10-Q 1 v359632_10q.htm FORM 10-Q
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
Or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from           to
 
Commission File Number 000-54010
_________________
 
GREAT AMERICAN GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
27-0223495
(State or Other Jurisdiction of
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
 
21860 Burbank Boulevard, Suite 300 South
 
Woodland Hills, CA
91367
(Address of Principal Executive Offices)
(Zip Code)
 
(818) 884-3737
(Registrant’s telephone number, including area code)
  __________________
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer  ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨ No x
 
  As of November 11, 2013, there were 30,002,975 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.
 
 
 
 
 
Great American Group, Inc.
Quarterly Report on Form 10-Q
For The Quarter Ended September 30, 2013
Table of Contents
 
 
 
Page
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Unaudited Financial Statements
3
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012
3
 
 
 
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012
4
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2013 and 2012
5
 
 
 
 
Condensed Consolidated Statements of Equity (Deficit) for the nine months ended September 30, 2013 and 2012
6
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012
7
 
 
 
 
Notes to Condensed Consolidated Financial Statements
8
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
40
 
 
 
Item 4.
Controls and Procedures
40
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
41
 
 
 
Item 1A.
Risk Factors
41
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
47
 
 
 
Item 3.
Defaults Upon Senior Securities
47
 
 
 
Item 4.
Mine Safety Disclosures
47
 
 
 
Item 5.
Other Information
47
 
 
 
Item 6.
Exhibits
47
 
 
 
 
Signatures
48
 
 
2

 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
 
 
(Unaudited)
 
 
 
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
13,969
 
$
18,721
 
Restricted cash
 
 
2,538
 
 
7,923
 
Accounts receivable, net
 
 
9,675
 
 
16,591
 
Lease finance receivable - current portion
 
 
3,829
 
 
 
Advances against customer contracts
 
 
1,548
 
 
2,441
 
Due from related party
 
 
18
 
 
 
Inventory
 
 
 
 
2,216
 
Goods held for sale or auction
 
 
5,430
 
 
10,196
 
Note receivable related party - current portion
 
 
686
 
 
611
 
Deferred income taxes
 
 
4,192
 
 
4,114
 
Prepaid expenses and other current assets
 
 
1,237
 
 
1,145
 
Total current assets
 
 
43,122
 
 
63,958
 
Note receivable related party, net of current portion
 
 
645
 
 
 
Lease finance receivable, net of current portion
 
 
4,506
 
 
 
Property and equipment, net
 
 
1,066
 
 
970
 
Goodwill
 
 
5,688
 
 
5,688
 
Other intangible assets, net
 
 
140
 
 
140
 
Deferred income taxes
 
 
9,484
 
 
9,484
 
Other assets
 
 
886
 
 
343
 
Total assets
 
$
65,537
 
$
80,583
 
Liabilities and Equity (Deficit)
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
 
$
9,120
 
$
16,886
 
Auction and liquidation proceeds payable
 
 
34
 
 
864
 
Mandatorily redeemable noncontrolling interests
 
 
2,832
 
 
2,856
 
Revolving credit facility
 
 
1,256
 
 
2,304
 
Current portion of long-term debt
 
 
1,724
 
 
1,724
 
Notes payable
 
 
7,132
 
 
9,628
 
Current portion of capital lease obligation
 
 
 
 
13
 
Total current liabilities
 
 
22,098
 
 
34,275
 
Long-term debt, net of current portion
 
 
48,759
 
 
50,483
 
Total liabilities
 
 
70,857
 
 
84,758
 
Commitments and contingencies
 
 
 
 
 
 
 
Great American Group, Inc. 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; 30,002,975 issued
 
 
 
 
 
 
 
and outstanding as of September 30, 2013 and December 31, 2012, respectively
 
 
4
 
 
4
 
Additional paid-in capital
 
 
3,082
 
 
3,082
 
Retained earnings (deficit)
 
 
(7,545)
 
 
(7,669)
 
Accumulated other comprehensive loss
 
 
(809)
 
 
(520)
 
Total Great American Group, Inc. stockholders' equity (deficit)
 
 
(5,268)
 
 
(5,103)
 
Noncontrolling interests
 
 
(52)
 
 
928
 
Total equity (deficit)
 
 
(5,320)
 
 
(4,175)
 
Total liabilities and equity (deficit)
 
$
65,537
 
$
80,583
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except share data)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Services and fees
 
$
11,361
 
$
10,956
 
$
42,221
 
$
41,154
 
Sale of goods
 
 
10,390
 
 
3,279
 
 
15,723
 
 
12,052
 
Total revenues
 
 
21,751
 
 
14,235
 
 
57,944
 
 
53,206
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct cost of services
 
 
5,644
 
 
4,844
 
 
17,431
 
 
16,097
 
Cost of goods sold
 
 
8,240
 
 
2,172
 
 
11,273
 
 
8,449
 
Selling, general and administrative expenses
 
 
7,085
 
 
7,878
 
 
28,048
 
 
26,155
 
Total operating expenses
 
 
20,969
 
 
14,894
 
 
56,752
 
 
50,701
 
Operating income (loss)
 
 
782
 
 
(659)
 
 
1,192
 
 
2,505
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
31
 
 
30
 
 
38
 
 
186
 
Income (loss) from equity investment in
 
 
 
 
 
 
 
 
 
 
 
 
 
Great American Real Estate, LLC
 
 
 
 
165
 
 
(15)
 
 
45
 
Loss from equity investment in
 
 
 
 
 
 
 
 
 
 
 
 
 
Shoon Trading Limited
 
 
(143)
 
 
 
 
(143)
 
 
 
Gain from bargain purchase
 
 
 
 
 
 
 
 
1,366
 
Interest expense
 
 
(567)
 
 
(678)
 
 
(1,838)
 
 
(1,951)
 
Income (loss) before income taxes
 
 
103
 
 
(1,142)
 
 
(766)
 
 
2,151
 
Benefit (provision) for income taxes
 
 
133
 
 
375
 
 
342
 
 
(387)
 
Net income (loss)
 
 
236
 
 
(767)
 
 
(424)
 
 
1,764
 
Net income (loss) attributable to noncontrolling interests
 
 
(130)
 
 
(220)
 
 
(548)
 
 
625
 
Net income (loss) attributable to Great
    American Group, Inc.
 
