SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(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,
1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21271
TANGIBLE ASSET GALLERIES, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 88-0396772
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3444 Via Lido
Newport Beach, California 92663
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (949) 566-0021
1550 S. PACIFIC COAST HIGHWAY, SUITE 103
LAGUNA BEACH, CALIFORNIA 92651
(Former name, former address and former fiscal year, if changed since last
report)
___________
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 the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date:
Title of each class of Common Stock Outstanding at November 30, 1999
----------------------------------- --------------------------------
Common Stock, $0.001 par value 18,170,354
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [ X ]
<PAGE>
INDEX
TANGIBLE ASSET GALLERIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at September 30, 1999 (Unaudited) and December 31, 1998
Statements of Operations (Unaudited) Three months ended September 30,
1999 and 1998 and Nine months ended September 30, 1999 and 1998
Statements of Cash Flows (Unaudited) Nine months ended September 30,
1999 and 1998
Notes to Interim Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
BALANCE SHEET
<S> <C> <C>
September 30, December 31,
1999 1998
------------------------------
(Unaudited)
ASSETS
Current Assets
Cash $ 19,986 $ 42,285
Accounts receivable, net 1,677,045 684,498
Inventory 6,767,574 4,856,277
Other current assets 53,111 62,081
------------------------------
Total current assets 8,517,716 5,645,141
Property and equipment, net 123,964 92,986
Other assets, net 19,268 34,947
------------------------------
Total Assets $ 8,660,948 $ 5,773,074
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Advances under revolving credit agreement $ 2,000,000 $ 600,000
Accounts payable 1,486,238 1,626,259
Stockholder loan payable 1,033,629 80,000
Other current liabilities 611,453 46,557
------------------------------
Total current liabilities 5,131,320 2,352,816
Convertible stockholder note payable 1,400,000 -
Deferred tax liability 10,000 -
Obligations under capital lease, net of current portion 4,096 7,642
------------------------------
Total Liabilities 6,545,416 2,360,458
------------------------------
Shareholders' Equity
Common stock, $0.001 par value, 50,000,000
shares authorized, 18,170,354 issued and
outstanding, respectively 18,170 16,000
Additional paid in capital 2,123,433 1,834,589
Retained earning (26,071) 1,562,027
------------------------------
Total shareholders' equity 2,115,532 3,412,616
------------------------------
Total liabilities and shareholders' Equity $ 8,660,948 $ 5,773,074
==============================
</TABLE>
See Accompanying Notes to Unaudited Interim Financial Statements
1
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
STATEMENT OF OPERATIONS
(UNAUADITED)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------------------------------------------------------------
Net Revenues $ 5,490,967 $ 4,924,939 $16,155,138 $15,797,658
Cost of Sales 4,471,799 4,186,528 13,161,334 12,771,466
---------------------------------------------------------------
Gross Profit 1,019,168 738,411 2,993,804 3,026,192
Selling, General and Administrative Expenses 1,505,376 508,460 2,998,991 1,357,304
---------------------------------------------------------------
Income(Loss) from Operations (486,208) 229,951 (5,187) 1,668,888
Other Income (Expense) 3,188 (1,462) 1,608 (1,462)
---------------------------------------------------------------
Income(Loss) Before Provision for Income Taxes (483,020) 228,489 (3,579) 1,667,426
Provision for (Recovery of) Income Taxes (49,936) 3,912 10,064 11,912
---------------------------------------------------------------
Net Income(Loss) $ (433,084) $ 224,577 $ (13,643) $ 1,655,514
===============================================================
Net Income(Loss) Per Share
Basic $ (0.02) $ 0.01 $ 0.00 $ 0.10
===============================================================
Diluted $ (0.02) $ 0.01 $ 0.00 $ 0.10
===============================================================
Weighted Average Number of Shares Outstanding
Basic 18,170,354 16,000,000 18,005,544 16,000,000
Stock Options and Warrants - - - -
Convertible Debt - - -
---------------------------------------------------------------
Diluted 18,170,354 16,000,000 18,005,544 16,000,000
===============================================================
