28,020,733 | ||||||||||||
Basic and diluted income (loss) per share
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$ | 0.14 | $ | 0.02 | $ | 0.04 | $ | (0.33 | ) | |||||||
Diluted income (loss) per share
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$ | 0.14 | $ | 0.02 | $ | 0.04 | $ | (0.33 | ) |
Accumulated
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Total
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|||||||||||||||||||||||||||||||
Additional
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Retained
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Other
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Stockholders'
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|||||||||||||||||||||||||||||
Preferred Stock
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Common Stock
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Paid-in
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Earnings
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Comprehensive
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Equity
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|||||||||||||||||||||||||||
Shares
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Amount
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Shares
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Amount
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Capital
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(Deficit)
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Loss
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(Deficit)
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|||||||||||||||||||||||||
Balance, January 1, 2011
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— | $ | — | 30,559,036 | $ | 4 | $ | 2,878 | $ | (11,792 | ) | $ | 7 | $ | (8,903 | ) | ||||||||||||||||
Vesting of restricted stock, net of shares withheld for employee taxes
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— | — | 442,573 | — | (132 | ) | — | — | (132 | ) | ||||||||||||||||||||||
Share based compensation
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— | — | — | — | 431 | — | — | 431 | ||||||||||||||||||||||||
Net income for the nine months ended September 30, 2011
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— | — | — | — | — | 1,256 | — | 1,256 | ||||||||||||||||||||||||
Foreign currency translation adjustment
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— | — | — | — | — | — | (94 | ) | (94 | ) | ||||||||||||||||||||||
Balance, September 30, 2011
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— | $ | — | 31,001,609 | $ | 4 | $ | 3,177 | $ | (10,536 | ) | $ | (87 | ) | $ | (7,442 | ) |
Nine Months Ended
September 30,
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||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
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||||||||
Net income (loss)
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$ | 1,256 | $ | (9,132 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
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625 | 580 | ||||||
Provision for doubtful accounts
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– | 45 | ||||||
Impairment of goods held for sale or auction
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– | 1,308 | ||||||
Share-based payments
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431 | 3,430 | ||||||
Effect of foreign currency on operations
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(85 | ) | (6 | ) | ||||
Non-cash interest
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1,148 | (316 | ) | |||||
Amortization of discount on note payable
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424 | – | ||||||
Loss from equity investment in Great American Real Estate, LLC
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522 | 1,268 | ||||||
Loss on disposal of assets
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3 | 2 | ||||||
Deferred income taxes
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1,735 | (4,961 | ) | |||||
Income allocated to mandatorily redeemable noncontrolling interests
|
3,538 | 1,174 | ||||||
Change in operating assets and liabilities:
|
||||||||
Accounts receivable and advances against customer contracts
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(22,147 | ) | (442 | ) | ||||
Income taxes receivable
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– | 1,100 | ||||||
Goods held for sale or auction
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597 | (289 | ) | |||||
Prepaid expenses and other assets
|
(507 | ) | 672 | |||||
Accounts payable and accrued expenses
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8,482 | (3,658 | ) | |||||
Auction and liquidation proceeds payable
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(1,712 | ) | 3,575 | |||||
Net cash used in operating activities
|
(5,690 | ) | (5,650 | ) | ||||
Cash flows from investing activities:
|
||||||||
Purchases of property and equipment
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(237 | ) | (526 | ) | ||||
Decrease (increase) in note receivable - related party
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2,706 | (5,930 | ) | |||||
Equity investment in Great American Real Estate, LLC
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(331 | ) | (1,267 | ) | ||||
Decreaes (increase) in restricted cash
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(5,373 | ) | 264 | |||||
Net cash used in investing activities
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(3,235 | ) | (7,459 | ) | ||||
Cash flows from financing activities:
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||||||||
Payment of note payable
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(306 | ) | (1,724 | ) | ||||
Proceeds from note payable
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7,000 | – | ||||||
Proceeds from revolving line of credit
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1,694 | – | ||||||
Repayments of long-term debt and capital lease obligations
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(20 | ) | (18 | ) | ||||
Payment of employment taxes on vesting of restricted stock
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(132 | ) | (1,132 | ) | ||||
Distribution to noncontrolling interests
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(2,962 | ) | (987 | ) | ||||
Net cash provided by (used in) financing activities
|
5,274 | (3,861 | ) | |||||
Decrease in cash and cash equivalents
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(3,651 | ) | (16,970 | ) | ||||
Effect of foreign currency on cash
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(9 | ) | (1 | ) | ||||
Net decrease in cash and cash equivalents
|
(3,660 | ) | (16,971 | ) | ||||
Cash and cash equivalents, beginning of period
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20,080 | 37,989 | ||||||
Cash and cash equivalents, end of period
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$ | 16,420 | $ | 21,018 | ||||
Supplemental disclosures:
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||||||||
Interest paid
|
$ | 887 | $ | 3,134 |
|
(a)
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Liquidity Matters
|
|
(b)
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Principles of Consolidation and Basis of Presentation
|
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(c)
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Revenue Recognition
|
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(d)
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Direct Cost of Services
|
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(e)
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Concentration of Risk
|
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(f)
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Income Taxes
|
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(g)
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Cash and Cash Equivalents
|
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(h)
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Restricted Cash
|
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(i)
|
Accounts Receivable
|
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(j)
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Goods Held for Sale or Auction
|
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(k)
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Property and Equipment
|
|
(l)
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Goodwill and Other Intangible Assets
|
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(m)
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Notes Receivable
|
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(n)
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Fair Value Measurements
|
Financial Assets Measured at Fair Value on a | ||||||||||||||||
Recurring Basis at September 30, 2011, Using | ||||||||||||||||
Quoted prices in
|
Other
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Significant
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||||||||||||||
Fair Value at
|
active markets for
|
observable
|
unobservable
|
|||||||||||||
September 30,
|
identical assets
|
inputs
|
inputs
|
|||||||||||||
2011