$
366
 
$
(547)
 
$
124
 
$
1,139
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income per share
 
$
0.01
 
$
(0.02)
 
$
0.00
 
$
0.04
 
Diluted income per share
 
$
0.01
 
$
(0.02)
 
$
0.00
 
$
0.04
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average basic shares outstanding
 
 
28,682,975
 
 
28,682,975
 
 
28,682,975
 
 
28,682,521
 
Weighted average diluted shares outstanding
 
 
29,891,401
 
 
28,682,975
 
 
29,891,401
 
 
29,599,012
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4

 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in thousands)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
236
 
$
(767)
 
$
(424)
 
$
1,764
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
(63)
 
 
(52)
 
 
(289)
 
 
211
 
Other comprehensive income (loss), net of tax
 
 
(63)
 
 
(52)
 
 
(289)
 
 
211
 
Total comprehensive income (loss)
 
 
173
 
 
(819)
 
 
(713)
 
 
1,975
 
Comprehensive income (loss) attributable to
    noncontrolling interests
 
 
(130)
 
 
(220)
 
 
(548)
 
 
625
 
Comprehensive income (loss) attributable to Great
    American Group, Inc.
 
$
303
 
$
(599)
 
$
(165)
 
$
1,350
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
5

 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity (Deficit)
(Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
Retained
 
Other
 
 
 
 
Total
 
 
 
Preferred Stock
 
Common Stock
 
Paid-in
 
Earnings
 
Comprehensive
 
Noncontrolling
 
Equity
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
(Deficit)
 
Loss
 
Interests
 
(Deficit)
 
Balance, January 1, 2012
 
 
$
 
31,001,609
 
$
4
 
$
3,177
 
$
(11,190)
 
$
(247)
 
$
 
$
(8,256)
 
Net income for the nine months ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,139
 
 
 
 
 
625
 
 
1,764
 
Foreign currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
211
 
 
 
 
 
211
 
Formation of noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78
 
 
78
 
Cancellation of founders contingent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares held in escrow
 
 
 
 
 
 
(1,000,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-
 
Purchase of noncontrolling interest in
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
subsidiary
 
 
 
 
 
 
 
 
 
 
 
 
(95)
 
 
 
 
 
 
 
 
 
 
 
(95)
 
Changes in noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29
 
 
29
 
Adjustment from restricted stock awards
 
 
 
 
 
 
1,366
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-
 
Balance, September 30, 2012
 
 
$
 
30,002,975
 
$
4
 
$
3,082
 
$
(10,051)
 
$
(36)
 
$
732
 
$
(6,269)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
 
 
$
 
30,002,975
 
$
4
 
$
3,082
 
$
(7,669)
 
$
(520)
 
$
928
 
$
(4,175)
 
Net income for the nine months ended
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
124
 
 
 
 
 
(548)
 
 
(424)
 
Change in noncontrolling interest from
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
deconsolidation of Shoon
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(352)
 
 
(352)
 
Foreign currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(289)
 
 
 
 
 
(289)
 
Changes in noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(80)
 
 
(80)
 
Balance, September 30, 2013
 
 
$
 
30,002,975
 
$
4
 
$
3,082
 
$
(7,545)
 
$
(809)
 
$
(52)
 
$
(5,320)
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
6

 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
 
 
Nine Months Ended
September 30,
 
 
 
2013
 
2012
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
 
$
(424)
 
$
1,764
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
1,717
 
 
611
 
Provision for (recoveries of) bad debts
 
 
8
 
 
(116)
 
Impairment of goods held for sale or auction
 
 
28
 
 
127
 
Effect of foreign currency on operations
 
 
(289)
 
 
(48)
 
Non-cash interest
 
 
 
 
(10)
 
Loss from equity investments
 
 
158
 
 
(45)
 
Gain from bargain purchase
 
 
 
 
(1,366)
 
Loss on disposal of fixed assets
 
 
 
 
3
 
Deferred income taxes
 
 
(78)
 
 
(112)
 
Income allocated to mandatorily redeemable noncontrolling interests
 
 
1,564
 
 
1,497
 
Change in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable and advances against customer contracts
 
 
3,698
 
 
3,588
 
Due from related party
 
 
(18)
 
 
 
Inventory
 
 
450
 
 
1,050
 
Goods held for sale or auction
 
 
7,309
 
 
2,054
 
Loan and lease finance receivables
 
 
(8,644)
 
 
7,769
 
Prepaid expenses and other assets
 
 
(380)
 
 
314
 
Accounts payable and accrued expenses
 
 
(6,307)
 
 
(2,097)
 
Auction and liquidation proceeds payable
 
 
(830)
 
 
594
 
Net cash provided by (used in) operating activities
 
 
(2,038)
 
 
15,577
 
Cash flows from investing activities:
 
 
 
 
 
 
 
Acquisition of business
 
 
 
 
(1,246)
 
Deconsolidation of Shoon
 
 
(771)
 
 
 
Purchase of noncontrolling interest in subsidiary
 
 
 
 
(95)
 
Purchases of property and equipment
 
 
(972)
 
 
(403)
 
Proceeds from sale of property and equipment
 
 
 
 
21
 
Decrease in note receivable - related party
 
 
611
 
 
3,164
 
Equity investment in Great American Real Estate, LLC
 
 
(15)
 
 
(120)
 
Decrease (increase) in restricted cash
 
 
5,385
 
 
(6,767)
 
Net cash provided by (used in) investing activities
 
 
4,238
 
 
(5,446)
 
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments of capital lease obligations
 
 
(13)
 
 
(22)
 
Repayment of revolving line of credit
 
 
(1,048)
 
 
(676)
 
Repayments of notes payable
 
 
(2,496)
 
 
(2,042)
 
Repayments of long term debt
 
 
(1,724)
 
 
(1,724)
 
Proceeds from formation of noncontrolling interest
 
 
 
 
78
 
Distribution to noncontrolling interests
 
 
(1,588)
 
 
(2,074)
 
Net cash used in financing activities
 
 
(6,869)
 
 
(6,460)
 
Increase (decrease) in cash and cash equivalents
 
 
(4,669)
 
 
3,671
 
Effect of foreign currency on cash
 
 
(83)
 
 
282
 
Net increase (decrease) in cash and cash equivalents
 
 
(4,752)
 