</TABLE>
See Accompanying Notes to Unaudited Interim Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
TANGIBLE ASSET GALLERIES, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
Nine Months Ended
September 30,
1999 1998
-------------------------
Cash Flows from operating activities:
Net Income $ (13,643) $ 1,655,514
Adjustments to reconcile net income to cash
used in operating activities
Depreciation and Amortization 27,187 11,094
Write-down of Investment 4,550 -
Write-down of Customer List 21,247 -
Deferred taxes 10,000 -
Issuance of common stock for legal services 17,500 -
Fair value of stock warrants granted 134,185 -
Changes in operating assets and liabilities
Accounts receivable (992,547) 606,639
Inventory (1,911,297) (2,058,203)
Other current assets 8,970 (26,550)
Accounts payable (5,021) 255,188
Other current liabilities 564,896 (80,160)
-------------------------
Net cash provided by (used in) operating activities (2,133,973) 363,522
-------------------------
Cash flows provided by (used in) investing activities
Additions to property and equipment (59,416) (18,409)
Proceeds from sale of property and equipment - 4,903
Investment in Metalsman.com (5,000) -
Increase in other assets (3,867) -
-------------------------
Net cash flows provided by (used in) investing activities (68,283) (13,506)
Cash flows provided by (used in) financing activities
Borrowing under revolving credit agreement 1,400,000 (200,637)
Proceeds from stockholder loan payable 953,629 -
Issuance of Convertible stockholder note payable in
connection with stockholder distribution 1,400,000 -
Payments on obligations under capital lease (3,546) -
Proceeds from short term loan payable - 150,000
Stockholder distribution (1,574,455) -
Issuance of common stock upon exercise of stock options 4,329 -
-------------------------
Net cash flows provided by (used in) financing activities 2,179,957 (50,637)
Net increase (decrease) in cash (22,299) 299,379
Cash at beginning of period 42,285 24,545
-------------------------
Cash at end of period $ 19,986 $ 323,924
==========================
Supplemental Disclosure of Cash Flow Information
Interest paid $ 169,088 $ 123,829
==========================
Income taxes paid $ 39,226 $ 11,920
==========================
Non-Cash Investing and Financing Activities
Issuance of common stock for inventory $ 135,000 $ -
==========================
</TABLE>
See Accompanying Notes to Unaudited Interim Financial Statements
3
<PAGE>
TANGIBLE ASSET GALLERIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The management of Tangible Asset Galleries, Inc. (the "Company") formerly known
as Tangible Investments of America, Inc. ("TIA") has prepared the financial
statements herein without audit or review by Goldenberg Rosenthal, LLP or any
other independent auditor.
Such financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The unaudited condensed
financial statements include all adjustments, consisting of all normal recurring
adjustments, which are in the opinion of management necessary to fairly state
the financial position of the Company as of September 30, 1999, and the results
of its operations and cash flows for the three-month and the nine-month interim
periods ended September 30,1999 and 1998. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures included herein are adequate to make the information presented not
misleading. Operating results for the three-month and the nine-month interim
periods ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999, or for any other
period.
The Company is the successor to Austin Land & Resources, Inc. ("ALR"), which was
merged with the Company's predecessor, TIA on April 28, 1999 (see discussion
below).
It is suggested that these unaudited financial statements are read in
conjunction with the annual 1998 and 1997 audited financial statements and the
notes related thereto of TIA included the Company's Registration Statement on
Form 10-SB/A. Such financial statements and the notes related thereto contain
the accounting policies and other relevant information with respect to the
Company.
NOTE 2 - DESCRIPTION OF THE BUSINESS AND REVERSE ACQUISITION
The Company is the successor to ALR, which was originally incorporated in the
state of Nevada. On April 28, 1999, ALR acquired all the outstanding shares of
common stock of TIA and merged the operations of TIA into ALR in a business
combination described as a "reverse acquisition". Effective with the reverse
acquisition, TIA became the successor company and ALR's name was changed to
Tangible Asset Galleries, Inc.