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(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003
|
$ | 2,947 | $ | - | $ | - | $ | 2,947 | ||||||||
Total liabilities measured at fair value
|
$ | 2,947 | $ | - | $ | - | $ | 2,947 |
Financial Assets Measured at Fair Value on a | ||||||||||||||||
Recurring Basis at December 31, 2010, Using | ||||||||||||||||
Quoted prices
|
||||||||||||||||
Fair Value at
|
active markets for
|
observable
|
unobservable
|
|||||||||||||
December 31,
|
identical assets
|
inputs
|
inputs
|
|||||||||||||
2010
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003
|
$ | 2,132 | $ | - | $ | - | $ | 2,132 | ||||||||
Total liabilities measured at fair value
|
$ | 2,132 | $ | - | $ | - | $ | 2,132 |
|
(o)
|
Comprehensive Income
|
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
Accrued interest added to Note payable principal balance
|
$ | 1,762 | $ | - |
|
(p)
|
Fiduciary Funds
|
|
(q)
|
Supplemental Disclosure of Noncash Items
|
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
Accrued interest added to Note payable principal balance
|
$ | 1,762 | $ | - |
|
(r)
|
Recent Accounting Pronouncements
|
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Accounts receivable not subject to factoring agreement
|
$ | 12,290 | $ | 2,052 | ||||
Unbilled receivables
|
101 | 189 | ||||||
Amounts due from factor
|
- | 861 | ||||||
Total accounts receivable
|
12,391 | 3,102 | ||||||
Allowance for doubtful accounts
|
- | (15 | ) | |||||
Accounts receivable, net
|
$ | 12,391 | $ | 3,087 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
September 30,
|
September 30,
|
|||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Balance, beginning of period
|
$ | 15 | $ | 6 | $ | 15 | $ | 18 | ||||||||
Add: Additions to reserve
|
- | - | - | 45 | ||||||||||||
Less: Write-offs
|
(15 | ) | - | (15 | ) | (57 | ) | |||||||||
Less: Recoveries
|
- | - | - | - | ||||||||||||
Balance, end of period
|
$ | - | $ | 6 | $ | - | $ | 6 |
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Machinery and equipment
|
$ | 9,928 | $ | 10,227 | ||||
Leased equipment
|
1,828 | 1,969 | ||||||
Aircraft parts
|
1,151 | 1,308 | ||||||
Total
|
$ | 12,907 | $ | 13,504 |
September 30, 2011
|
||||||||||||
Gross
|
||||||||||||
Carrying
|
Accumulated
|
|||||||||||
Amount
|
Amortization
|
Net
|
||||||||||
Customer relationships
|
$ | 970 | $ | 970 | $ | - | ||||||
Trademarks
|
140 | - | 140 | |||||||||
Total
|
$ | 1,110 | $ | 970 | $ | 140 |
December 31, 2010
|
||||||||||||
Gross
|
||||||||||||
Carrying
|
Accumulated
|
|||||||||||
Amount
|
Amortization
|
Net
|
||||||||||
Customer relationships
|
$ | 970 | $ | 889 | $ | 81 | ||||||
Trademarks
|
140 | - | 140 | |||||||||
Total
|
$ | 1,110 | $ | 889 | $ | 221 |
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
$60,000 notes payable to each of the Great American Members and the Phantom Equityholders of GAG, LLC issued in connection with the Acquisition dated July 31, 2009
|
$ | 55,349 | $ | 53,893 | ||||
Total long-term debt
|
55,349 | 53,893 | ||||||
Less current portion of long-term debt
|
3,142 | 1,724 | ||||||
Long-term debt, net of current portion
|
$ | 52,207 | $ | 52,169 |
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
Current:
|
||||||||
Federal
|
$ | (37 | ) | $ | (5 | ) | ||
State
|
(92 | ) | (1 | ) | ||||
Total current provision
|
(129 | ) | (6 | ) | ||||
Deferred:
|
||||||||
Federal
|
(1,468 | ) | 3,893 | |||||
State
|
(267 | ) | 1,068 | |||||
Total deferred (provision) benefit
|
(1,735 | ) | 4,961 | |||||
Total (provision) benefit for income taxes
|
$ | (1,864 | ) | $ | 4,955 |
Nine Months
|
Nine Months
|
|||||||
Ended
|
Ended
|
|||||||
September 30,
|
September 30,
|
|||||||
2011
|
2010
|
|||||||
Provision (benefit) for income taxes at federal statutory rate
|
34.0 | % | (34.0 | ) % | ||||
State income taxes, net of federal benefit
|
4.8 | (5.4 | ) | |||||
Tax differential on vesting of restricted stock
|
23.1 | - | ||||||
Other
|
(2.1 | ) | 4.2 | |||||
Effective income tax rate
|
59.8 | % | (35.2 | ) % |
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Deferred tax assets:
|
||||||||
Goods held for sale or auction
|
$ | 1,043 | $ | 1,065 | ||||
Deductible goodwill
|
579 | 626 | ||||||
Accrued liabilities
|
399 | 697 | ||||||
Mandatorily redeemable noncontrolling interests
|
716 | 732 | ||||||
Note payable to Phantom Equityholders
|
2,339 | 2,501 | ||||||
Share based payments
|
287 | 934 | ||||||
Other
|
95 | 51 | ||||||
Net operating loss carryforward
|
9,642 | 10,229 | ||||||
Total deferred tax assets
|
$ | 15,100 | $ | 16,835 |
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income (loss)
|
$ | 4,031 | $ | 455 | $ | 1,256 | $ | (9,132 | ) | |||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
28,650,980 | 28,160,667 | 28,491,812 | 28,020,733 | ||||||||||||
Effect of dilutive potential common shares:
|
||||||||||||||||
Restricted stock units and non-vested shares
|
- | - | - | - | ||||||||||||
Contingently issuable shares
|
868,161 | 968,432 | 868,161 | - | ||||||||||||
Diluted
|
29,519,141 | 29,129,099 | 29,359,973 | 28,020,733 | ||||||||||||
Basic earnings (loss) per share
|
$ | 0.14 | $ | 0.02 | $ | 0.04 | $ | (0.33 | ) | |||||||
Dilute earnings (loss) per share
|
$ | 0.14 | $ | 0.02 | $ | 0.04 | $ | (0.33 | ) |
|
(a)
|
Grant of Membership Interests in Limited Liability Company Subsidiaries
|
|
(b)
|
Restricted Stock Awards
|
Weighted
|
||||||||
Average Fair
|
||||||||
Value
|
||||||||
Shares
|
Per Share
|
|||||||
Outstanding at December 31, 2010
|
360,000 | $ | 4.93 | |||||
Granted
|
- | $ | - | |||||
Vested
|
(360,000 | ) | $ | 4.93 | ||||
Foreited/Cancelled
|
- | $ | - | |||||
Outstanding at September 30, 2011
|
- | $ | - |
|
(c)
|
Restricted Stock Unit Activity
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Auction and Liquidation reportable segment:
|
||||||||||||||||
Revenues - Services and fees
|
$ | 21,713 | $ | 8,563 | $ | 32,833 | $ | 10,957 | ||||||||
Revenues - Sale of goods
|
937 | 359 | 2,012 | 4,732 | ||||||||||||
Total revenues
|
22,650 | 8,922 | 34,845 | 15,689 | ||||||||||||
Direct cost of services
|
(4,920 | ) | (680 | ) | (8,547 | ) | (4,200 | ) | ||||||||
Cost of goods sold
|
(974 | ) | (561 | ) | (2,287 | ) | (6,098 | ) | ||||||||
Selling, general, and administrative expenses
|
(4,215 | ) | (2,083 | ) | (10,498 | ) | (5,678 | ) | ||||||||
Depreciation and amortization
|
(47 | ) | (32 | ) | (132 | ) | (85 | ) | ||||||||
Segment income
|
12,494 | 5,566 | 13,381 | (372 | ) | |||||||||||
Valuation and Appraisal reportable segment:
|
||||||||||||||||
Revenues
|
5,862 | 4,936 | 17,314 | 15,451 | ||||||||||||
Direct cost of revenues
|
(2,693 | ) | (2,172 | ) | (7,357 | ) | (6,738 | ) | ||||||||
Selling, general, and administrative expenses
|
(1,674 | ) | (1,893 | ) | (5,267 | ) | (6,324 | ) | ||||||||
Depreciation and amortization
|
(41 | ) | (39 | ) | (119 | ) | (125 | ) | ||||||||
Segment income
|
1,454 | 832 | 4,571 | 2,264 | ||||||||||||
Consolidated operating income from reportable segments
|
13,948 | 6,398 | 17,952 | 1,892 | ||||||||||||
Corporate and other expenses
|
(4,920 | ) | (3,971 | ) | (10,832 | ) | (12,405 | ) | ||||||||
Interest income
|
119 | 157 | 409 | 334 | ||||||||||||
Other income (expense)
|
(177 | ) | (401 | ) | (535 | ) | (1,268 | ) | ||||||||
Interest expense
|
(2,921 | ) | (848 | ) | (3,874 | ) | (2,640 | ) | ||||||||
Income (loss) from operations before (provision) benefit for income taxes
|
6,049 | 1,335 | 3,120 | (14,087 | ) | |||||||||||
(Provision) benefit for income taxes
|
(2,018 | ) | (880 | ) | (1,864 | ) | 4,955 | |||||||||
Net income (loss)
|
$ | 4,031 | $ | 455 | $ | 1,256 | $ | (9,132 | ) | |||||||
Capital expenditures:
|
||||||||||||||||
Auction and Liquidation segment
|
$ | - | $ | 155 | $ | 166 | $ | 510 | ||||||||
Valuation and Appraisal segment
|
4 | - | 71 | 15 | ||||||||||||
Total
|
$ | 4 | $ | 155 | $ | 237 | $ | 525 |
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Total assets:
|
||||||||
Auction and Liquidation segment
|
$ | 83,642 | $ | 66,846 | ||||
Valuation and Appraisal segment
|
8,078 | 5,428 | ||||||
Total
|
$ | 91,720 | $ | 72,274 |
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
|
·
|
“Great American,” “the “Company,” “we,” “us” or “our” refer to the combined business of Great American Group, Inc. and all of its subsidiaries after giving effect to (i) the contribution to Great American Group, Inc. of all of the membership interests of Great American Group, LLC by the members of Great American, which transaction is referred to herein as the “Contribution”, and (ii) the merger of Alternative Asset Management Acquisition Corp. with and into its wholly-owned subsidiary, AAMAC Merger Sub, Inc., referred to herein as “Merger Sub”, in each case, which occurred on July 31, 2009, referred to herein as the “Merger”. The Contribution and Merger are referred to herein collectively as the “Acquisition”;
|
|
·
|
“GAG,Inc.” refers to Great American Group, Inc.;
|
|
·
|
“GAG, LLC” refers to Great American Group, LLC;
|
|
·
|
“the Great American Members” refers to the members of Great American Group, LLC prior to the Acquisition;
|
|
·
|
“Phantom Equityholders” refers to certain members of senior management of Great American Group, LLC prior to the Acquisition that were participants in a deferred compensation plan; and
|
|
·
|
“AAMAC” refers to Alternative Asset Management Acquisition Corp.