 
3,953
 
Cash and cash equivalents, beginning of period
 
 
18,721
 
 
15,034
 
Cash and cash equivalents, end of period
 
$
13,969
 
$
18,987
 
Supplemental disclosures:
 
 
 
 
 
 
 
Interest paid
 
$
1,874
 
$
1,961
 
Taxes paid
 
$
175
 
$
278
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
7

 
GREAT AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
 
NOTE 1—ORGANIZATION, BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Nature of Operations
 
Great American Group, Inc. and its subsidiaries (collectively the “Company”) provide asset disposition, valuation and appraisal, capital advisory, and real estate consulting services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional service firms throughout the United States, Canada, and the United Kingdom. The Company operates in three operating segments: auction and liquidation solutions (“Auction and Liquidation”), valuation and appraisal services (“Valuation and Appraisal”) and UK retail store operations (“UK Retail Stores”). In the Auction and Liquidation segment, the Company provides auction and liquidation services to help clients dispose of assets, capital advisory and real estate consulting services. Such assets include multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property. In the Valuation and Appraisal segment, the Company provides valuation and appraisal services to clients with independent appraisals in connection with asset based loans, acquisitions, divestitures and other business needs. The UK Retail Stores segment includes the operation of ten retail shoe stores in the United Kingdom as a result of the acquisition of Shoon Trading Limited (“Shoon”) on May 4, 2012. In August 2013, the Shoon shareholder agreement was also amended and restated to eliminate the Company’s super majority voting rights which previously enabled the Company to control the board of directors of Shoon, as more fully described in Note 13. As a result of this amendment, the Company no longer controls the board of directors of Shoon, no longer operates in the UK Retail Stores segment, and Shoon’s operating results are not consolidated for any periods after July 31, 2013.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)      Principles of Consolidation and Basis of Presentation
 
The condensed consolidated financial statements include the accounts of Great American Group, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 29, 2013. The results of operations for the nine months ended September 30, 2013, are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.
 
(b)      Revenue Recognition
 
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 $680 and $606 for the three months ended September 30, 2013 and 2012, respectively, and $2,071 and $1,903 for the nine months ended September 30, 2013 and 2012, 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) revenues from the sale of goods that are purchased by the Company for sale at auction or liquidation sales events; (iv) fees earned from real estate services and the origination of loans; (v) revenues from financing activities recorded over the lives of related loans receivable using the interest method and (vi) revenues from contractual reimbursable expenses incurred in connection with auction and liquidation contracts.
 
 
8

  
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 $1,952 and $1,199 for the three months ended September 30, 2013 and 2012, respectively, and $4,557 and $3,674 for the nine months ended September 30, 2013 and 2012, 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 services 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. Revenues from the sale of goods also include revenue from sales at our retail stores at the point of sale that we operate in the United Kingdom.
 
Revenues from sales-type leases are recorded as an asset at lease inception. The asset is recorded at the aggregate future minimum lease payments, estimated residual value of the leased equipment, and deferred incremental direct costs less unearned income. Income is recognized over the life of the lease to approximate a level rate of return on the net investment. During the three months ended September 30, 2013, the term of the purchase agreement for four oil rigs that was included in leased equipment at December 31, 2012 was amended to, among other things, eliminate the right of the lessor to return the oil rigs to the Company. This amendment changed the classification of the lease from an operating lease to a sales-type lease and resulted in the Company recording revenues from the sale of the oil rigs of $9,280 and cost of goods sold of $7,447 during the three months ended September 30, 2013.
 
Fees earned from real estate services and 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 no revenues and $43 of direct cost of services subject to collaborative arrangements during the three months ended September 30, 2013 and $8,092 of revenues and $1,070 of direct cost of services subject to collaborative arrangements during the nine months ended September 30, 2013. There were $677 of revenues and $72 of direct cost of services subject to collaborative arrangements during the three months ended September 30, 2012 and $1,587 of revenues and $1,054 of direct cost of services subject to collaborative arrangements during the nine months ended September 30, 2012.
 
(c)      Direct Cost of Services
 
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.
 
 
9

  
(d)      Concentration of Risk
 
Revenues from the sale of four oil rigs represented 42.7% and 16.0% of total revenues during the three and nine months ended September 30, 2013, respectively. Revenues from one liquidation service contract represented 14.0% of total revenues during the nine months ended September 30, 2013. Revenues from financing activities in the United Kingdom from one loan represented 5.6% and 9.5% of total revenues during the three and nine months ended September 30, 2012, respectively. Revenues in the Valuation and Appraisal segment and the Auction and Liquidation segment are primarily generated in the United States and United Kingdom, see Note 14.
 
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.
 
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.
 
(e)      Income Taxes
 
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.
 
(f)       Cash and Cash Equivalents
 
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
 
(g)      Restricted Cash
 
The Company maintains deposits in accounts under the control of a financial institution as collateral for letters of credit relating to liquidation engagements. As of September 30, 2013, restricted cash included $2,216 of cash collateral for letters of credit, $161 for cash collateral for operating accounts in the United Kingdom, and $160 of cash collected from leasing the oil rigs that collateralize the related note payable, which has an outstanding principal amount of $7,132 as of September 30, 2013. As of December 31, 2012, restricted cash included $6,667 of cash collateral for letters of credit and $1,256 of cash collected from leasing the oil rigs that collateralize the related note payable, which had an outstanding principal amount of $9,513 as of December 31, 2012.
 
(h)      Accounts Receivable
 
Accounts receivable represents amounts due from the Company’s auction and liquidation and 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. Bad debt expense included a credit for recoveries of bad debts for the three months ended September 30, 2013 and bad debt expense was $8 for the nine months ended September 30, 2013. There was no bad debt expense during the three and nine months ended September 30, 2012.
 
 
10

  
(i)       Advances Against Customer Contracts
 
Advances against customer contracts represent advances of contractually reimbursable expenses incurred prior to, and during the term of the auction and liquidation services contract. These advances are charged to expense in the period that revenue is recognized under the contract.
 
(j)       Inventory
 
Merchandise inventories are stated at the lower of average cost or market. The Company identifies potentially excess and slow-moving inventories and shrinkage by evaluating turn rates, inventory levels, historical results of inventory counts and other factors at its retail and warehouse locations. At December 31, 2012, the Company had a lower of cost or market reserves for excess and slow-moving inventories and shrinkage of $26.
 