Prior to the reverse acquisition, ALR had 1,650,000 shares of common stock
outstanding. As part of the reverse acquisition, ALR issued 16,000,000 shares of
common stock to shareholders of TIA in exchange of 490 shares of TIA common
stock. The 490 shares represented 100% of the outstanding common stock of TIA.
ALR had no revenue and no significant operations prior to the reverse
acquisition. Subsequent to the reverse acquisition, the former shareholders of
TIA constituted approximately 88% of the total outstanding common shares of the
Company and the former shareholders of ALR constituted approximately 9% of the
total outstanding shares of common stock of the Company.
The Company is a wholesaler and retailer of rare coins, fine art and
collectibles based in Laguna Beach, California. The company operates a retail
rare coin outlet in Las Vegas, Nevada, a customer service center in Tustin,
California and a buying office in Chicago, Illinois.
4
<PAGE>
NOTE 3 - INVESTMENT
On July 25, 1999, the Company entered into an agreement to purchase 50%
ownership of "Metalsman.com" Internet domain name and web site, and, auction
software for $5,000 and $3,000 respectively. The software will be used for the
Company's on-line auction activities and to expand precious metal bullion
trading opportunities. The Company further agreed to a cancelable monthly
consulting agreement with one of the principals of Metalsman.com for a period of
six months at the rate of $2,000 per month for programming services related to
the auction software acquired as part of the agreement. The balance of the
investment in Metalsman.com as at September 30, 1999 was $5,000.
NOTE 4 - STOCKHOLDER LOAN PAYABLE
In September 1999 the Company's president and principal stockholder advanced
funds to the Company to assist with short-term working capital needs. The loan
will bear interest commencing on October 1, 1999, at a rate of 10% per annum.
The loan will be repaid as cash flow is available and when a higher level of
third party debt financing is secured. The balance of the loan as of September
30, 1999, was $1,033,629.
NOTE 5 - ADVANCES UNDER REVOLVING CREDIT AGREEMENTS
On December 1, 1998, the Company's predecessor, TIA entered into a revolving
credit agreement with a limit of up to $600,000 with a rate of interest at the
prime rate plus 2.625% collateralized by the Company's assets and a personal
guarantee by the Company's president. In September 1999, the revolving credit
agreement was terminated and the outstanding balance was repaid in full. The
credit facility was replaced with a revolving credit agreement with a limit of
up to $2,000,000, with a rate of interest at the prime rate plus 1.50%
collateralized by the Company's assets and a personal guarantee by the Company's
president. The balance outstanding of the loan as at September 30, 1999 was
$2,000,000.
NOTE 6 - CONVERTIBLE STOCKHOLDER NOTE PAYABLE
On March 31, 1999, the Company issued a convertible stockholder note payable to
Silvano DiGenova, the president and CEO of the Company, in the amount of
$1,400,000 in consideration for cash. The note bears interest at the rate of
9.0% per annum and is payable at the end of each quarter. The note and any
unpaid interest are repayable on March 31, 2004. The note contains provisions
that allow for the acceleration based on certain conditions as set forth
therein. The note grants the stockholder the right to convert at any time and
for any portion of the note principal into common shares of the Company at the
conversion price of $1.00 per share. The extension provision allows the note
holder, at his option, to extend the note for up to five one-year periods. As at
September 30, 1999, the balance of the note was $1,400,000.
NOTE 7 - STOCK OPTIONS AND WARRANTS
On February 6, 1999, the Company, in connection with consulting services
rendered relating to the reverse acquisition and future equity financing,
granted The Michelson Group stock warrants representing 4.9% of the outstanding
common shares. The number of shares was determined by applying the number of
outstanding shares at the closing date of the reverse acquisition. The total
stock warrants granted amounted to 865,708 shares based on 17,650,000 common
shares outstanding at the close of the reverse acquisition. On March 15, 1999,
432,854 stock warrants became exercisable under the terms of the stock warrant
grant agreement. The Company recorded compensation expense related to such
warrants totaling $134,185 for the six-month period ended June 30, 1999. The
balance of the stock warrants will be exercisable in equal portions based upon
The Michelson Group's ability to fulfill two equity-financing requirements on
behalf of the 'Company'. As at September 30, 1999, 432,854 stock warrants
remained outstanding, were not exercisable, and had an exercise price of $0.01
per share.