|
Three Months Ended
|
Three Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues:
|
||||||||||||||||
Services and fees
|
$ | 27,575 | 96.7 | % | $ | 13,499 | 97.4 | % | ||||||||
Sale of goods
|
937 | 3.3 | % | 359 | 2.6 | % | ||||||||||
Total revenues
|
28,512 | 100.0 | % | 13,858 | 100.0 | % | ||||||||||
Operating expenses:
|
||||||||||||||||
Direct cost of services
|
7,613 | 26.7 | % | 2,852 | 20.6 | % | ||||||||||
Cost of goods sold
|
974 | 3.4 | % | 561 | 4.0 | % | ||||||||||
Selling, general and administrative expenses
|
10,897 | 38.2 | % | 8,018 | 57.9 | % | ||||||||||
Total operating expenses
|
19,484 | 68.3 | % | 11,431 | 82.5 | % | ||||||||||
Operating income
|
9,028 | 31.7 | % | 2,427 | 17.5 | % | ||||||||||
Other income (expense)
|
(3 | ) | 0.0 | % | - | 0.0 | % | |||||||||
Interest income
|
119 | 0.3 | % | 157 | 1.1 | % | ||||||||||
Loss from equity investment in
|
||||||||||||||||
Great American Real Estate, LLC
|
(174 | ) | -0.6 | % | (401 | ) | -2.9 | % | ||||||||
Interest expense
|
(2,921 | ) | -10.2 | % | (848 | ) | -6.1 | % | ||||||||
Income before income taxes
|
6,049 | 21.2 | % | 1,335 | 9.6 | % | ||||||||||
Provision for income taxes
|
(2,018 | ) | -7.1 | % | (880 | ) | -6.3 | % | ||||||||
Net income
|
$ | 4,031 | 14.1 | % | $ | 455 | 3.3 | % |
Three Months Ended
|
Three Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues:
|
||||||||||||||||
Services and fees
|
$ | 21,713 | 95.9 | % | $ | 8,563 | 96.0 | % | ||||||||
Sale of goods
|
937 | 4.1 | % | 359 | 4.0 | % | ||||||||||
Total revenues
|
22,650 | 100.0 | % | 8,922 | 100.0 | % | ||||||||||
Direct cost of services
|
4,920 | 21.7 | % | 680 | 7.6 | % | ||||||||||
Cost of goods sold
|
974 | 4.3 | % | 561 | 6.3 | % | ||||||||||
Total operating expenses
|
5,894 | 26.0 | % | 1,241 | 13.9 | % | ||||||||||
Gross margin
|
$ | 16,756 | 74.0 | % | $ | 7,681 | 86.1 | % | ||||||||
Gross margin services and fees
|
77.3 | % | 92.1 | % | ||||||||||||
Gross margin sales of goods
|
-3.9 | % | -56.3 | % |
Three Months Ended
|
Three Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues - Services and fees
|
$ | 5,862 | 100.0 | % | $ | 4,936 | 100.0 | % | ||||||||
Direct cost of services
|
2,693 | 45.9 | % | 2,172 | 44.0 | % | ||||||||||
Gross margin
|
$ | 3,169 | 54.1 | % | $ | 2,764 | 56.0 | % |
Three Months Ended
|
Three Months Ended
|
|||||||||||||||||||||||
September 30, 2011
|
September 30, 2010
|
Change
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
Auction and liquidation
|
$ | 4,262 | 39.1 | % | $ | 2,115 | 26.4 | % | $ | 2,147 | 101.5 | % | ||||||||||||
Valuation and appraisal
|
1,715 | 15.7 | % | 1,932 | 24.1 | % | (217 | ) | -11.2 | % | ||||||||||||||
Corporate and other
|
4,920 | 45.2 | % | 3,971 | 49.5 | % | 949 | 23.9 | % | |||||||||||||||
Total selling, general & administrative expenses
|
$ | 10,897 | 100.0 | % | $ | 8,018 | 100.0 | % | $ | 2,879 | 35.9 | % |
Nine Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues:
|
||||||||||||||||
Services and fees
|
$ | 50,147 | 96.1 | % | $ | 26,408 | 84.8 | % | ||||||||
Sale of goods
|
2,012 | 3.9 | % | 4,732 | 15.2 | % | ||||||||||
Total revenues
|
52,159 | 100.0 | % | 31,140 | 100.0 | % | ||||||||||
Operating expenses:
|
||||||||||||||||
Direct cost of services
|
15,904 | 30.5 | % | 10,938 | 35.1 | % | ||||||||||
Cost of goods sold
|
2,287 | 4.4 | % | 6,098 | 19.6 | % | ||||||||||
Selling, general and administrative expenses
|
26,848 | 51.5 | % | 24,617 | 79.1 | % | ||||||||||
Total operating expenses
|
45,039 | 86.4 | % | 41,653 | 133.8 | % | ||||||||||
Operating income (loss)
|
7,120 | 13.6 | % | (10,513 | ) | -33.8 | % | |||||||||
Other income (expense)
|
(13 | ) | 0.0 | % | - | 0.0 | % | |||||||||
Interest income
|
409 | 0.7 | % | 334 | 1.1 | % | ||||||||||
Loss from equity investment in
|
||||||||||||||||
Great American Real Estate, LLC
|
(522 | ) | -1.0 | % | (1,268 | ) | -4.1 | % | ||||||||
Interest expense
|
(3,874 | ) | -7.3 | % | (2,640 | ) | -8.5 | % | ||||||||
Income (loss) before income taxes
|
3,120 | 6.0 | % | (14,087 | ) | -45.2 | % | |||||||||
(Provision) benefit for income taxes
|
(1,864 | ) | -3.6 | % | 4,955 | 15.9 | % | |||||||||
Net income (loss)
|
$ | 1,256 | 2.4 | % | $ | (9,132 | ) | -29.3 | % |
Nine Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues:
|
||||||||||||||||
Services and fees
|
$ | 32,833 | 94.2 | % | $ | 10,957 | 69.8 | % | ||||||||
Sale of goods
|
2,012 | 5.8 | % | 4,732 | 30.2 | % | ||||||||||
Total revenues
|
34,845 | 100.0 | % | 15,689 | 100.0 | % | ||||||||||
Direct cost of services
|
8,547 | 24.5 | % | 4,200 | 26.8 | % | ||||||||||
Cost of goods sold
|
2,287 | 6.6 | % | 6,098 | 38.9 | % | ||||||||||
Total operating expenses
|
10,834 | 31.1 | % | 10,298 | 65.7 | % | ||||||||||
Gross margin
|
$ | 24,011 | 68.9 | % | $ | 5,391 | 34.3 | % | ||||||||
Gross margin services and fees
|
74.0 | % | 61.7 | % | ||||||||||||
Gross margin sales of goods
|
-13.7 | % | -28.9 | % |
Nine Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30, 2011
|
September 30, 2010
|
|||||||||||||||
Amount
|
%
|
Amount
|
%
|
|||||||||||||
Revenues - Services and fees
|
$ | 17,314 | 100.0 | % | $ | 15,451 | 100.0 | % | ||||||||
Direct cost of services
|
7,357 | 42.5 | % | 6,738 | 43.6 | % | ||||||||||
Gross margin
|
$ | 9,957 | 57.5 | % | $ | 8,713 | 56.4 | % |
Nine Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||
September 30, 2011
|
September 30, 2010
|
Change
|
||||||||||||||||||||||
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
Auction and liquidation
|
$ | 10,630 | 39.6 | % | $ | 5,763 | 23.4 | % | $ | 4,867 | 84.5 | % | ||||||||||||
Valuation and appraisal
|
5,386 | 20.1 | % | 6,449 | 26.2 | % | (1,063 | ) | -16.5 | % | ||||||||||||||
Corporate and other
|
10,832 | 40.3 | % | 12,405 | 50.4 | % | (1,573 | ) | -12.7 | % | ||||||||||||||
Total selling, general & administrative expenses
|
$ | 26,848 | 100.0 | % | $ | 24,617 | 100.0 | % | $ | 2,231 | 9.1 | % |
Nine Months Ended
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash provided by (used in):
|
||||||||
Operating activities
|
$ | (5,690 | ) | $ | (5,650 | ) | ||
Investing activities
|
(3,235 | ) | (7,459 | ) | ||||
Financing activities
|
5,274 | (3,861 | ) | |||||
Effect of foreign currency on cash
|
(9 | ) | (1 | ) | ||||
Net decrease in cash and cash equivalents
|
$ | (3,660 | ) | $ | (16,971 | ) |
|
·
|
our ability to attract new clients and obtain additional business from our existing client base;
|
|
·
|
the number, size and timing of our engagements;
|
|
·
|
the extent to which we acquire assets for resale, or guarantee a minimum return thereon, and our ability to resell those assets at favorable prices;
|
|
·
|
variability in the mix of revenues from the auction and liquidation solutions business and the valuation and appraisal services business;
|
|
·
|
the rate of growth of new service areas, including the new home auction and real estate services divisions and international expansion;
|
|
·
|
the types of fees we charge clients, or other financial arrangements we enter into with clients; and
|
|
·
|
changes in general economic and market conditions.
|
|
·
|
it may be more difficult for us to satisfy our other debt obligations;
|
|
·
|
our ability to obtain additional financing for working capital, debt service requirements, general corporate or other purposes may be impaired;
|
|
·
|
a substantial portion of our cash flow will be used to pay interest and principal on our indebtedness, which will reduce the funds available for other purposes; and
|
|
·
|
our ability to refinance indebtedness may be limited.
|
|
·
|
delaying, deferring, or preventing a change in control of our company;
|
|
·
|
impeding a merger, consolidation, takeover, or other business combination involving our company;
|
|
·
|
causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or
|
|
·
|
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.
|
|
·
|
actual or anticipated fluctuations in our results of operations;
|
|
·
|
announcements of significant contracts and transactions by us or our competitors;
|
|
·
|
sale of common stock or other securities in the future;
|
|
·
|
the trading volume of our common stock;
|
|
·
|
changes in our pricing policies or the pricing policies of our competitors; and
|
|
·
|
general economic conditions.
|
Great American Group, Inc.
|
||
Date: November 15, 2011
|
By:
|
/s/ Paul S. Erickson
|
Name: Paul S. Erickson
|
||
Title: Chief Financial Officer
|
||
(Principal Financial Officer)
|
Exhibit No.
|
Description
|
|
10.1(1)
|
Form of Waiver to Subordinated Unsecured Promissory Note with Phantom Equityholders
|
|
10.2(1)
|
Form of Amendment No. 2 to Subordinated Unsecured Promissory Note, effective July 31, 2011, by and between the Company and each of the Great American Members
|
|
10.3(2)
|
Non-Negotiable Promissory Note dated July 21, 2011
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934*
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934*
|
|
32.1
|
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*†
|
|
32.2
|
Certification required by 18 United States Code Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*†
|
*
|
Filed herewith.
|
†
|
These exhibits are being “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
|
(1)
|
Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on August 4, 2011.
|
(2)
|
Incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on July 27, 2011.
