Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, for Great American Group, Inc. (the "Company"). The Company was incorporated on May 7, 2009, as a wholly-owned subsidiary of Alternative Asset Management Acquisition Corp. (AAMAC) specifically to effect a merger and acquisition of Great American Group, LLC ("GAG, LLC"). During the reporting period, the Company operated as a "shell company" with no business operations, owning no real estate or property. Its activities were limited to organization, legal fees, and preparation for the acquisition.
Key Financial Metrics
As the Company was in a development stage with no operations during the period, financial metrics are nominal:
- Revenue: $0
- Net Loss: $5,000 (attributable to formation and operating costs)
- Cash and Cash Equivalents: $100 (as of June 30, 2009)
- Total Assets: $100
- Total Liabilities: $5,000 (Accrued expenses)
- Stockholders' Deficiency: $(4,900)
- Shares Outstanding: 100 shares (as of June 30, 2009)
Material Changes and Subsequent Events
The most significant event occurred subsequent to the reporting period on July 31, 2009, when the Company consummated the acquisition of GAG, LLC via a reverse merger with AAMAC. This transaction fundamentally altered the Company's financial position:
- Capital Structure: Total common shares outstanding increased to 29,906,626 following the exchange of AAMAC shares and issuance of shares to GAG, LLC members.
- Liquidity: The Company received net proceeds of approximately $44.95 million from AAMAC's trust account and operating funds after transaction expenses and distributions.
- Debt: The Company issued a subordinated unsecured promissory note with a principal amount of $55,616,890 to the former members of GAG, LLC. This note bears 12% interest and matures in 2014.
- Pro Forma Results: Unaudited pro forma results for the six months ended June 30, 2009, reflect combined revenues of $56,928 and net income of $10,315, assuming the acquisition occurred on January 1, 2009.
Outlook, Risks, and Contingencies
Outlook and Management Commentary: Post-acquisition, the Company operates in two segments: auction and liquidation solutions, and valuation and appraisal services. Management intends to use the net proceeds from the acquisition for general working capital. The Company has established Adjusted EBITDA targets for GAG, LLC; achievement of these targets will trigger the issuance of up to 6,000,000 additional shares of contingent stock consideration.
Risks and Contingencies:
- Indebtedness: The $55.6 million promissory note creates substantial debt service obligations, which may impair the ability to obtain additional financing or respond to adverse industry changes.
- Warrant Redemption: $23,012,500 was deposited in a separate account to fund the redemption of 46,025,000 outstanding warrants at $0.50 per warrant within 90 days of the acquisition.
- Escrow Arrangements: 1,500,000 shares are held in escrow to cover potential breaches of representations, working capital shortfalls, or inventory shortfalls.
- Market Risk: The Company is exposed to interest rate risk due to floating-rate borrowings under credit facilities with GE Capital and Wells Fargo.
Investor Verification Checklist
- Verify the final closing date and terms of the reverse merger with AAMAC (consummated July 31, 2009).
- Confirm the repayment schedule and interest obligations of the $55.6 million promissory note issued to GAG, LLC members.
- Review the Adjusted EBITDA targets required to trigger the issuance of 6,000,000 contingent shares.
- Assess the status of the $23 million warrant redemption liability and the timeline for its execution.
- Examine the pro forma financial statements to understand the combined entity's historical performance versus the shell company's pre-acquisition status.