On April 30, 1999, the Company granted to certain employees and independent
contractors 345,000 stock options to purchase common stock at an exercise price
of $1.00. The stock options are exercisable on a pro-rata basis over five years
with the first pro-rata portion vesting one year from the date of grant.
On May 21, 1999, the Company granted to certain employees and independent
contractors 165,000 stock options to purchase common stock at an exercise price
of $4.46. The stock options are exercisable on a pro-rata basis over either four
or five years with first pro-rata portion vesting one year from the date of
grant. As of September 30, 1999, 10,000 of the stock options had been
cancelled.
5
<PAGE>
On May 28, 1999, the Company granted to certain employees, in connection with
opening of a retail rare coin outlet in Las Vegas, Nevada, 210,003 stock options
to purchase common stock at an exercise price of $4.46. The stock options are
exercisable on a pro-rata basis over three years with the first pro-rata portion
vesting one year from the date of grant.
On July 17, 1999, the Company granted to certain employees 25,000 stock options
to purchase common stock at an exercise price of $4.46. The stock options are
exercisable on a pro-rata basis over five years with the first pro-rata portion
vesting one year from the date of grant.
On August 23, 1999, the Company granted to certain employees 20,000 stock
options to purchase common stock at an exercise price of $4.68. The stock
options were exercisable on a pro-rata basis over five years with the first
pro-rata portion vesting one year from the date of grant. As of September 30,
1999, all 20,000 stock options had been cancelled.
All options granted expire at the earlier of five years after the vesting date
of each option or six months after the termination of employment or independent
contractor agreement for vested option grants only. As of September 30, 1999,
735,003 stock options remain outstanding.
6
<PAGE>
NOTE 8 - NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three-Months Ended
September 30, 1999 September 30, 1998
-----------------------------------------
<S> <C> <C>
Basic:
Net income (loss) $ (433,084) $ 224,577
=========================================
Basic net income (loss) per common share:
Weighted average number of common
shares outstanding 18,170,354 16,000,000
=========================================
Basic net income (loss) per common share $ (0.02) $ 0.01
=========================================
Diluted:
Net income (loss) $ (433,084) $ 224,577
Adjustment to net income (loss) -
Interest on convertible stockholder
Note payable (net of income tax) - -
-----------------------------------------
Diluted net income (loss) $ (433,084) $ 224,577
=========================================
Weighted average number of common
shares outstanding 18,170,354 16,000,000
Weighted average number of common
share equivalents
Stock options and warrants - -
Convertible stockholders note payable - -
-----------------------------------------
Weighted average number of common and
Common equivalent shares 18,170,354 16,000,000
=========================================
Diluted net income (loss) per common share $ (0.02) $ 0.01
=========================================
</TABLE>
The effects of the stock options, warrants, and convertible stockholder note
payable were anti-dilutive and accordingly have been excluded from the
calculation of diluted net income per common share.
7
<PAGE>
<TABLE>
<CAPTION>
Nine-Months Ended
September 30, 1999 September 30, 1998
----------------------------------------
<S> <C> <C>
Basic:
Net income (loss) $ (13,643) $ 1,655,514
========================================
Basic net income (loss) per common share:
Weighted average number of common
shares outstanding 18,005,544 16,000,000
========================================
Basic net income (loss) per common share $ 0.00 $ 0.10
=========================================
Diluted:
Net income (loss) $ (13,643) $ 1,655,514
Adjustment to net income (loss) -
Interest on convertible stockholder
Note payable (net of income tax) - -
----------------------------------------
Diluted net income (loss) $ (13,643) $ 1,655,514
========================================
Weighted average number of common
shares outstanding 18,005,544 16,000,000
Weighted average number of common
share equivalents
Stock options and warrants - -
Convertible stockholders note payable - -
----------------------------------------
Weighted average number of common and
Common equivalent shares 18,005,544 16,000,000
========================================
Diluted net income (loss) per common share $ 0.00 $ 0.10
========================================
</TABLE>
The effects of the stock options, warrants, and convertible stockholder note
payable were anti-dilutive and accordingly have been excluded from the
calculation of diluted net income per common share.