|
/s/ PAUL S. ERICKSON
|
|
Paul S. Erickson
|
|
Chief Financial Officer
|
|
(Principal Financial Officer)
|
/ S / ANDREW GUMAER
|
|
Andrew Gumaer
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
/s/ ANDREW GUMAER
|
|
Andrew Gumaer
|
|
Chief Executive Officer
|
|
November 15, 2011
|
/s/ PAUL S. ERICKSON
|
|
Paul S. Erickson
|
|
Chief Financial Officer
|
|
November 15, 2011
|
Condensed Consolidated Balance Sheets (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, issued | 0 | 0 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 135,000,000 | 135,000,000 |
Common stock, issued | 31,001,609 | 30,559,036 |
Common stock, outstanding | 31,001,609 | 30,559,036 |
Condensed Consolidated Statements of Operations (USD $) In Thousands, except Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenues: | ||||
Services and fees | $ 27,575 | $ 13,499 | $ 50,147 | $ 26,408 |
Sale of goods | 937 | 359 | 2,012 | 4,732 |
Total revenues | 28,512 | 13,858 | 52,159 | 31,140 |
Operating expenses: | ||||
Direct cost of services | 7,613 | 2,852 | 15,904 | 10,938 |
Cost of goods sold | 974 | 561 | 2,287 | 6,098 |
Selling, general and administrative expenses | 10,897 | 8,018 | 26,848 | 24,617 |
Total operating expenses | 19,484 | 11,431 | 45,039 | 41,653 |
Operating income (loss) | 9,028 | 2,427 | 7,120 | (10,513) |
Other income (expense): | ||||
Other income (expense) | (3) | (13) | ||
Interest income | 119 | 157 | 409 | 334 |
Income (loss) from equity investment in Great American Real Estate, LLC | (174) | (401) | (522) | (1,268) |
Interest expense | (2,921) | (848) | (3,874) | (2,640) |
Income (loss) before income taxes | 6,049 | 1,335 | 3,120 | (14,087) |
(Provision) benefit for income taxes | (2,018) | (880) | (1,864) | 4,955 |
Net income (loss) | $ 4,031 | $ 455 | $ 1,256 | $ (9,132) |
Weighted average basic shares outstanding | 28,650,980 | 28,160,667 | 28,491,812 | 28,020,733 |
Weighted average diluted shares outstanding | 29,519,141 | 29,129,099 | 29,359,973 | 28,020,733 |
Basic and diluted income (loss) per share | $ 0.14 | $ 0.02 | $ 0.04 | $ (0.33) |
Diluted income (loss) per share | $ 0.14 | $ 0.02 | $ 0.04 | $ (0.33) |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 10, 2011 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | GAMR | |
Entity Registrant Name | GREAT AMERICAN GROUP, INC. | |
Entity Central Index Key | 0001464790 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 31,001,609 |
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CREDIT FACILITIES | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
CREDIT FACILITIES |
NOTE 6— CREDIT FACILITIES
On
October 21, 2008, the Company entered into a $75,000 asset
based credit facility with a financial institution which had an
initial expiration date of October 21, 2010. On
July 16, 2010, the credit agreement was amended to increase
the amount of credit advances and letter of credit obligations from
an aggregate of $75,000 to $100,000 and extend the term of the
credit facility to July 16, 2013. In addition, the
base rate for the revolving loan amount was amended to the greater
of (1) the Wells Fargo prime rate; (2) the LIBOR plus
1.00% and (3) the Federal Funds Effective Rate plus
0.50%. Prior to the amendment, the base rate was the Wells
Fargo prime rate. In connection with the amendment, the
Company paid a renewal fee of $250. On December 8,
2010, the credit agreement was amended and restated to allow for
borrowings by the Company’s wholly owned subsidiary in the
United Kingdom. Cash advances and the issuance of
letters of credit under the credit facility are made at the
lender’s discretion. The letters of credit issued
under this facility are furnished by the lender to third parties
for the principal purpose of securing minimum guarantees under
liquidation services contracts more fully described in Note
2(c). All outstanding loans, letters of credit, and
interest are due on the expiration date which is generally within
180 days of funding. The credit facility is secured by
the proceeds received for services rendered in connection with
liquidation service contracts pursuant to which any outstanding
loan or letters of credit are issued and the assets that are sold
at liquidation related to such contract. The credit
facility also provides for success fees in the amount of 5% to 20%
of the profits earned on the liquidation contract, if any, as
defined in the credit facility. Interest expense totaled
$1,291 (including success fee of $1,109) and $257 (including
success fee of $240) for the three months ended September 30, 2011
and 2010, respectively, and $1,306 (including success fees of
$1,124) and $529 (including success fees of $290) for the nine
months ended September 30, 2011 and 2010,
respectively. On July 20, 2011, the Company borrowed
$41,006 for one liquidation services contract and repaid this
amount in August and September 2011. At September 30,
2011, one letter of credit was outstanding in the amount of
$4,573. There was no outstanding balance for cash
borrowings under this credit facility at September 30, 2011 and
December 31, 2010.
The
credit agreement governing the credit facility contains certain
covenants, including covenants that limit or restrict the
Company’s ability to incur liens, incur indebtedness, make
investments, dispose of assets, make certain restricted payments,
merge or consolidate and enter into certain transactions with
affiliates. Upon the occurrence of an event of default under the
credit agreement, the lender may cease making loans, terminate the
credit agreement and declare all amounts outstanding under the
credit agreement to be immediately due and payable. The credit
agreement specifies a number of events of default (some of which
are subject to applicable grace or cure periods), including, among
other things, nonpayment defaults, covenant defaults,
cross-defaults to other material indebtedness, bankruptcy and
insolvency defaults, and material judgment defaults.
On
May 17, 2011, GAAV entered into a Loan and Security Agreement
(Accounts Receivable Line of Credit) (the “Line of
Credit”) with BFI Business Finance (“BFI”). The
Line of Credit is collateralized by the accounts receivable of GAAV
and allows for borrowings in the amount of 85% of the net face
amount of prime accounts, as defined in the Line of Credit, with
maximum borrowings not to exceed $2,000. The interest rate under
the Line of Credit is the prime rate plus 2%, payable monthly in
arrears. The Line of Credit expires on May 16, 2012, and may
be extended for successive periods equal to one year, unless GAAV
gives BFI written notice of its intent to terminate the Line of
Credit at least thirty days prior to the anniversary date of the
Line of Credit. BFI has the right to terminate the Line of Credit
at its sole discretion upon giving sixty days’ prior written
notice to GAAV. In connection with the Line of Credit, GAG, LLC
entered into a limited continuing guaranty of GAAV’s
obligations under the Line of Credit. Proceeds from the Line of
Credit were used to pay off GAAV’s borrowings under the
Factoring Agreement as more fully described in Note
3. Interest expense totaled $36 for the three months
ended September 30, 2011 and $51 for the nine months ended
September 30, 2011.
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COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
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Sep. 30, 2011 | |
COMMITMENTS AND CONTINGENCIES |
NOTE 11— COMMITMENTS AND CONTINGENCIES
Legal Matters
The
Company is subject to certain legal and other claims that arise in
the ordinary course of its business. The Company does not believe
that the results of these claims are likely to have a material
effect on its consolidated financial position or results of
operations.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Over
the past years, the Company’s growth has been funded through
a combination of profits generated from operations and more
recently from proceeds received from AAMAC in connection with the
Acquisition. During the year ended December 31, 2010 and
nine months ended September 30, 2011, the operating profits
generated by the Company’s Auction and Liquidation segment in
the United States have been impacted due to fewer retail
liquidation engagements conducted by the Company. As economic
conditions and credit markets have improved for retailers, the
number and frequency of large retail liquidation engagements in the
auction and liquidation industry in the United States has decreased
from historical levels. These factors, in addition to the
interest expense on the $55,349 of subordinated, unsecured
promissory notes payable to the Great American Members and Phantom
Equityholders, have resulted in the net use of $5,690 and $6,083 of
cash from operations during the nine months ended September 30,
2011 and year ended December 31, 2010,
respectively.
On
May 4, 2010, the Company entered into individual amendments
that reduced the interest rate from 12.0% per annum to 3.75% per
annum for $52,419 of the $55,617 principal amount outstanding of
the subordinated, unsecured promissory notes payable to the Great
American Members and Phantom Equityholders. In addition, the
maturity date for $46,996 of the $55,617 principal amount
outstanding of the subordinated, unsecured promissory notes payable
to the Great American Members was extended to July 31, 2018,
subject to annual prepayments based upon the Company’s cash
flow subject to certain limitations as provided in the amendment to
the notes payable, including, without limitation, the
Company’s maintenance of a minimum adjusted cash balance of
$20,000. The terms of these amendments significantly reduce
the annual cash required to service this debt. On October 27,
2010, the Company entered into individual waivers related to an
aggregate of $51,334 of the $55,349 principal amount outstanding of
the subordinated, unsecured promissory notes payable to the Great
American Members and Phantom Equityholders, whereby the noteholders
agreed to permit the Company to defer payment of interest payments
due on each of October 31, 2010, January 31, 2011,
and April 30, 2011 until July 31, 2011. All of
such deferred interest owed to the Phantom Equityholders was paid
on July 31, 2011. Effective July 31, 2011, the Company
entered into individual amendments to the promissory notes held by
the Great American Members, both of whom are executive officers and
directors of the Company. The amendments increased the
principal amount of the promissory notes from $46,996 to $48,759
for the $1,762 of accrued interest that was due on July 31,
2011. The entire aggregate principal amount will continue to accrue
interest at the note rate of 3.75% and will continue to be subject
to annual prepayments based upon the Company’s cash flow and
the maintenance of a minimum adjusted cash balance as provided in
the notes prior to the capitalization of the accrued
interest.
On
July 26, 2011 and August 3, 2011, the Company entered into
individual waivers with certain Phantom Equityholders which
extended the payment date for $1,418 of the $1,724 of principal
amount of the notes originally due and payable on July 31,
2011. Of the $1,418 principal amount originally due on
July 31, 2011, $649 of principal amount was paid to two of the
Phantom Equityholders on October 1, 2011, $297 of principal amount
was paid to one of the Phantom Equityholders on October 15,
2011, and $472 of principal amount was paid to the remaining two
Phantom Equityholders on November 4, 2011.
