SOURCE: Great American Group, Inc.

Great American Group, Inc.

August 15, 2011 16:00 ET

Great American Group®* Announces Second Quarter 2011 Financial Results

WOODLAND HILLS, CA--(Marketwire - Aug 15, 2011) - Great American Group, Inc. (OTCBB: GAMR) ("Great American Group" or the "Company"), a leading provider of asset disposition, valuation and appraisal services, today announced financial results for its second quarter ended June 30, 2011.

Second Quarter Results

For the second quarter ended June 30, 2011, the Company reported total revenues of $9.8 million, an increase of 88.5% from revenues of $5.2 million in the second quarter of 2010. Revenues from services and fees were $9.6 million, compared to $2.3 million in the same period the prior year. Revenues from sales of goods were $0.3 million, compared to $2.9 million in the second quarter of 2010. The increase in total revenues during the quarter was primarily due to increases in revenues from capital advisory services, retail liquidation engagements and appraisal fees in the Company's Valuation and Appraisal segment. Revenues from retail liquidation engagements increased in 2011 as compared to the same period in 2010. In 2010, revenues were negatively impacted due to estimated losses that were accrued at June 30, 2010 on the performance of retail liquidation engagements where we guarantee a minimum recovery value for goods sold.

"During the second quarter, the operating environment remained challenging for us. Retail liquidation opportunities in the United States during the second quarter remained limited. Our newer business initiatives, GA Europe and GA Capital, contributed meaningfully to revenues during the first half of 2011. Our net loss for the second quarter of 2011 was $2.2 million or $0.08 per share. At the start of the third quarter, we are beginning to see some increase in business activity in our auction and liquidation segment," said Andrew Gumaer, Chief Executive Officer of Great American Group. "This activity includes our participation, beginning in late July, as a minority partner in a joint venture that is in the process of liquidating the remaining 399 Borders bookstore."

Direct cost of services was $3.5 million, compared to $2.9 million a year ago. The increase in direct cost of services was primarily the result of an increase in the number of fee and commission engagements in the second quarter of 2011, where the Company contractually bills fees, commissions and reimbursable expenses, in the auction and liquidation segment as compared to the same period in 2010. Cost of goods sold was $0.4 million in the second quarter of 2011, compared to $4.0 million in the second quarter of the prior year, primarily as a result of the sale of goods with lower asset values and gross margins in 2011 compared to the prior year.

Selling, general and administrative expenses were $8.2 million, compared to $8.1 million in the second quarter of 2010. The increase was primarily the result of an increase in selling, general and administrative expenses in the Auction and Liquidation Segment, which was partially offset by decreases in expenses in the Valuation and Appraisal and Corporate and Other segments. The increase in expenses in the Auction and Liquidation Segment was primarily the result of an increase in expenses from the expansion of the Company's European operations and operating expenses from the Company's newly formed division in January 2011, GA Keen Realty Advisors.

Operating loss for the second quarter of 2011 was $2.2 million, compared to an operating loss of $9.7 million during the second quarter of 2010.

Interest expense during the second quarter of 2011 declined to $0.6 million from $0.8 million in the same period a year ago. The decline in interest expense was primarily the result of the reduction in the interest rate on certain promissory notes payable to the former Great American Members and certain Phantom Equityholders in May 2010.

Loss from operations before a benefit for income taxes was $3.1 million during the second quarter of 2011, compared to a loss from operations of $10.9 million in the second quarter of 2010.

During the second quarter of 2011, the Company recorded a benefit for income taxes of $0.9 million, compared to a benefit for income taxes of $4.3 million in the second quarter of 2010. Overall, in the second quarter of 2011, the Company generated a net loss of $2.2 million, or $(0.08) per diluted share, compared with a net loss of $6.6 million, or $(0.24) per diluted share, in the second quarter of 2010.

Six Month Results

For the first six months of 2011, the Company reported total revenues of $23.6 million, compared to $17.3 million in the first six months of 2010. Revenues from services and fees were $22.6 million, compared to $12.9 million a year ago. Sales of goods were $1.1 million compared to $4.4 million in the same period of 2010.

Total operating expenses were $25.6 million, compared to $30.2 million in 2010. The operating loss was $1.9 million, compared to an operating loss of $12.9 million in the prior year. Loss from operations before a provision for income taxes was $2.9 million, compared to a loss from operations of $15.4 million during the first six months of 2010. The Company recorded a benefit for income taxes of $0.2 million during the first six months of 2011, compared to a benefit for income taxes of $5.8 million in the same period of 2010. Net loss during the first six months of 2011 was $2.8 million, or $(0.10) per diluted share, compared with a net loss of $9.6 million, or $(0.34) in the same period of 2010.

Financial Position

At June 30, 2011, the Company had $17.4 million in cash and cash equivalents. Working capital was $18.5 million at June 30, 2011. During the first six months of 2011, the Company used $3.1 million in cash from operations.