NOTE 9 COMMITMENTS
On September 20, 1999, the Company entered into lease agreement to rent 11,270
square feet of administrative, customer support, retail gallery and auction
space in Newport Beach, California effective October 7, 1999 at rental rate of
$11,000 per month. Beginning in January 2000, the Company intends to consolidate
its Laguna Beach and Tustin operations into this location. The lease is
scheduled to terminate on October 7, 2001.
NOTE 10 - SUBSEQUENT EVENTS
On October 26, 1999 the Company granted to certain employees 75,000 stock
options to purchase common stock at an exercise price of $2.00. The stock
options are exercisable on a pro-rata basis over five years with first pro-rata
portion vesting one year from the date of grant.
On October 29, 1999 the Company granted to certain employees 15,000 stock
options to purchase common stock at an exercise price of $2.00. The stock
options are exercisable on a pro-rata basis over five years with first pro-rata
portion vesting one year from the date of grant.
8
<PAGE>
On November 1, 1999 the Company granted to certain employees 30,000 stock
options to purchase common stock at an exercise price of $2.00. The stock
options are exercisable on a pro-rata basis over three years with first pro-rata
portion vesting one year from the date of grant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS:
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, termination of contracts, loss of supplies,
technological obsolescence of the Company's products, technical problems with
the Company's products, price increases for supplies and components, inability
to raise prices, failure to obtain new customers, litigation and administrative
proceedings involving the Company, the possible acquisition of new businesses
that result in operating losses or that do not perform as anticipated, resulting
in unanticipated losses, the possible fluctuation and volatility of the
Company's operating results, financial condition and stock price, inability of
the Company to continue as a going concern, losses incurred in litigating and
settling cases, adverse publicity and news coverage, inability to carry out
marketing and sales plans, loss or retirement of key executives, changes in
interest rates, inflationary factors and other specific risks that may be
alluded to in this Quarterly Report or in other reports issued by the Company.
In addition, the business and operations of the Company are subject to
substantial risks that increase the uncertainty inherent in the forward-looking
statements. The inclusion of forward looking statements in this Quarterly
Report should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved.
GENERAL OVERVIEW
Tangible Asset Galleries, Inc. ("Tangible" or the "Company") is a retailer and
wholesaler of rare coins, fine art, and antique collectibles. The Company was
organized as a Nevada corporation on August 30, 1995 and is currently based in
Laguna Beach, California. As previously discussed in its Form 10-SB/A filed
with the Securities and Exchange Commission on November 23, 1999,, the Company
acquired all of the outstanding common stock of Tangible Investments of America,
Inc. ("TIA") on April 28, 1999. In conjunction with the acquisition, the
Company adopted the business plan of TIA and changed its name to Tangible Asset
Galleries, Inc.
The Company's principal line of business is the sale of rare coins on a retail
and wholesale basis. Additionally, the Company also offers primarily on a
retail basis, collectibles such as fine artworks, antique furniture, lamps,
pottery, and china. The Company's primary storefront is currently located in
Laguna Beach, California. This location serves as the Company's headquarters
and primary retail outlet. Beginning in January 2000, the Company intends to
relocate all of its Southern California operations to its new headquarters and
primary retail outlet located in Newport Beach, California. The Company's
services are also marketed nationwide through broadcasting and print media and
independent sales agents.
Beginning on September 1, 1999, the Company launched the first phase of its
Internet auction Web site located at www.tangibleassets.com. The first phase
offered the sale of rare coins by the Company to the public via an auction
format. On October 1, 1999, the Company initiated the second phase of its
Internet auction Web site, expanding it to offer the sale collectibles via an
auction format. The Company's auction site offers graded and certified coins
and guarantees as to authenticity and condition of all items offered for sale.
9
<PAGE>
The Company also currently publishes a monthly newsletter, distributed to its
existing customers detailing and describing current events in the numismatic and
collectibles world. The Company's newsletter also provides customers with the
opportunity to view the Company=s current rare coin and collectibles offerings
as well as order such offerings via telephone.