In
addition to amending the subordinated, unsecured promissory notes
payable to the Great American Members and Phantom Equityholders,
the Company implemented cost reduction measures in September 2010
which resulted in a reduction in employee headcount, reduction in
base salaries to senior executives, and other cost savings
measures.
As
of September 30, 2011, the Company had $16,420 in cash and $24,195
of current portion of long-term debt, notes payable and borrowings
outstanding under the accounts receivable revolving credit
facility. The Company believes that its current cash and cash
equivalents, funds available under its asset based credit facility
and cash expected to be generated from operating activities will be
sufficient to meet its working capital and capital expenditure
requirements for at least the next 12 months. The
Company continues to monitor its financial performance to ensure
sufficient liquidity to fund operations.
The
condensed consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries: AAMAC, GAG, LLC,
Great American Group Advisory & Valuation Services, LLC
(“GAAV”), Great American Group Machinery &
Equipment, LLC (“GAME”), Great American Group Real
Estate, LLC, Great American Venture, LLC, Great American Group
Energy Equipment, LLC (“GAGEE”), Great American Group
Intellectual Property Advisors, LLC, GA Capital, LLC, GA Asset
Advisors Limited, Great American Group WF, LLC, and Great American
Group CS, LLC. All intercompany accounts and transactions have been
eliminated upon consolidation.
Effective
January 1, 2010, new consolidation guidance became effective
relating to accounting for Variable Interest Entities
(“VIE”). These changes require an enterprise to perform
an analysis to determine whether the enterprise’s variable
interest or interests give it a controlling financial interest in a
variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a VIE; to
eliminate the solely quantitative approach previously required for
determining the primary beneficiary of a VIE; to add an additional
reconsideration event for determining whether an entity is a VIE
when any changes in facts and circumstances occur such that holders
of the equity investment at risk, as a group, lose the power from
voting rights or similar rights of those investments to direct the
activities of the entity that most significantly impact the
entity’s economic performance; and to require enhanced
disclosures that will provide users of financial statements with
more transparent information about an enterprise’s
involvement in a VIE. As more fully described in Note 13, the
Company determined that its equity investment and subordinated
financing arrangements with Great American Real Estate, LLC
(“GARE”), a joint venture 50% owned by the Company and
50% owned by Kelly Capital, LLC, changes the status of GARE to a
VIE that does not require consolidation in the Company’s
consolidated financial statements. The adoption of these changes
had no material impact on the Company’s condensed
consolidated financial statements.
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) for interim
financial information and in accordance with the rules and
regulations of the SEC. Accordingly, they do not include
all of the information and notes required by GAAP for annual
financial statements as permitted under applicable rules and
regulations. In the opinion of management, all normal
recurring adjustments considered necessary for a fair presentation
have been included. The results of operations for the
nine months ended September 30, 2011 are not necessarily indicative
of the results to be expected for the year ending December 31,
2011.
The
preparation of the condensed consolidated financial statements in
accordance with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the condensed
consolidated financial statements and notes thereto. Actual results
could differ from those estimates.
Revenues
are recognized in accordance with the accounting guidance when
persuasive evidence of an arrangement exists, the related services
have been provided, the fee is fixed or determinable, and
collection is reasonably assured.
Revenues
in the Valuation and Appraisal segment are primarily comprised of
fees for valuation and appraisal services. Revenues are recognized
upon the delivery of the completed services to the related
customers and collection of the fee is reasonably assured. Revenues
in the Valuation and Appraisal segment also include contractual
reimbursable costs which totaled $654 and $526 for the three months
ended September 30, 2011 and 2010, respectively, and $1,844 and
$1,754 for the nine months ended September 30, 2011 and 2010,
respectively.
Revenues
in the Auction and Liquidation segment are comprised of
(i) commissions and fees earned on the sale of goods at
auctions and liquidations; (ii) revenues from auction and
liquidation services contracts where the Company guarantees a
minimum recovery value for goods being sold at auction or
liquidation; (iii) revenue from the sale of goods that are
purchased by the Company for sale at auction or liquidation sales
events; (iv) fees earned from the origination of loans; and
(v) revenues from contractual reimbursable expenses incurred
in connection with auction and liquidation contracts.
Commission
and fees earned on the sale of goods at auction and liquidation
sales are recognized when evidence of an arrangement exists, the
sales price has been determined, title has passed to the buyer and
the buyer has assumed the risks of ownership, and collection is
reasonably assured. The commission and fees earned for these
services are included in revenues in the accompanying condensed
consolidated statement of operations. Under these types of
arrangements, revenues also include contractual reimbursable costs
which totaled $1,934 and $534 for three months ended September 30,
2011 and 2010, respectively, and $3,266 and $3,644 for the nine
months ended September 30, 2011 and 2010,
respectively.
Revenues
earned from auction and liquidation services contracts where the
Company guarantees a minimum recovery value for goods being sold at
auction or liquidation are recognized based on proceeds received.
The Company records proceeds received from these types of
engagements first as a reduction of contractual reimbursable
expenses, second as a recovery of its guarantee and thereafter as
revenue, subject to such revenue meeting the criteria of having
been fixed or determinable. Contractual reimbursable expenses and
amounts advanced to customers for minimum guarantees are initially
recorded as advances against customer contracts in the accompanying
condensed consolidated balance sheets. If, during the auction or
liquidation sale, the Company determines that the proceeds from the
sale will not meet the minimum guaranteed recovery value as defined
in the auction or liquidation services contract, the Company
accrues a loss on the contract in the period that the loss becomes
known.
The
Company also evaluates revenue from auction and liquidation
contracts in accordance with the accounting guidance to determine
whether to report auction and liquidation segment revenue on a
gross or net basis. The Company has determined that it acts as an
agent in a substantial majority of its auction and liquidation
services contracts and therefore reports the auction and
liquidation revenues on a net basis.
Revenues
from the sale of goods are recorded gross and are recognized in the
period in which the sale of goods held for sale or auction are
completed, title to the property passes to the purchaser and the
Company has fulfilled its obligations with respect to the
transaction. These revenues are primarily the result of the Company
acquiring title to merchandise with the intent of selling the items
at auction or for augmenting liquidation sales.
Fees
earned from the origination of loans where the Company provides
capital advisory services are recognized in the period earned, the
fee is fixed and determinable and collection is reasonably
assured.
In
the normal course of business, the Company will enter into
collaborative arrangements with other merchandise liquidators to
collaboratively execute auction and liquidation contracts. The
Company’s collaborative arrangements specifically include
contractual agreements with other liquidation agents in which the
Company and such other liquidation agents actively participate in
the performance of the liquidation services and are exposed to the
risks and rewards of the liquidation engagement. The
Company’s participation in collaborative arrangements
including its rights and obligations under each collaborative
arrangement can vary. Revenues from collaborative arrangements are
recorded net based on the proceeds received from the liquidation
engagement. Amounts paid to participants in the collaborative
arrangements are reported separately as direct costs of revenues.
Revenue from collaborative arrangements in which the Company is not
the majority participant is recorded net based on the
Company’s share of proceeds received. There were $8,806 of
revenues and $161 of direct cost of services subject to
collaborative arrangements during the three months ended September
30, 2011 and $10,610 of revenues and $1,291 of direct cost of
services subject to collaborative arrangements during the nine
months ended September 30, 2011. There were no revenues
and expenses subject to collaborative arrangements during the three
and nine months ended September 30, 2010.
Direct
cost of services relate to service and fee revenues. The costs
consist of employee compensation and related payroll benefits,
travel expenses, the cost of consultants assigned to
revenue-generating activities and direct expenses billable to
clients in the Valuation and Appraisal segment. Direct costs of
services include participation in profits under collaborative
arrangements in which the Company is a majority participant. Direct
costs of services also include the cost of consultants and other
direct expenses related to auction and liquidation contracts
pursuant to commission and fee based arrangements in the Auction
and Liquidation segment. Direct cost of services does not include
an allocation of the Company’s overhead costs.
The
Company’s activities in the Auction and Liquidation segment
are executed frequently with, and on behalf of, distressed
customers and secured creditors. Concentrations of credit risk can
be affected by changes in economic, industry, or geographical
factors. The Company seeks to control its credit risk and potential
risk concentration through risk management activities that limit
the Company’s exposure to losses on any one specific
liquidation services contract or concentration within any one
specific industry. To mitigate the exposure to losses on any one
specific liquidation services contract, the Company sometimes
conducts operations with third parties through collaborative
arrangements. Revenues from two liquidation service contracts
represented 51.5% of total revenues during the three months ended
September 30, 2011 and 28.2% of total revenues during the nine
months ended September 30, 2011.
The
Company maintains cash in various federally insured banking
institutions. The account balances at each institution periodically
exceed the Federal Deposit Insurance Corporation’s
(“FDIC”) insurance coverage, and as a result, there is
a concentration of credit risk related to amounts in excess of FDIC
insurance coverage. The Company has not experienced any losses in
such accounts. The Company also has substantial cash balances from
proceeds received from auctions and liquidation engagements that
are distributed to parties in accordance with the collaborative
arrangements.
The
Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference
between the financial statement basis and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The Company estimates the
degree to which tax assets and credit carryforwards will result in
a benefit based on expected profitability by tax jurisdiction. A
valuation allowance for such tax assets and loss carryforwards is
provided when it is determined to be more likely than not that the
benefit of such deferred tax asset will not be realized in future
periods. Tax benefits of operating loss carryforwards are evaluated
on an ongoing basis, including a review of historical and projected
future operating results, the eligible carryforward period, and
other circumstances. If it becomes more likely than not that a tax
asset will be used, the related valuation allowance on such assets
would be reduced.