Promissory Notes

On July 26 and August 3, the Company entered into agreements with certain Phantom Equityholders, including executive officers of the Company, which extended the payment date for $1.4 million of the $1.7 million of principal amount originally due and payable on July 31, 2011. Of the $1.4 million originally due on July 31, 2011, $0.6 million of principal amount was extended until August 31, 2011, $0.3 million was extended until October 15, 2011, and $0.5 million was extended until December 15, 2011. Interest will accrue at each of the notes' respective note rates until the principal amount is paid. The Company continues to have the right to prepay the extended amounts prior to extended due dates.

On July 31, the Company entered into agreements that increased the principal amount of the promissory notes with Andy Gumaer and Harvey Yellen, both of whom are executive officers and directors of the Company, by an aggregate amount of $1.6 million 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 Mr. Gumaer and Mr. Yellen increased to approximately $48.6 million.

Conference Call

The Company will host a conference call at 4:30 p.m. EDT on Monday, August 15, 2011, to discuss results for the second quarter ended June 30, 2011. To participate in the event by telephone, please dial (877) 941-1430 10 minutes prior to the start time (to allow time for registration) and use conference ID #4464621. International callers should dial (480) 629-9858. A digital replay will be available beginning August 15, 2011, at 7:30 p.m. EDT, through August 22, 2011, at 11:59 p.m. EDT. To access the replay, dial (877) 870-5176 (U.S.), and use passcode 4464621. International callers should dial (858) 384-5517 and enter the same passcode. The call will also be broadcast over the Internet and can be accessed on the Investor Relations section of the Company's Web site at www.greatamerican.com. To listen to the webcast, please visit the site at least 15 minutes prior to the start of the call in order to register, download and install any necessary audio software. A replay of the call will also be available for 90 days on the Web site.

About Great American Group, Inc.

Great American Group, Inc. is a leading provider of asset disposition solutions and valuation and appraisal services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional service firms. Great American Group has offices in Atlanta, Boston, Chicago, Dallas, London, Los Angeles, New York and San Francisco. For more information, please visit www.greatamerican.com.

*Great American Group and the Eagle Design are trademarks registered in the US Patent and Trademark Office and are exclusive property of Great American Group, Inc.

Forward-Looking Statements

This press release may contain forward-looking statements by Great American Group that are not based on historical fact, including, without limitation, statements containing the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions and statements. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements. Such factors include those risks described from time to time in Great American Group's filings with the SEC, including, without limitation, the risks described in Great American Group's proxy statement/prospectus filed with the SEC on July 18, 2011, and its Annual Report on Form 10-K for the year ended December 31, 2010. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and Great American Group undertakes no duty to update this information.

Note Regarding Use of Non-GAAP Financial Measures

Certain of the information set forth herein, including Adjusted EBITDA, may be considered non-GAAP financial measures. Great American Group believes this information is useful to investors because it provides a basis for measuring Great American Group's performance against the contingent share earnout provisions in the AAMAC transaction. In addition, Great American Group's management uses these non-GAAP financial measures along with the most directly comparable GAAP financial measures in evaluating Great American Group's operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-financial measures as reported by Great American Group may not be comparable to similarly titled amounts reported by other companies.

(FINANCIAL TABLES FOLLOW)

GREAT AMERICAN GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
June 30, December 31,
2011 2010
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 17,390 $ 20,080
Accounts receivable, net 4,884 3,087
Advances against customer contracts 372 3,063
Goods held for sale or auction 12,839 13,504
Note receivable - related party 3,224 5,930
Deferred income taxes 5,128 5,463
Prepaid expenses and other current assets 2,039 1,353
Total current assets 45,876 52,480
Property and equipment, net 1,241 1,369
Goodwill 5,688 5,688
Other intangible assets, net 140 221
Deferred income taxes 11,866 11,372
Note receivable 2,415
Other assets 850 1,144
Total assets $ 68,076 $ 72,274
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities $ 8,681 $ 10,631
Auction and liquidation proceeds payable 307 1,712
Mandatorily redeemable noncontrolling interests 2,639 2,858
Revolving line of credit 2,290
Current portion of long-term debt 1,724 1,724
Note payable 11,705 12,014
Current portion of capital lease obligation 27 27
Total current liabilities 27,373 28,966
Capital lease obligation, net of current portion 29 42
Long-term debt, net of current portion 52,169 52,169
Total liabilities 79,571 81,177
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued
Common stock, $0.0001 par value; 135,000,000 shares authorized; 30,741,794 and 30,559,036 issued and outstanding as of March 31, 2011 and December 31, 2010, respectively
4