Competition
The business of selling rare coins and other collectibles is highly competitive.
The Company competes with a number of smaller, comparably-sized, and larger
firms throughout the United States. These include: Heritage Rare Coin, a large
scale coin firm in Dallas, Texas; National Gold, a large wholesale coin and
bullion seller located in Tampa, Florida; Spectrum, a medium sized coin
wholesaler located in Newport Beach, California; Coin Universe, a publicly
traded company; and U.S. Coins, a medium size coin wholesaler located in
Houston, Texas. These competitors are generally larger and better capitalized.
However, the Company believes that it is able to compete with these competitors
due to its generally higher quality inventory, staff expertise, and Web
presence. However, there can be no assurances that the Company can continue to
compete successfully with other established companies with greater financial
resources, experience and market share.
Fluctuation in Quarterly Operating Results
The Company's revenues and operating results have in the past fluctuated, and
may in the future fluctuate, from quarter to quarter and period to period as a
result of a number of factors. These include, without limitation, the following:
the supply and demand of rare coins on a wholesale and retail basis; the
fluctuation of precious metal bullion prices; the pricing policies or price
reductions by the Company and its competitors; the Company's success in
expanding its sales of rare coins and collectibles at a retail level; personnel
changes; and general economic trends.
Unlike many organizations with significant retail sales, the Company does not
have any predictable seasonal sales patterns.
Due to all of the foregoing factors, it is possible that in some future quarter,
the Company's operating results may be below the expectations of the public
market analysts and investors. In such event, the Company's common stock would
likely be materially adversely affected.
RESULTS OF OPERATIONS
The Form 10-QSB for the periods ending September 30, 1999 has been amended as a
result of a correction in the manner in which the sales of certain rare coins
have been recorded and the recordation of certain selling, general and
administrative expenses which were not previously accrued in the original Form
10-QSB.
The following table sets forth the periods indicated, the percentage of net
revenue represented by each item in the in the Company's statement of
operations. The information presented in this table assumes the acquisition of
TIA by the Company.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------------------------------
Net Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Sales 81.4% 85.0% 81.5% 80.8%
----------------------------------
Gross Profit 18.6% 15.0% 18.5% 19.2%
Selling, General and Administrative Expenses 27.4% 10.3% 18.5% 8.6%
----------------------------------
Income from Operations -8.8% 4.7% 0.0% 10.6%
Other Income (Expense) 0.0% 0.1% 0.0% 0.0%
----------------------------------
Income Before Income Taxes -8.8% 4.6% 0.0% 10.6%
Provision for (Recovery of) Income Taxes -0.9% 0.1% 0.1% 0.1%
----------------------------------
Net Income(Loss) -7.9% 4.5% -0.1% 10.5%
==================================
</TABLE>
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998.
The Company's net loss for the three months ended September 30, 1999 was
$433,084 or $0.02 per share on a basic and diluted basis, as compared to net
income of $224,577, or $0.01 per share on a basic and diluted basis, for the
three months ended September 30, 1998. The decrease in profitability was
primarily the result of increased selling, general and administrative expenses
as discussed below.
NET REVENUES
The table below reflects the breakdown of the Company's primary areas of
revenue.
<TABLE>
<CAPTION>
Three-Months Ended Three-Months Ended
September 30, 1999 September 30, 1998
------------------- ------------------
Amount % Amount %
------------------- ------------------
<S> <C> <C> <C> <C>
Net Revenues
Coins - Wholesale $ 4,470,228 81.4% $ 2,909,037 59.1%
Coins - Retail 911,840 16.6 1,893,229 38.4
Fine Art & Collectibles 108,899 2.0 122,673 2.5
------------------- ------------------
Total Net Revenues $ 5,490,967 100.0% $ 4,924,939 100.0%
=================== ==================
</TABLE>
Net revenues for the three months ended September 30, 1999 increased 11.5% to
$5,490,967 from $4,924,939 for the three months ended September 30, 1998. This
increase was primarily due to the strength in the wholesale rare coin market.