(k)      Goods Held for Sale or Auction
 
Goods held for sale or auction are stated at the lower of cost, determined by the specific-identification method, or market.
 
(l)       Lease Finance Receivable
 
Lease finance receivables consist of the Company’s net investment in sales-type leases for four oil rigs as of September 30, 2013. As of September 30, 2013, the remaining gross lease payments in accordance with the purchase lease of $8,930 are payable through December 15, 2014. The gross lease payments include a bargain purchase option in the amount of $4,242 that is payable on December 15, 2014. The lease finance receivable is comprised of the following:
 
 
 
September 30,
 
 
 
2013
 
Minimum lease payment receivable
 
$
4,688
 
Lease purchase option
 
 
4,242
 
Unearned income
 
 
(595)
 
Total lease finance receivable
 
$
8,335
 
 
(m)     Loan Receivable
 
During the nine months ended September 30, 2012, the loan receivable acquired from an investment bank at a discount from face value that provided financing to a retail company with operations in the United Kingdom decreased from $8,306 at December 31, 2011 to $537 at September 30, 2012. Income is recognized using the effective interest method and the discount is amortized to income over the stated term of the loan receivable. Financing revenues earned using the effective interest method were $464 and $4,718 during the three and nine months ended September 30, 2012, respectively. The financing revenues included interest income of $89 and $641 and amortization of the discount over the stated term of the loan receivable of $375 and $4,077 during the three and nine months ended September 30, 2012, respectively. There were no financing revenues earned during the three and nine months ended September 30, 2013. The revenues from financing activities are included in revenues from services and fees in the auction and liquidation segment in the condensed consolidated statement of operations.
 
(n)      Property and Equipment
 
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 $143 and $153 for the three months ended September 30, 2013 and 2012, respectively, and $465 and $468 for the nine months ended September 30, 2013 and 2012, respectively.
 
 
11

   
(o)     Fair Value Measurements
 
The Company records mandatorily redeemable noncontrolling interests that were issued after November 5, 2003 at fair value with fair value determined in accordance with the Accounting Standards Codification (“ASC”). 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, 2013 and December 31, 2012 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, 2013 and December 31, 2012. 
 
 
 
Financial Assets Measured at Fair Value on a
 
 
 
Recurring Basis at September 30, 2013, Using
 
 
 
 
 
Quoted prices in
 
Other
 
Significant
 
 
 
Fair Value at
 
active markets for
 
observable
 
unobservable
 
 
 
September 30,
 
identical assets
 
inputs
 
inputs
 
 
 
2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Mandatorily redeemable
    noncontrolling interests issued
    after November 5, 2003
 
$
2,242
 
$
-
 
$
-
 
$
2,242
 
Total liabilities measured at fair value
 
$
2,242
 
$
-
 
$
-
 
$
2,242
 
 
 
 
Financial Assets Measured at Fair Value on a
 
 
 
Recurring Basis at December 31, 2012, Using
 
 
 
 
 
 
Quoted prices in
 
Other
 
Significant
 
 
 
Fair Value at
 
active markets for
 
observable
 
unobservable
 
 
 
December 31,
 
identical assets
 
inputs
 
inputs
 
 
 
2012
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Mandatorily redeemable
    noncontrolling interests issued
    after November 5, 2003
 
$
2,246
 
$
-
 
$
-
 
$
2,246
 
Total liabilities measured at fair value
 
$
2,246
 
$
-
 
$
-
 
$
2,246
 
 
The Company determined the fair value of mandatorily redeemable noncontrolling interests described above based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models. The amount reported at fair value at September 30, 2013 and December 31, 2012 also includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. There was no change in the fair value measurement of the noncontrolling interests during the nine months ended September 30, 2013. The decrease in the mandatorily redeemable noncontrolling interests of $4 during the nine months ended September 30, 2013 presented in the table above reflects the change in undistributed earnings attributable to the noncontrolling interest during such period. At September 30, 2013, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.
 
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.
 
 
12

   
(p)      Foreign Currency Translation
 
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country's currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders' equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign currency transaction gains were $445 and $452 during the three months ended September 30, 2013 and 2012, respectively, and $190 and $438 during the nine months ended September 30, 2013 and 2012, respectively. These amounts are included in selling, general and administrative expenses in our consolidated statements of operations.
 
(q)      Fiduciary Funds
 
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. There were no funds held by the Company on behalf of clients at September 30, 2013 and December 31, 2012.
 
(r)      Recent Accounting Pronouncements
 
In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Other Comprehensive Income”. ASU 2013-02 finalized the reporting for reclassifications out of accumulated other comprehensive income, which was previously deferred, as discussed below. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, they do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is also required to present on the face of the financials where net income is reported or in the footnotes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. Other amounts need only be cross-referenced to other disclosures required that provide additional detail of these amounts. The amendments in this update are effective for reporting periods beginning after December 15, 2012. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
 
 
13

 
NOTE 3— ACCOUNTS RECEIVABLE
 
The components of accounts receivable, net, include the following:
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
Accounts receivable
 
$
8,541
 
$
16,350
 
Unbilled receivables
 
 
1,505
 
 
612
 
Total accounts receivable
 
 
10,046
 
 
16,962
 
Allowance for doubtful accounts
 
 
(371)
 
 
(371)
 
Accounts receivable, net
 
$
9,675
 
$
16,591
 
 
Additions and changes to the allowance for doubtful accounts consist of the following:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Balance, beginning of period
 
$
371
 
$
424
 
$
371
 
$
424
 
Add: Additions to reserve
 
 
13
 
 
7
 
 
13
 
 
7
 
Less: Write-offs
 
 
(13)
 
 
(7)
 
 
(13)
 
 
(7)
 
Less: Recoveries
 
 
-
 
 
(116)
 
 
-
 
 
(116)
 
Balance, end of period
 
$
371
 
$
308
 
$
371
 
$
308
 
 
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. At September 30, 2013, accounts receivable in the amount of $2,585 were collateralized by the accounts receivable revolving line of credit more fully described in Note 6.