The
Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash
equivalents.
The
Company maintains deposits in accounts under the control of a
financial institution as collateral for letters of credit relating
to liquidation engagements in connection with the $100,000 credit
facility described in Note 6. As of September 30, 2011, the
cash collateral for letters of credit and success fees was
$5,373.
Accounts
receivable represents amounts due from the Company’s
valuation and appraisal customers. The Company maintains an
allowance for doubtful accounts for estimated losses inherent in
its accounts receivable portfolio. In establishing the required
allowance, management utilizes a specific customer identification
methodology. Management also considers historical losses adjusted
for current market conditions and the customers’ financial
condition and the current receivables aging and current payment
patterns. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential
for recovery is considered remote. The Company does not have any
off-balance sheet credit exposure related to its customers. There
was no bad debt expense during the nine months ended September 30,
2011 and bad debt expense totaled $45 for the nine months ended
September 30, 2010. Bad debt expense is included as a component of
selling, general and administrative expenses in the accompanying
condensed consolidated statement of operations.
Goods
held for sale or auction are stated at the lower of cost,
determined by the specific-identification method, or
market.
Property
and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful
lives of the assets. Property and equipment held under capital
leases are amortized on a straight-line basis over the shorter of
the lease term or estimated useful life of the asset. Property and
equipment under capital leases are stated at the present value of
minimum lease payments. Depreciation and amortization
expense was $186 and $164 for the three months ended September 30,
2011 and 2010, respectively, and $544 and $460 for the nine months
ended September 30, 2011 and 2010, respectively.
The
Company accounts for goodwill and intangible assets in accordance
with the accounting guidance which requires that goodwill and other
intangibles with indefinite lives be tested for impairment annually
or on an interim basis if events or circumstances indicate that the
fair value of an asset has decreased below its carrying
value.
Goodwill
includes (i) the excess of the purchase price over the fair
value of net assets acquired in a business combination described in
Note 5 and (ii) an increase for the subsequent acquisition of
noncontrolling interests during the year ended December 31,
2007 (also see Note 5). The FASB Accounting Standards Codification
(the “Codification”) requires that goodwill be tested
for impairment at the reporting unit level (operating segment or
one level below an operating segment). Application of the goodwill
impairment test requires judgment, including the identification of
reporting units, assigning assets and liabilities to reporting
units, assigning goodwill to reporting units, and determining the
fair value. The Company operates two reporting units, which are the
same as its reporting segments described in Note 14. Significant
judgment is required to estimate the fair value of reporting units
which includes estimating future cash flows, determining
appropriate discount rates and other assumptions. Changes in these
estimates and assumptions could materially affect the determination
of fair value and/or goodwill impairment.
The
Company reviewed its reporting units for possible goodwill
impairment by comparing the fair values of each of the reporting
units to the carrying value of their respective net assets. If the
fair values exceed the carrying values of the net assets, no
goodwill impairment is deemed to exist. If the fair values of the
reporting units do not exceed the carrying values of the net
assets, goodwill is tested for impairment and written down to its
implied value if it is determined to be impaired. Based on a review
of the fair value of the reporting units, no impairment was deemed
to have existed as of December 31, 2010.
In
accordance with the Codification, the Company reviews the carrying
value of its amortizable intangibles and other long-lived assets
for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of long-lived assets is measured by
comparing the carrying amount of the asset or asset group to the
undiscounted cash flows that the asset or asset group is expected
to generate. If the undiscounted cash flows of such assets are less
than the carrying amount, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset or
asset group, if any, exceeds its fair market value. No impairment
was deemed to exist as of December 31, 2010.
On
May 6, 2011, the Company received a $2,598 note receivable from a
third party as part of the proceeds from the sale of certain
wholesale and industrial machinery and equipment at an
auction. The note is due and payable upon maturity on
May 5, 2016 and is collateralized by the wholesale and industrial
machinery and equipment. Interest on the note receivable
is payable monthly at a rate of prime rate plus 3% per
annum. In connection with the issuance of the note
receivable, the Company recorded a discount in the amount of $189
to reflect a fair market value rate on the note of
8.0%. The note receivable and accrued interest was paid
in full in September 2011.
On
January 1, 2009, the Company adopted the new accounting
guidance and all other guidance related to fair value measurements
of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements
on a nonrecurring basis.
The
Company records mandatorily redeemable noncontrolling interests
that were issued after November 5, 2003 at fair value (see
Note 12(a)) with fair value determined in accordance with the
Codification. The following table below presents information about
the Company’s mandatorily redeemable noncontrolling interests
that are measured at fair value on a recurring basis as of
September 30, 2011 and December 31, 2010 which are categorized
using the three levels of fair value hierarchy. In general, fair
values determined by Level 1 inputs utilize quoted prices
(unadjusted) for identical instruments that are highly liquid,
observable and actively traded in over-the-counter markets. Fair
values determined by Level 2 inputs utilize inputs other than
quoted prices included in Level 1 that are observable for the asset
or liability, either directly or indirectly. Level 2 inputs include
quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are not
active and model-derived valuations whose inputs are observable and
can be corroborated by market data. Level 3 inputs are unobservable
inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, the
level in the fair value hierarchy within which the fair value
measurement in its entirety falls has been determined based on the
lowest level input that is significant to the fair value
measurement in its entirety. The Company’s assessment of the
significance of a particular input to the fair value measurement in
its entirety requires judgment, and considers factors specific to
the asset or liability.
The
following tables present information on the liabilities measured
and recorded at fair value on a recurring basis as of September 30,
2011 and December 31, 2010.
The
Company determined the fair value of mandatorily redeemable
noncontrolling interests described above based on the issuance of
similar interest for cash, references to industry comparables, and
relied, in part, on information obtained from appraisal reports
prepared by outside specialists.
The
carrying amounts reported in the condensed consolidated financial
statements for cash, restricted cash, accounts receivable, accounts
payable and accrued expenses and other current liabilities
approximate fair value based on the short-term maturity of these
instruments. The carrying amounts of the notes payable (including
credit lines used to finance liquidation engagements), long-term
debt and capital lease obligations approximate fair value because
the contractual interest rates or effective yields of such
instruments are consistent with current market rates of interest
for instruments of comparable credit risk. The adoption of the new
accounting guidance for fair value measurements did not have a
material impact on the Company’s condensed consolidated
financial statements.
Total
comprehensive income is comprised of the following:
The
accompanying condensed consolidated balance sheets do not include
fiduciary funds, which are held by the Company on behalf of clients
in connection with the administration of loans in the performance
of capital advisory services and which amounted to $6,945 at
December 31, 2010.
Supplemental
disclosure of noncash financing activities:
In
December 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2010-28, “Intangibles — Goodwill
and Other (Topic 350). When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts. ” ASU 2010-28 modifies Step 1 of
the goodwill impairment test for reporting units with zero or
negative carrying amounts by requiring an entity to perform Step 2
of the goodwill impairment test if it is more likely than not that
a goodwill impairment exists. This update will be effective for
fiscal years beginning after December 15, 2010. The adoption of
this standard did not have a material impact on the Company’s
consolidated financial position and results of
operation.
In
May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic
820) – Amendments to Achieve Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRS.” This
ASU addresses fair value measurement and disclosure requirements
within Accounting Standards Codification (“ASC”) Topic
820 for the purpose of providing consistency and common meaning
between U.S. GAAP and IFRS. Generally, this ASU is not
intended to change the application of the requirements in Topic
820. Rather, this ASU primarily changes the wording to describe
many of the requirements in U.S. GAAP for measuring fair value or
for disclosing information about fair value
measurements. This ASU is effective for periods
beginning after December 15, 2011. The adoption of this
standard is not expected to have a material impact on the
Company’s consolidated financial position and results of
operation.
In
June 2011, the FASB issued ASC No. 2011-05, “Comprehensive Income (Topic
220), Presentation of Comprehensive
Income”. The FASB decided to eliminate the
option to present components of other comprehensive income as part
of the statement of changes in stockholders’ equity, among
other amendments in this update. The amendments require
that all non-owner changes in stockholder’s equity be
presented in a single continuous statement of comprehensive income
or in two separate but consecutive statements. In both
choices, a company is required to present each component of net
income along with total net income, each component of other
comprehensive income along with a total for other comprehensive
income, and a total amount for comprehensive income. The
statement of other comprehensive income should immediately follow
the statement of net income and include the components of other
comprehensive income and total for other comprehensive income,
along with a total for comprehensive income. The company
is also required to present on the face of the financial statements
reclassification adjustments for items that are reclassified from
other comprehensive income to net income in the statements where
the components of net income and the components of comprehensive
income are presented. The amendments in this update
should be applied retrospectively, and are effective for fiscal
years, and interim periods within those years, beginning after
December 15, 2011.