Wholesale rare coin sales increased 53.7% to $4,470,228 for the three months
ended September 30, 1999 from $2,909,037 for the three months ended September
30, 1998. Retail rare coin sales decreased 51.8% to $911,840 for the three
months ended September 30, 1999 from $1,893,229 for the three months ended
September 30, 1998. This decrease was in spite of the Company's continued focus
on retail sales; market forces resulted in higher wholesale sales than was
anticipated. During the three months period ended September 30, 1999, the
Company continued its focus on the accumulation of its collectibles inventory
rather than on generating collectibles sales. This strategy was employed in
anticipation of the launching of auction and online sales scheduled for the
fourth quarter. Collectible sales for the three months ended September 30, 1999
decreased 11.2% to $108,899 from $122,673 for the three months ended September
30, 1998.
COST OF SALES
Cost of sales for the three months ended September 30, 1999 increased 6.8% to
$4,471,799 from $4,186,528 for the three months ended September 30, 1998. This
increase was primarily due to increased sales during the period. Cost of sales
as a percentage of net revenue decreased to 81.4% from 85.0% during the
comparable periods. The decrease in cost of sales as a percentage of revenue, in
the current period over comparable period, was due to a favorable mix of
products sold. The Company's cost of sales, as percentage of net revenue will
vary from quarter to quarter depending on the prevailing market forces.
GROSS PROFIT
Gross profit for the three months ended September 30, 1999 increased 38.0% to
$1,019,168 from $738,411 for the three months ended September 30, 1998. The
gross profit as a percentage of net revenue increased to 18.6% from 15.0% during
the comparable periods. This increase was due to the favorable mix of products
sold during the period. The ability of the Company to realize the highest
possible gross profit on the sales of products is dependent on market demand for
specific types of products that may or may not be readily available to Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1999 increased 196.1% to $1,505,376 from $508,460 for the three
months ended September 30, 1998. The increase in these expenses were due to
increases in selling expenses relating to the shift in focus toward retail
sales; the cost associated with the Company's initial public filings; the
expansion of the administrative infrastructure to support the requirements of
public company reporting and the Company's growing retail operations; and, the
costs associated with developing an Internet based auction site.
10
<PAGE>
OTHER INCOME AND EXPENSES
Other income for the three months ended September 30, 1999 was $3,188 as
compared to other expenses of $1,462 for the three months ended September 30,
1998. This increase was primarily due to interest income earned during the
period.
PROVISION FOR (RECOVERY OF) INCOME TAXES
The recovery of income taxes for the three months ended September 30, 1999 were
$49,936 as compared to a provision for income taxes of $3,912 for the three
months ended September 30, 1998. Prior to the Company's reverse acquisition on
April 28, 1999, the Company had elected to be taxed as an S-Corporation for
federal and state purposes. Under the provisions of this election; with the
exception of the California 1.5% surtax, the Company did not pay corporate tax
on its income. However, the stockholders were liable for their respective share
of income taxes on the Company's taxable income. Subsequent to the reverse
acquisition the Company began to provide for corporate income taxes based on the
combined federal and state statutory
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
The Company's net loss for the nine months ended September 30, 1999 was $13,643
or $0.00 per share on a basic and diluted basis, as compared to net income of
$1,655,514 or $0.10 per share on a basic and diluted basis, for the nine months
ended September 30, 1998. The decrease in profitability was primarily the result
of increased selling, general and administrative expenses as discussed below.
NET REVENUES
The table below reflects the breakdown of the Company's primary areas of
revenue.
<TABLE>
<CAPTION>
Nine-Months Ended Nine-Months Ended
September 30, 1999 September 30, 1998
------------------- ------------------
Amount % Amount %
------------------- ------------------
<S> <C> <C> <C> <C>
Net Revenues
Coins - Wholesale $ 12,489,785 77.3% $ 9,921,941 62.8%
Coins - Retail 3,204,536 19.8 5,415,990 34.3
Fine Art & Collectibles 460,817 2.9 459,727 2.9
------------------- ------------------
Total Net Revenues $ 16,155,138 100.0% $ 15,797,658 100.0%
=================== ==================
</TABLE>
Net revenues for the nine months ended September 30, 1999 increased 2.3% to
$16,155,138 from $15,797,658 for the nine months ended September 30, 1998. This
increase was primarily due to the strength of the wholesale rare coin market,
but was offset by the unanticipated weakness in the retail coin market.