NOTE 4— GOODS HELD FOR SALE OR AUCTION
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
Machinery and equipment
 
$
4,730
 
$
257
 
Leased equipment
 
 
-
 
 
9,219
 
Aircraft parts and other
 
 
700
 
 
720
 
Total
 
$
5,430
 
$
10,196
 
 
Goods held for sale or auction includes machinery and equipment, and leased equipment with a carrying value of $4,730 and $9,381 as of September 30, 2013 and December 31, 2012, respectively, and aircraft parts and other. Machinery and equipment is primarily comprised of an oil rig with a carrying value of $2,708 and other machinery and equipment with a carrying value of $2,022 as of September 30, 2013. The leased equipment at December 31, 2012 consists of oil rigs with a carrying value of $9,219, net of accumulated depreciation of $162. In July 2013, the terms of the lease of four oil rigs that were included in leased equipment at December 31, 2012 were amended to eliminate the right of the lessor to return the oil rigs to the Company, see Note 2(l). This amendment caused a change in the classification of the lease from an operating lease to a sales-type lease with a bargain purchase option and resulted in the Company recording revenues from the sale of the oil rigs of $9,280 and cost of goods sold of $7,447 during the three months ended September 30, 2013. Aircraft parts and other is primarily comprised of aircraft parts with a carrying value of $700 and $720 which includes a lower of cost or market adjustment of $697 and $702 as of September 30, 2013 and December 31, 2012, respectively. There was no lower-of-cost or market adjustment for goods held for sale or auction during the three months ended September 30, 2013. The Company recorded a recovery of $11 for the three months ended September 30, 2012 from the sale of certain inventory that had previously been written down with a lower of cost or market adjustment. The total amount recorded by the Company for a lower-of-cost or market adjustment for goods held for sale or auction was $6 and $111 during the nine months ended September 30, 2013 and 2012, respectively. Depreciation expense on the leased equipment was $177 and $48 during the three months ended September 30, 2013 and 2012, respectively, and $1,252 and $143 during the nine months ended September 30, 2013 and 2012, respectively.
 
Machinery and equipment with a carrying value of $2,708 serves as collateral for the $7,132 note payable as of September 30, 2013 as more fully described in Note 8.
 
 
14

 
NOTE 5— GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill of $5,688 is comprised of $1,975 of goodwill in the Auction and Liquidation segment and $3,713 of goodwill in the Valuation and Appraisal segment at September 30, 2013. There have been no changes to the carrying amount of goodwill since December 31, 2007.
 
Other intangible assets with finite lives include customer relationships which are being amortized over their estimated useful lives of 6 years. Other intangible assets include customer relationships of $970 and accumulated amortization of $970 and trademarks of $140 which have been identified as an indefinite lived intangible asset that is not being amortized at September 30, 2013 and December 31, 2012. There was no amortization expense for nine months ended September 30, 2013 and 2012.

NOTE 6— CREDIT FACILITIES
 
On July 15, 2013, the Company entered into a Second Amended and Restated Credit Agreement (“Credit Agreement”) with Wells Fargo Bank, National Association that amended and restated that certain First Amended and Restated Credit Agreement dated as of December 31, 2010. The maximum revolving loan amount under the asset based credit facility remains at $100,000, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect), and the maturity date has been extended from July 16, 2013 to July 15, 2018. The asset based credit facility can be used for borrowings and letter of credit obligations up to the aggregate amount of $100,000, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect). The interest rate for each revolving credit advance under the Credit Agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The restated Credit Agreement removed the Company’s United Kingdom subsidiary as a party to such agreement and the concept of borrowings thereunder for certain transaction in the United Kingdom. The Company anticipates entering into a separate credit agreement (a “UK Credit Agreement”) with an affiliate of Wells Fargo Bank, National Association which is anticipated to be cross collateralized and integrated in certain respects with the Credit Agreement.
 
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 net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. Interest expense totaled $54 (including amortization of deferred loan fees of $23) and $121 (including amortization of deferred loan fees of $67) for the three months ended September 30, 2013 and 2012, respectively, and $206 (including amortization of deferred loan fees of $159) and $238 (including amortization of deferred loan fees of $203) for the nine months ended September 30, 2013 and 2012, respectively. The Company had outstanding letters of credit in the amount of $2,216 and no outstanding balance for cash borrowings under this credit facility at September 30, 2013.
 
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, Great American Group Advisory & Valuation Services, LLC (“GAAV”), one of our majority-owned subsidiaries, 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 was amended effective February 3, 2012 and the maximum borrowings allowed increased from $2,000 to $3,000. The maturity date of the Line of Credit is February 3, 2014 and the maturity date 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 maturity 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. The outstanding balance under the Line of Credit was $1,256 at September 30, 2013 and $2,304 at December 31, 2012. Interest expense totaled $13 and $24 for the three months ended September 30, 2013 and 2012, respectively, and $78 and $94 for the nine months ended September 30, 2013 and 2012, respectively.
 
 
15

 
NOTE 7— LONG-TERM DEBT
 
Long-term debt consists of the following arrangements:
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
$60,000 notes payable to each of the former Great American Members and the Phantom
 
 
 
 
 
 
 
Equityholders of GAG, LLC issued in connection with the Acquisition dated July 31, 2009
 
$
50,483
 
$
52,207
 
Total long-term debt
 
 
50,483
 
 
52,207
 
Less current portion of long-term debt
 
 
1,724
 
 
1,724
 
Long-term debt, net of current portion
 
$
48,759
 
$
50,483
 
 
$60,000 Notes Payable
 
On July 31, 2009, the members of GAG, LLC (the “Great American Members”) contributed all of their membership interests of GAG, LLC to the Company (the “Contribution”) in exchange for 10,560,000 shares of common stock of the Company and a subordinated unsecured promissory note in an initial principal amount of $60,000 issued in favor of the Great American Members and the phantom equityholders of GAG, LLC (the “Phantom Equityholders”). 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 Great American Members and Phantom Equityholders 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. 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 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. 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.
 
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.
 
At September 30, 2013, the maturity date for $48,759 of principal amount payable to the two former Great American Members is July 31, 2018, subject to annual prepayments based on the Company’s cash flows and other limitations described above. On July 31, 2013, the Company paid the Phantom Equityholders the annual installment of principal in the amount of $1,724. The remaining $1,724 of principal amount payable to the Phantom Equityholders outstanding as of September 30, 2013 is due in one installment of $1,724 on July 31, 2014.
 