In
September 2011, the FASB issued ASU
No. 2011-08, “Intangibles—Goodwill
and Other (Topic 350): Testing Goodwill for Impairment. ASU
2011-08 is intended to simplify how entities, both public and
nonpublic, test goodwill for impairment. ASU 2011-08 permits an
entity to first assess qualitative factors to determine whether it
is “more likely than not” that the fair value of a
reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step
goodwill impairment test described in Topic 350, Intangibles-Goodwill and
Other. The more-likely-than-not threshold is defined as
having a likelihood of more than 50%. ASU 2011-08 is effective for
annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. Early adoption is
permitted, including for annual and interim goodwill impairment
tests performed as of a date before September 15, 2011, if an
entity’s financial statements for the most recent annual or
interim period have not yet been issued. The Company is currently
evaluating the impact of the adoption of this ASU on its condensed
consolidated financial statements.
|
NOTES PAYABLE | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
NOTES PAYABLE |
NOTE 8— NOTES PAYABLE
On
May 29, 2008, GAGEE entered into a credit agreement with
Garrison Special Opportunities Fund LP and Gage Investment Group
LLC (collectively, the “Lenders”) to finance the
purchase of certain machinery and equipment to be sold at auction
or liquidation. The principal amount of the loan was $12,000 and
borrowings bore interest at a rate of 20% per annum. The loan
is collateralized by the machinery and equipment which were
purchased with the proceeds from the loan. GAGEE was required to
make principal and interest payments from proceeds from the sale of
the machinery and equipment. GAGEE is a special purpose entity
created to purchase the machinery and equipment, whose assets
consist only of the machinery and equipment in question and whose
liabilities are limited to the Lenders’ note and certain
operational expenses related to this transaction. GAG, LLC
guaranteed GAGEE’s liabilities to the Lenders up to a maximum
of $1,200. The original maturity date of the loan was
May 29, 2009; however, GAGEE exercised its right to extend the
maturity date for 120 days until September 26, 2009. A fee of
$180 was paid in connection with the extension. On
September 26, 2009, the note payable became due and
payable.
On
October 8, 2009, GAGEE and GAG, LLC entered into a Forbearance
Agreement effective as of September 27, 2009 (the
“Forbearance Agreement”) with the Lenders and Garrison
Loan Agency Services LLC (“Administrative Agent”),
relating to the credit agreement, by and among GAGEE, as borrower,
GAG, LLC, as guarantor, the Lenders and the Administrative Agent.
Pursuant to the terms of the Forbearance Agreement, the Lenders
agreed to forbear from exercising any of the remedies available to
them under the credit agreement and the related security agreement
until November 17, 2009, unless a forbearance default occurs,
as specified in the Forbearance Agreement. Also, pursuant to the
terms of the Forbearance Agreement, GAGEE agreed to hold an auction
of the assets collateralizing GAGEE obligations under the credit
agreement on or before November 3, 2009 and to use the sale
proceeds to repay its obligations under the credit agreement. In
connection with the execution of the Forbearance Agreement, GAG,
LLC made a payment of $1,200 on October 9, 2009, in full
satisfaction of its guaranty under the credit agreement which
reduced the principal amount of borrowings and interest due under
the credit agreement. Pursuant to the Forbearance Agreement, the
Company held an auction of the assets collateralizing GAGEE’s
obligation on November 3, 2009. The sale of the assets at
auction was subject to meeting the reserve prices and approval by
the Lenders, and the auction did not result in the sale of any of
the assets.
On
December 31, 2009, GAGEE entered into an amendment to credit
agreement (the “First Amendment to Credit Agreement”)
dated as of December 18, 2009 with Garrison Special
Opportunities Fund LP and the Administrative Agent, whereby the
Lender agreed to forebear from exercising any of the remedies
available to them under the Forebearance Agreement and the related
Security Agreement and to extend the maturity date of the
Forebearance Agreement until November 18, 2010, unless a
forbearance default occurs, as specified in the credit agreement,
as amended. Pursuant to the terms of the First Amendment to Credit
Agreement the interest rate was reduced from 20% to 0% and the
Lender agreed to reimburse GAGEE for certain expenses from proceeds
of the sale assets that collateralize the credit agreement. The
Forbearance Agreement expired on November 18,
2010. The Company and GAGEE entered into the Waiver and
Second Amendment to Credit Agreement with the Lenders (the
“Second Amendment to Credit Agreement”) on May 9, 2011
which extended the maturity date of the note payable to December
31, 2011 with an interest rate of 0% through
maturity. The Second Amendment to Credit Agreement also
provides for the Lender to reimburse GAGEE for certain expenses
from proceeds of the sale or lease of the assets that collateralize
the note payable
GAG,
LLC has satisfied its obligation to pay the $1,200 guarantee and
the credit agreement does not provide for other recourse against
GAG, LLC or the Company. At September 30, 2011 and
December 31, 2010, the aggregate principal balance of the note
payable was $11,705 and $12,014, respectively. The reduction in
principal balance during the first quarter of 2011 is the result of
the reversal of interest expense during the first quarter of 2011
that was accrued during the period from the date of the expiration
of the First Amendment to Credit Agreement on November 18, 2010 to
December 31, 2010 at an interest rate of 22% (the default rate), as
the Second Amendment to Credit Agreement provides for an interest
rate of 0% for that period. The reversal of interest
expense of $309 in the first quarter of 2011 is reflected in the
condensed consolidated statement of operations for the nine months
ended September 30, 2011 as a reduction of interest
expense.
On
July 21, 2011, GAG, LLC entered into a loan agreement with
Dialectic Capital Partners, LP, Dialectic Offshore Ltd., Dialectic
Antithesis Partners, LP and Dialectic Antithesis Offshore Fund,
Ltd. (collectively, the “Dialectic Lenders”) and
Dialectic Capital Management, LLC as collateral agent. The loan
agreement provides for the loan of $7,000 to GAG, LLC pursuant to a
promissory note (the “Dialectic Note”) with a stated
principal amount of $7,609 (the “Maturity Value”). No
interest is due on the loan until after November 1, 2011, at
which time the Dialectic Note begins to accrue interest at a rate
of 14%, payable quarterly on the last day of January, April, July
and October. The final maturity date of the Dialectic Note is
July 31, 2013. The Dialectic Note may be prepaid at any time
with no penalty. The
loan was used to fund a portion of GAG, LLC’s obligations in
connection with its participation in a liquidation transaction. The
loan agreement also provides for profit participation payments to
the Dialectic Lenders up to a maximum of 5% of the Maturity
Value. Interest expense totaled $804 (including interest
of $380 for profit participation payments) for the three and nine
months ended September 30, 2011. The unamortized
discount on the note payable was $185 at September 30,
2011. The note payable and interest for profit
participation were paid in full in October 2011.
On
August 22, 2011, the Company borrowed $259 from a finance company
to finance insurance premiums. Interest on the loan was
6.49% and the loan required monthly installments of $30 until
maturity on May 1, 2012. The outstanding balance under
the loan was $203 at September 30, 2011. The loan
balance and accrued interest was paid off in October
2011.
|
RELATED PARTY TRANSACTIONS | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
RELATED PARTY TRANSACTIONS |
NOTE 13— RELATED PARTY TRANSACTIONS
On
January 4, 2010, the Company loaned $2,706 to GAHA Fund I, a
wholly-owned subsidiary of GARE, a joint venture 50% owned by the
Company and 50% owned by Kelly Capital, LLC. GAHA Fund I was
created to purchase land and a commercial building that was
subsequently sold by GAHA Fund I in January 2011. The note
receivable was collateralized by the land and commercial building
which was purchased with the proceeds from the loan. The note
receivable bore interest at a rate of 10% per annum. The
principal balance on the note and all unpaid interest was paid by
GAHA Fund I in January 2011. Interest income was $69 for the three
months ended September 30, 2010, and $10 and $203 for the nine
months ended September 30, 2011 and 2010, respectively, and is
included in interest income in the accompanying condensed
consolidated statement of operations. At December 31, 2010,
the note receivable in the amount of $2,706 is included in note
receivable – related party in the accompanying consolidated
balance sheet and accrued interest receivable in the amount of $268
is included in prepaid expenses and other current assets in the
accompanying condensed consolidated balance sheet.
On
July 8, 2010, the Company loaned $3,224 to GARE for the
purposes of investing in GAHA Fund II, LLC, a joint venture which
is 50% owned by GARE, .GAHA Fund II, LLC is a special purpose
entity created to purchase non-performing distressed real estate
loans at a discount to par from a financial institution and market
the loans and real estate to third parties. The note receivable
bears interest at a rate of 15% per annum and all unpaid
principal and interest was due on July 8, 2011. In July 2011,
the maturity date of the loan was extended to October 1, 2011 and
the interest rate was reduced to 8% per annum. Interest
income was $41 and $305 for the three and nine months ended
September 30, 2011 and $113 for each of the three and nine month
periods ended September 30, 2010 and is included in interest income
in the accompanying condensed consolidated statement of operations.
At September 30, 2011 and December 31, 2010, the note
receivable in the amount of $3,224 and accrued interest receivable
in the amount of $538 and $233 is included in prepaid expenses and
other current assets in the accompanying condensed consolidated
balance sheets.
In
accordance with the accounting guidance for consolidation of
variable interest entities, the Company has determined that the
subordinated financing arrangements in the form of notes receivable
described above with GARE changes the status of the entities to
VIE. The Company, in determining whether or not it is the primary
beneficiary of GARE, considered the disproportionate capital
contributions that are currently made by the Company, the voting
interests of the members of GARE and each member’s ability to
direct the activities of GARE. The Company determined it is not the
primary beneficiary of the VIE since decisions to direct the
operations of GARE are done jointly by the members of GARE and the
Company does not have a disproportionate voting interest which
allows it to exercise any rights or powers that would enable the
Company to direct the activities of GARE that most significantly
impact GARE’s economic performance. The accompanying
condensed consolidated financial statements do not consolidate
GARE. The loss from GARE is accounted for under the equity method
of accounting and is included in other income (loss) in the amount
of $174 and $401 for the three months ended September 30, 2011 and
2010, respectively, and $522 and $1,268 for the nine months ended
September 30, 2011 and 2010, respectively, in the condensed
consolidated statements of operations. At September 30, 2011, the
maximum amount of loss exposure related to the VIE is equal to the
carrying value of the respective note receivable – related
party and accrued interest receivable described above.