4
Additional paid-in capital 3,191 2,878
Retained earnings (deficit) (14,567 ) (11,792 )
Accumulated other comprehensive income (loss) (123 ) 7
Total stockholders' equity (deficit) (11,495 ) (8,903 )
Total liabilities and stockholders' equity (deficit) $ 68,076 $ 72,274
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2011 2010 2011 2010
Revenues:
Services and fees $ 9,569 $ 2,279 $ 22,572 $ 12,909
Sale of goods 262 2,936 1,075 4,373
Total revenues 9,831 5,215 23,647 17,282
Operating expenses:
Direct cost of services 3,479 2,882 8,291 8,086
Cost of goods sold 405 3,993 1,313 5,537
Selling, general and administrative expenses 8,160 8,083 15,951 16,599
Total operating expenses 12,044 14,958 25,555 30,222
Operating income (loss) (2,213 ) (9,743 ) (1,908 ) (12,940 )
Other income (expense):
Other income (expense) (6 ) (10 )
Interest income 153 87 290 177
Income (loss) from equity investment in Great American Real Estate, LLC (416 ) (455 ) (348 ) (867 )
Interest expense (625 ) (759 ) (953 ) (1,792 )
Income (loss) before income taxes (3,107 ) (10,870 ) (2,929 ) (15,422 )
Benefit for income taxes 858 4,263 154 5,835
Net income (loss) $ (2,249 ) $ (6,607 ) $ (2,775 ) $ (9,587 )
Weighted average basic shares outstanding 28,460,392 27,998,705 28,410,908 27,949,607
Weighted average diluted shares outstanding 28,460,392 27,998,705 28,410,908 27,949,607
Basic and diluted earnings (loss) per share $ (0.08 ) $ (0.24 ) $ (0.10 ) $ (0.34 )
Diluted earnings (loss) per share $ (0.08 ) $ (0.24 ) $ (0.10 ) $ (0.34 )
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
2011 2010
Cash flows from operating activities:
Net loss $ (2,775 ) $ (9,587 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 439 375
Provision for doubtful accounts 45
Impairment of goods held for sale or auction 1,308
Share-based payments 421 2,398
Effect of foreign currency on operations (118 )
Non-cash interest (580 )
Loss (income) from equity investment in Great American Real Estate, LLC 416 867
Loss on disposal of assets 3 2
Deferred income taxes (159 ) (5,835 )
Income allocated to mandatorily redeemable noncontrolling interests 1,393 661
Change in operating assets and liabilities:
Accounts receivable and advances against customer contracts 894 (4,837 )
Income taxes receivable 249
Goods held for sale or auction 665 (250 )
Prepaid expenses and other assets (388 ) 1,537
Accounts payable and accrued expenses (1,949 ) 534
Auction and liquidation proceeds payable (1,405 ) 237
Net cash used in operating activities (3,143 ) (12,296 )
Cash flows from investing activities:
Purchases of property and equipment (233 ) (370 )
Decrease (increase) in note receivable - related party 2,706 (2,706 )
Increase in note receivable (2,409 )
Equity investment in Great American Real Estate, LLC (156 ) (1,775 )
Increase in restricted cash (1,436 )
Net cash provided by (used in) investing activities (92 ) (6,287 )
Cash flows from financing activities:
Proceeds from asset based credit facility, net 8,746
Proceeds from revolving line of credit 2,290
Repayments of long-term debt and capital lease obligations (13 ) (12 )
Payment of employment taxes on vesting of restricted stock (108 ) (948 )
Distribution to noncontrolling interests (1,612 ) (699 )
Net cash used in financing activities 557 7,087
Increase (decrease) in cash and cash equivalents (2,678 ) (11,496 )
Effect of foreign currency on cash (12 )
Net increase (decrease) in cash and cash equivalents (2,690 ) (11,496 )
Cash and cash equivalents, beginning of period 20,080 37,989
Cash and cash equivalents, end of period $ 17,390 $ 26,493
Supplemental disclosures:
Interest paid $ 193 $ 2,350
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(Unaudited Adjusted EBITDA)
(Dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
Adjusted EBITDA Reconciliation:
Net loss as reported $ (2,249 ) $ (6,607 ) $ (2,775 ) $ (9,587 )
Adjustments:
Benefit for income taxes (858 ) (4,263 ) (154 ) (5,835 )
Interest expense 625 759 953 1,792
Interest income (153 ) (87 ) (290 ) (177 )
Depreciation and amortization 218 195 439 375
Share based compensation 63 1,040 421 2,398
Total EBITDA adjustments (105 ) (2,356 ) 1,369 (1,447 )
Adjusted EBITDA $ (2,354 ) $ (8,963 ) $ (1,406 ) $ (11,034 )

GAMR-F

Contact Information

  • Investor Contacts:

    Great American Group
    Phil Ahn, SVP
    Strategy & Corporate Development
    818-884-3737

    or

    Press Contact:
    Great American Group
    Laura Wayman
    847-444-1400 ext. 312
    Email Contact

    Addo Communications
    Andrew Blazier
    310-829-5400
    Email Contact