Interest expense was $501 and $529 for the three months ended September 30, 2013 and 2012, respectively, and $1,524 and $1,613 for the nine months ended September 30, 2013 and 2012, respectively. In accordance with the Amendments to the notes payable, the current portion of the amended notes payable in the amount of $1,724 and the long-term portion of the amended notes payable in the amount of $48,759 has been recorded in the accompanying condensed consolidated balance sheets as of September 30, 2013. Accrued interest payable on the notes payable was $325 as of September 30, 2013 and $344 as of December 31, 2012, and is included in accounts payable and accrued expenses in the condensed consolidated balance sheets.
 
 
16

 
NOTE 8— NOTES PAYABLE
 
On May 29, 2008, Great American Group Energy Equipment, LLC (“GAGEE), a wholly-owned subsidiary of the Company, 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. 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 (the “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. On November 3, 2009, the Company held an auction of the assets collateralizing GAGEE’s obligation. 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. 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.
 
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 Forbearance Agreement and the related Security Agreement and to extend the maturity date of the Forbearance Agreement until November 18, 2010, unless a forbearance default occurs, as specified in the Amended Credit Agreement. Pursuant to the terms of the First Amendment To Credit Agreement and Second Amendment To Credit Agreement (collectively, the Amended 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 Amended Credit Agreement. The Forbearance Agreement expired on November 18, 2010. GAGEE entered into a second amendment to the credit agreement on May 9, 2011, which extended the maturity date of the note payable to November 19, 2011 with an interest rate of 0% through maturity (the “Second Amendment to the Credit Agreement”). The Second Amendment to the Credit Agreement also provided for the lender to reimburse GAGEE for certain expenses from proceeds of the sale or lease of the assets that collateralize the note payable. As a result of the delay in entering into the Second Amendment to the Credit Agreement, interest in the amount of $309 was accrued from the date of the expiration of the First Amendment to the Credit Agreement on November 18, 2010 to December 31, 2010 at an interest rate of 22% (the default rate). This accrued interest of $309 was reversed in the first quarter of 2011, as the Second Amendment to the Credit Agreement provides for 0% interest for that period, and reflected in the consolidated statement of operations as a reduction of interest expense. GAGEE entered into a Third Amendment to the Credit Agreement on March 19, 2012, which extended the maturity date of the note payable to December 31, 2012 with an interest rate of 0% through maturity. GAGEE entered into a Fourth Amendment to the Credit Agreement effective December 31, 2012 which extended the maturity date of the note payable to December 31, 2013 and the interest rate remained at 0% through maturity. The Third and Fourth Amendment to the Credit Agreement provide for the lender to reimburse GAGEE for certain expenses from proceeds of the sale or lease of the assets that collateralize the note payable. GAGEE has no assets other than those collateralizing the loan which is comprised of a lease finance receivable of $8,335 and machinery and equipment with a carrying value of $2,708 that is included in goods held for sale or auction in the accompanying balance at September 30, 2013. 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.
 
At September 30, 2013 and December 31, 2012, the note payable balance was $7,132 and $9,513, respectively. There was no interest expense in connection with this note payable during the nine months ended September 30, 2013 and year ended December 31, 2012. 
 
 
17

 
NOTE 9— INCOME TAXES
 
The Company’s provision (benefit) for income taxes consists of the following:
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2013
 
2012
 
Current:
 
 
 
 
 
 
 
Federal
 
$
-
 
$
9
 
State
 
 
26
 
 
35
 
Foreign
 
 
(290)
 
 
(97)
 
Total current provision (benefit)
 
 
(264)
 
 
(53)
 
 
 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
 
Federal
 
 
(112)
 
 
378
 
State
 
 
34
 
 
62
 
Foreign
 
 
-
 
 
-
 
Total deferred provision
 
 
(78)
 
 
440
 
Total provision (benefit) for income taxes
 
$
(342)
 
$
387
 
 
A reconciliation of the federal statutory rate of 34% for the nine months ended September 30, 2013 and 2012 to the effective tax rate for income (loss) from operations before income taxes is as follows:
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2013
 
 
2012
 
Provision (benefit) for income taxes at federal statutory rate
 
(34.0)
%
 
34.0
%
State income taxes, net of federal benefit
 
4.9
 
 
2.6
 
Foreign tax differential
 
15.0
 
 
(19.1)
 
Income from pass-through entities
 
(28.4)
 
 
-
 
Other
 
(2.1)
 
 
0.5
 
Effective income tax rate
 
(44.6)
%
 
18.0
%
 
Deferred income tax assets (liabilities) consisted of the following:
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
Deferred tax assets:
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
138
 
$
141
 
Goods held for sale or auction
 
 
1,138
 
 
1,160
 
Deductible goodwill
 
 
502
 
 
553
 
Accrued liabilities
 
 
1,532
 
 
2,828
 
Deferred revenue
 
 
-
 
 
409
 
Mandatorily redeemable noncontrolling interests
 
 
722
 
 
736
 
Note payable to Phantom Equityholders
 
 
804
 
 
1,311
 
Other
 
 
144
 
 
69
 
Foreign tax and other credit carryforwards
 
 
633
 
 
618
 
Net operating loss carryforward
 
 
8,063
 
 
5,773
 
Total deferred tax assets
 
$
13,676
 
$
13,598
 
 
As of December 31, 2012, the Company had federal net operating loss carryforwards of $13,437, state net operating loss carryforwards of $14,921, and foreign tax credit carryforwards of $342. The Company’s federal net operating loss carryforwards will expire in the tax year ending December 31, 2030, the state net operating loss carryforwards will expire in 2031, and the foreign tax credit carryforwards will expire in 2022.
 
 
18

 
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, 2013 and December 31, 2012, 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 years ended December 31, 2010 to 2012. For periods prior to the Acquisition, the Company operated as a limited liability company which was taxed as a partnership. The Company and its subsidiaries’ state tax returns are also open to audit under similar statutes of limitations for the calendar years ended December 31, 2009 to 2012. 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.

NOTE 10— EARNINGS PER SHARE
 
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic common shares outstanding exclude 1,320,000 common shares that are held in escrow and subject to forfeiture and 1,000,000 common shares issued to the Alternative Asset Management Acquisition Corp. founders that were forfeited during 2012 as a result of the failure to achieve certain performance targets specified in the agreements entered into in connection with the Acquisition. The 1,320,000 common shares issued to the former Great American Members are subject to forfeiture upon the final settlement of claims for goods held for sale in connection with the Acquisition. Dilutive common shares outstanding includes contingently issuable shares that are currently in escrow and subject to release if the conditions for the final settlement of claims for goods held for sale in connection with the Acquisition was satisfied at the end of the respective periods.
 