In
August 2011, the Company paid a loan origination fee of $140 (2% of
the $7,000 Dialetic Note as more fully described in note 8) to B.
Riley & Co., an investment bank. A member of the
Company’s board of directors is the controlling shareholder,
president and chief executive officer of B. Riley &
Co.
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
NOTE 9— INCOME TAXES
The
Company’s (provision) benefit for income taxes consists of
the following:
A reconciliation of the federal statutory rate
of 34% for the nine months ended September 30, 2011 and 2010 to the
effective tax rate for income (loss) from operations before income
taxes is as follows:
Deferred
income tax assets (liabilities) consisted of the
following:
As of December 31, 2010, the Company had
federal net operating loss carryforwards of $25,041 and state net
operating loss carryforwards of $20,621. The Company’s
federal net operating loss carryforwards will expire in the tax
year ending December 31, 2030 and the state net operating loss
carryforwards will expire in 2031.
The
Company establishes a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Tax
benefits of operating loss and tax credit carryforwards are
evaluated on an ongoing basis, including a review of historical and
projected future operating results, the eligible carryforward
period, and other circumstances. As of September 30, 2011 and
December 31, 2010, the Company believes that it is
more-likely-than-not that future taxable earnings will be
sufficient to realize its deferred tax assets and has not provided
an allowance.
The
Company’s uncertain tax positions are related to tax years
that remain subject to examination by the relevant taxing
authorities. The Company is currently open to audit under the
statute of limitations by the Internal Revenue Service for the
calendar year ended December 31, 2010 and 2009. The Company
and its subsidiaries’ state tax returns are also open to
audit under similar statutes of limitations for the same tax years.
The Company accrues interest on unrecognized tax benefits as a
component of income tax expense. Penalties, if incurred, would be
recognized as a component of income tax expense. The Company had no
such accrued interest or penalties included in the accrued
liabilities associated with unrecognized tax benefits as of the
date of adoption.
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LONG-TERM DEBT | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT |
NOTE 7— LONG-TERM DEBT
Long-term
debt consists of the following arrangements:
$60,000 Notes Payable
On
July 31, 2009, in connection with the Acquisition, the Company
issued a note payable to the Contribution Consideration Recipients
in the initial principal amount of $60,000. In connection with the
closing of the Acquisition, an initial principal payment of $4,383
was made, thereby reducing the principal amount of the note to
$55,617. On August 28, 2009, the note was replaced with
separate subordinated unsecured promissory notes (collectively, the
“Notes”) issued in favor of each of the Contribution
Consideration Recipients. Prior to the Amendments described below,
all Notes were payable in five equal annual principal payments in
the aggregate amount of $11,123 due on the anniversary date of the
Notes beginning on July 31, 2010 through July 31, 2014
with interest payable quarterly in arrears beginning
October 31, 2009 at 12% per annum. On May 4, 2010,
the Company entered into individual amendments (each, an Amendment
and collectively, the “Amendments”) to an aggregate of
$52,419 of the $55,617 principal amount outstanding of the
subordinated unsecured promissory notes, which reduced the interest
rate on the amended notes from 12.0% per annum to
3.75% per annum. The interest rate reduction was effective
retroactive to February 1, 2010. In addition, the maturity
date for $46,996 of the $55,617 principal amount outstanding of the
subordinated, unsecured promissory notes was extended to
July 31, 2018, subject to annual prepayments based upon the
Company’s cash flow, provided that the Company is not
obligated to make such prepayments if the Company’s minimum
adjusted cash balance is below $20,000. Each prepayment,
if any, is due within 30 days of the filing of the Company’s
Annual Report on Form 10-K, beginning with the Form 10-K for the
fiscal year ending December 31, 2010. There were no
prepayments due on the notes payable under this prepayment
provision on April 30, 2011. The remaining notes with $8,621
principal amount outstanding continue to be payable in five equal
annual principal payments as described above. On October 27,
2010, the Company entered into individual waivers for an aggregate
of $51,334 of the $53,893 principal amount outstanding of the
subordinated, unsecured promissory notes payable to the Great
American Members and Phantom Equityholders, whereby the noteholders
agreed to permit the Company to defer payment of interest payments
due on each of October 31, 2010, January 31, 2011,
and April 30, 2011 until July 31, 2011. On July 26, 2011
and August 3, 2011, the Company entered into individual waivers
which extended the payment date for $1,418 of the $1,724 of
principal amount originally due and payable on July 31,
2011. Of the $1,418 principal amount originally due on
July 31, 2011, $649 of principal amount was paid to two of the
Phantom Equityholders on October 1, 2011, $297 of principal amount
was paid to one of the Phantom Equityholders on October 15,
2011, and $472 of principal amount was paid to the remaining two
Phantom Equityholders on November 4, 2011.
In
addition, effective July 31, 2011, the Company entered into
individual amendments that increased the principal amount of the
promissory notes with Andy Gumaer and Harvey Yellen, the two former
Great American Members, both of whom are executive officers and
directors of the Company, by an aggregate amount of $1,762 of
accrued interest that was originally due on July 31, 2011. The
addition to the principal amount will accrue interest at the note
rate of 3.75% and continue to be subject to annual prepayments
based upon the Company’s cash flow and the maintenance of a
minimum adjusted cash balance as provided in the notes prior to the
capitalization of the accrued interest. As a result, the principal
balance of the promissory notes to the two former Great American
Members increased from an aggregate amount of $46,996 to
$48,759.
Interest
expense was $563 and $573 for the three months ended September 30,
2011 and 2010, respectively, and $1,670 and $2,100 for the nine
months ended September 30, 2011 and 2010, respectively. Accrued
interest payable was $378 and $899 on the notes payable as of
September 30, 2011 and December 31, 2010,
respectively.
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ACCOUNTS RECEIVABLE | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE |
NOTE 3— ACCOUNTS RECEIVABLE
The
components of accounts receivable, net, include the
following:
Additions
and changes to the allowance for doubtful accounts consist of the
following:
Unbilled
receivables represent the amount of contractual reimbursable costs
and fees for services performed in connection with fee and service
based auction and liquidation contracts.
GAAV
was a party to a factoring agreement, dated as of May 22, 2007
(the “Factoring Agreement”) with FCC LLC, d/b/a
First Capital Western Region, LLC (the “Factor”). The
Factoring Agreement provided for an initial term of two years and
annual one-year automatic extensions unless GAAV provides written
notice of termination to the Factor. The Factor, at its discretion,
purchased on a nonrecourse basis all of GAAV’s customer
receivables. The Factor was responsible for servicing the
receivables. The terms of the Factoring Agreement allowed for the
Factor to pay 90% of the net receivable invoice amount upon request
by GAAV and retain the remaining 10% in a reserve. The Factor, at
its discretion, could offset the reserve for amounts not collected
or outstanding at the end of the term of the Factoring Agreement.
The Factor charged a factoring commission equal to 0.25% of the
gross invoice amount of each account purchased, or five dollars per
invoice, whichever was greater, with a minimum commission of $24
per year. The Factor also charged interest at prime plus 1% with a
floor of 8% on the net uncollected outstanding balance of the
receivables purchased. Effective December 1, 2009, the
interest charged by the Factor was reduced to London Interbank
Offered Rate (“LIBOR”) plus 4.5% on the net uncollected
outstanding balance of the receivables purchased. One of the
members of GAAV personally guaranteed up to a maximum of $500 plus
interest and certain fees for accounts receivables sold pursuant to
the Factoring Agreement. On May 20, 2011, the Factoring
Agreement was terminated and replaced with an accounts receivable
revolving line of credit described in Note 6.
The
sale of the receivables is accounted for in accordance with the
accounting guidance for transfers and servicing of financial assets
and extinguishments of liabilities. In accordance with the
Codification, receivables are considered sold when they are
transferred beyond the reach of the Company and its creditors, the
purchaser has the right to pledge or exchange the receivables, and
the Company has surrendered control over the transferred
receivables. Accounts receivable sold to the Factor were $3,500
during the three months ended September 30, 2010, and $5,147 and
$10,435 during the nine months ended September 30, 2011 and 2010,
respectively. Factoring commissions and other fees based on
advances were $34 during the three months ended September
30, 2010, and $38 and $77 for the nine months ended
September 30, 2011 and 2010, respectively. Factoring commissions
and other fees are included in selling, general and administrative
expenses in the accompanying condensed consolidated statements of
operations. At September 30, 2011, accounts receivable
in the amount of $3,740 were collateralized by the new accounts
receivable revolving line of credit more fully described in Note
6.
|
GOODS HELD FOR SALE OR AUCTION | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODS HELD FOR SALE OR AUCTION |
NOTE 4— GOODS HELD FOR SALE OR AUCTION
Goods
held for sale or auction includes machinery and equipment, leased
equipment with a carrying value of $2,000 less accumulated
depreciation of $172, and aircraft parts and other as of September
30, 2011. Machinery and equipment is primarily comprised of oil
rigs with a carrying value of $9,737 which includes a lower of cost
or market adjustment of $1,086 as of September 30, 2011 and $1,056
as of December 31, 2010. The leased equipment consists of one
oil rig and is depreciated over a period of 15 years which
approximates its useful life. Aircraft parts and other is primarily
comprised of aircraft parts with a carrying value of $1,151 and
$1,308 as of September 30, 2011 and December 31, 2010,
respectively, which includes a lower of cost or market adjustment
of $543.
Machinery
and equipment with a carrying value of $9,737 and leased equipment
with a carrying value of $1,828 serve as collateral for the $11,705
note payable as of September 30, 2011 as more fully described in
Note 8.
|
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