Basic and diluted earnings (loss) per share was calculated as follows (in thousands, except per share amounts):
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Net income (loss) attributable to Great American Group, Inc.
 
$
366
 
$
(547)
 
$
124
 
$
1,139
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
28,682,975
 
 
28,682,975
 
 
28,682,975
 
 
28,682,521
 
Effect of dilutive potential common shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingently issuable shares
 
 
1,208,426
 
 
-
 
 
1,208,426
 
 
916,491
 
Diluted
 
 
29,891,401
 
 
28,682,975
 
 
29,891,401
 
 
29,599,012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic income (loss) per share
 
$
0.01
 
$
(0.02)
 
$
0.00
 
$
0.04
 
Diluted income (loss) per share
 
$
0.01
 
$
(0.02)
 
$
0.00
 
$
0.04
 

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 condensed consolidated financial position or results of operations.
 
 
19

 
NOTE 12— RELATED PARTY TRANSACTIONS
 
On July 8, 2010, the Company loaned $3,224 to Great American Real Estate, LLC (“GARE”) for the purposes of investing in GAHA Fund II, LLC, a newly formed 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 originally due on July 8, 2011. In July 2011, the maturity date of the loan was extended and the interest rate was reduced to 8% per annum.  On December 29, 2011, additional funds in the amount of $620 were loaned to GARE and the note receivable was amended to increase the outstanding balance to $3,844 and extend the maturity date to July 31, 2012. On February 20, 2013, the third amendment to the note receivable extended the maturity date to December 31, 2013. During the year ended December 31, 2012, the Company received principal payment on the note receivable totaling $3,164 and recorded an impairment charge of $69 to write down the note receivable to its estimated net realizable value at December 31, 2012. The note receivable in the amount of $611 is included in note-receivable – related party as of December 31, 2012. There was no interest income recorded on the note receivable during the nine months ended September 30, 2013. On August 22, 2013, the loan receivable from GARE was paid in full.
 
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 each 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 were 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 consolidated financial statements do not consolidate GARE. There was no income (loss) under the equity method of accounting for GARE for the three months ended September 30, 2013. Loss under the equity method of accounting for GARE was $15 for the nine months ended September 30, 2013. Income under the equity method of accounting for GARE was $165 and $45 for the three and nine months ended September 30, 2012, respectively.
 
At September 30, 2013, amounts due from related party of $18 represents amounts due from CA Global Partners, LLC (“CA Global”). CA Global is one of the members of Great American Global Partners, LLC (“GA Global Ptrs”) which started operations in the first quarter ended March 31, 2013. The amount receivable at September 30, 2013 is comprised of advances that were provided to CA Global in connection with certain auctions of wholesale and industrial machinery and equipment that they were managing on behalf of GA Global Ptrs.
 
At September 30, 2013, note receivable – related party is comprised of two loans to Shoon with an aggregate outstanding receivable balance of $1,331. The Company owns 44.4% of the common stock of Shoon. The original loan in the amount of $1,300 was made to Shoon on May 4, 2012 and has a remaining principal balance of $484 at September 30, 2013. The loan has a maturity date of May 3, 2014 with interest payable monthly at LIBOR plus 6.0%. On August 2, 2013, an additional loan in the amount of $887 (with a discount of $40) was extended to Shoon with a maturity date of August 3, 2015. Interest is payable monthly at 6.5%. Both of the loans are collateralized by the inventory of Shoon. The loan receivable at September 30, 2013 is included in the Company’s condensed consolidated balance sheet in note receivable related party – current portion in the amount of $686 and in note receivable related party, net of current portion in the amount of $645.

NOTE 13— BUSINESS ACQUISITION
 
On May 4, 2012, the Company invested $65 for a 44.4% interest in the common stock of Shoon, a shoe retailer with operations in the United Kingdom. Shoon purchased the rights to operate the former Shoon internet business and retail stores that were in administration in the United Kingdom. As part of the investment, the Company also loaned Shoon approximately $1,300. The Company had the right to appoint a Chairman of Shoon. Together with the Company’s ownership of 44.4% of the common stock of Shoon and control of the majority of the board of directors, the Company had a controlling interest in Shoon. Accordingly, the Company consolidated the operations of Shoon and included the results of operations of Shoon from May 4, 2012, the date of investment, through July 31, 2013 in the Company’s condensed consolidated statements of operations.
 
In August 2013, the Company loaned Shoon an additional $887 as described above. The Shoon shareholder agreement was also amended and restated to eliminate the Company’s super majority voting rights which enable the Company to control the Board of Directors of Shoon. As a result of this amendment, the Company no longer controls Shoon and the operating results of Shoon are not consolidated for any periods after July 31, 2013. Accordingly, the loss from the Company’s equity investment in Shoon for the two months ended September 30, 2013 of $143 is included in other income (expense) in the Company’s condensed consolidated statements of operations. There was no gain or loss recognized as a result of the deconsolidation of Shoon.
 
 
20

  
In accordance with the accounting guidance for consolidation of variable interest entities, the Company has determined that the additional financing arrangement in the form of the new note receivable with Shoon and the elimination of the Company’s super majority voting rights in August 2013, as discussed above, changes the status of Shoon to a VIE. The Company, in determining whether or not it is the primary beneficiary of Shoon, considered the voting interests of the shareholder’s of Shoon and the shareholder’s ability to direct the activities of Shoon. The Company determined it is not the primary beneficiary of the VIE since the Company does not have the ability to exercise any rights or powers to direct the activities of Shoon that most significantly impact Shoon’s economic performance. Accordingly, Shoon’s operating results are not consolidated for any periods after July 31, 2013. As of September 30, 2013, the carrying amount and maximum exposure to loss due to the Company’s involvement with Shoon is $1,366 which includes the note receivable – related party of $1,331 which is included in the Company’s condensed consolidated balance sheet in note receivable related party – current portion in the amount of $686 and note receivable related party, net of current portion in the amount of $645. The Company’s loss under the equity method of accounting for Shoon was $143 for the two months ended September 30, 2013.
 
The summarized financial information below includes amounts related to Shoon, the Company’s less-than-majority-owned subsidiary, for periods after July 31, 2013.
 
 
 
Two Months Ended
 
 
 
September 30, 2013
 
Total revenues
 
$
1,913
 
Cost of goods sold
 
 
1,118
 
Loss before income taxes
 
 
(415)
 
Income tax benefit
 
 
93
 
Net loss
 
$
(322)
 
GAG, Inc equity share of net loss
 
$
(143)
 
 
 
 
As of
 
 
 
September 30, 2013
 
Current assets
 
$
4,212
 
Non-current assets
 
 
418
 
Total assets
 
 
4,630
 
Current liabilities
 
 
3,754
 
Non-current liabilities
 
 
665
 
Net assets
 
$
211
 
 
The Company determined the fair value of assets acquired exceeded consideration paid by approximately $1,366 which was recorded as a bargain purchase gain during the three months ended June 30, 2012. The following details the estimated fair value of the net assets acquired and the excess of such net assets over the purchase price upon acquisition on May 4, 2012:
 
Fixed assets
 
$
78
 
Retail inventory
 
 
3,752
 
Accounts payable and accrued liabilities
 
 
(810)
 
Deferred tax liability
 
 
(408)
 
Fair value of net assets acquired
 
 
2,612
 
Total cash consideration
 
 
(1,246)
 
Gain on bargain purchase
 
$
1,366
 
 
 
21

    
The following financial statement amounts and balances of Shoon are included in the accompanying condensed consolidated financial statements in the UK retail stores segment as of December 31, 2012 and for the three and nine months ended September 30, 2013 and 2012:
 
 
 
As of
 
 
 
December 31, 2012
 
Assets:
 
 
 
 
Cash and cash equivalents
 
$
1,128
 
Inventory
 
 
2,216
 
Property and equipment, net
 
 
146
 
Other assets
 
 
328
 
Total assets
 
$
3,818
 
 
 
 
 
 
Liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
1,291
 
Current portion long-term debt
 
 
646
 
Total current liabilities
 
 
1,937
 
Long-term debt, net of current portion
 
 
323
 
Total liabilities
 
 
2,260
 
Equity
 
 
1,558
 
Total liabilities and equity
 
$
3,818
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - Sale of goods
 
$
1,018
 
$
3,083
 
$
6,202
 
$
5,893
 
Cost of goods sold
 
 
(667)
 
 
(1,865)
 
 
(3,566)
 
 
(3,395)
 
Selling, general and administrative expenses
 
 
(644)
 
 
(1,644)
 
 
(3,818)
 
 
(2,714)
 
Operating loss
 
 
(293)
 
 
(426)
 
 
(1,182)
 
 
(216)
 
Other expenses
 
 
(15)
 
 
(49)
 
 
(94)
 
 
(205)
 
Gain from bargain purchase
 
 
-
 
 
-
 
 
-
 
 
1,366
 
Income (loss) before (provision) benefit for income taxes
 
 
(308)
 
 
(475)
 
 
(1,276)
 
 
945
 
Benefit for income taxes
 
 
71
 
 
110
 
 
319
 
 
97
 
Net income (loss)
 
 
(237)
 
 
(365)
 
 
(957)
 
 
1,042
 
Net income (loss) attributable to noncontrolling interest
 
 
(73)
 
 
(220)
 
 
(532)
 
 
625
 
Net income (loss) attributable to Great American Group, Inc.
 
$
(164)
 
$
(145)
 
$
(425)
 
$
417
 
 
The disclosure of pro forma financial information for the three and nine months ended September 30, 2012 has not been provided given the impracticality of obtaining the information since the former owners of Shoon were operating in administration in the United Kingdom.

NOTE 14— BUSINESS SEGMENTS
 
The Company’s operating segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance internally. The Company’s chief operating decision maker is a committee comprised of the Chief Executive Officer and President. The Company has several operating subsidiaries through which it delivers specific services. The Company provides auction, liquidation, capital advisory, financing, real estate, and other services to stressed or distressed companies in a variety of diverse industries that have included apparel, consumer electronics, furniture, jewelry, real estate, and industrial machinery. The Company also provides appraisal and valuation services for retail and manufacturing companies. In addition, as a result of the acquisition of Shoon on May 4, 2012, the Company operated ten retail stores in the United Kingdom for the period from May 4, 2012, the date of investment, through July 31, 2013. The Company’s business is classified by management into three reportable segments: Auction and Liquidation, Valuation and Appraisal and UK Retail Stores. These reportable segments are three distinct businesses, each with a different customer base, marketing strategy and management structure. The Valuation and Appraisal reportable segment is an aggregation of the Company’s valuation and appraisal operating segments, which are primarily organized based on the nature of services and legal structure.
 
Additionally, the Valuation and Appraisal operating segments are aggregated into one reportable segment as they have similar economic characteristics and are expected to have similar long-term financial performance.
 
 
22

 
The following is a summary of certain financial data for each of the Company’s reportable segments:
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Auction and Liquidation reportable segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - Services and fees
 
$
4,555
 
$
5,162
 
$
21,462
 
$
22,634
 
Revenues - Sale of goods
 
 
9,372
 
 
196
 
 
9,521
 
 
6,159
 
Total revenues
 
 
13,927
 
 
5,358
 
 
30,983
 
 
28,793
 
Direct cost of services
 
 
(2,456)
 
 
(2,032)
 
 
(7,755)
 
 
(7,738)
 
Cost of goods sold
 
 
(7,573)
 
 
(307)
 
 
(7,707)
 
 
(5,054)
 
Selling, general, and administrative expenses
 
 
(1,883)
 
 
(2,218)
 
 
(8,769)
 
 
(10,196)
 
Depreciation and amortization
 
 
(42)
 
 
(50)
 
 
(132)
 
 
(144)
 
Segment income (loss)
 
 
1,973
 
 
751
 
 
6,620
 
 
5,661
 
Valuation and Appraisal reportable segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - Services and fees
 
 
6,806
 
 
5,794
 
 
20,759
 
 
18,520
 
Direct cost of services
 
 
(3,188)
 
 
(2,812)
 
 
(9,676)
 
 
(8,359)
 
Selling, general, and adm