Wholesale rare coin sales increased 25.9% to $12,489,785 for the nine months
ended September 30, 1999 from $9,921,941 for the nine months ended September 30,
1998. Retail rare coin sales decreased 40.8% to $3,204,536 for the nine months
ended September 30, 1999 from $5,415,990 for the nine months ended September 30,
1998. This decrease was in spite of the Company's continued focus on retail
sales; market forces resulted in higher wholesale sales than expected. During
the nine months period ended September 30, 1999, the Company continued its
focused on the accumulation of its collectibles inventory rather than on
generating collectibles sales. This strategy was employed in anticipation of the
launching of auction and online sales scheduled for the fourth quarter.
Collectible sales for the nine months ended September 30, 1999 decreased 0.2% to
$460,817 from $459,727 for the nine months ended September 30, 1998.
COST OF SALES
Cost of sales for the nine months ended September 30, 1999 increased 3.1% to
$13,161,334 from $12,771,466 for the nine months ended September 30, 1998. The
cost of sales as a percentage of net revenue increased to 81.5% from 80.8%
during the comparable periods. This increase was primarily due to increased
sales and to a lesser extent the slightly unfavorable mix of products sold
during the period. The Company's cost of sales as percentage of net revenue will
vary from period to period depending on the prevailing market forces and the mix
of products sold.
11
<PAGE>
GROSS PROFIT
Gross profit for the nine months ended September 30, 1999 decreased 1.1% to
$2,993,804 from $3,026,192 for the nine months ended September 30, 1998. This
decrease was due to increased cost of sales during the period. The gross profit
as a percentage of net revenue decreased to 18.5% from 19.2% during the
comparable periods. This decrease was due to the unfavorable mix of products
sold during the period. The ability of the Company to realize the highest
possible gross profit on the sales of products is dependent on market demand for
specific types of products that may or may not be readily available to Company.
In the interest of satisfying the demand for products, the Company may acquire
and sell products with less than desired gross profit. Additionally, during the
nine month period ended September 30, 1999, several large private collections of
rare coins were sold into the marketplace causing a temporary oversupply and
consequently reduced margins on the sale of rare coins. This market weakness is
anticipated to continue to the end of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine months ended September
30, 1999 increased 121.0% to $2,998,991 from $1,357,304 for the nine months
ended September 30, 1998. The increase in these expenses were due to increases
in selling expenses relating to the shift in focus toward retail sales; the
costs associated with the Company's initial public filings; the expansion of the
administrative infrastructure to support the requirements of public company
reporting and the Company's growing retail operations; and the costs associated
with developing an Internet based auction site. The increase in expenditures
included a one-time consulting expense to the Michelson Group in the amount of
$134,185 that was the assigned fair value of stock warrants granted in exchange
for services rendered in connection with the reverse acquisition. See Certain
Relationship and Related Transactions section of this document for further
details.
OTHER INCOME AND EXPENSES
Other income for the nine months ended September 30, 1999 was $1,608 as compared
to other expenses of $1,462 for the nine months ended September 30, 1998. Other
income primarily consists of interest income. During the current period the
Company's investment in Numismatic Interactive Network, LLC was written down to
a zero value. Interest income of $6,970 during the period was offset by the
investment write-down in the amount of $4,550.
PROVISION FOR INCOME TAXES
The provision for income taxes for the nine months ended September 30, 1999 was
$10,064 as compared to $11,912 for the nine months ended September 30, 1998.
Prior to the Company's reverse acquisition on April 28, 1999, the Company had
elected to be taxed as an S-Corporation for federal and state purposes. Under
the provisions of this election, with the exception of the California 1.5%
surtax, the Company did not pay corporate tax on its income. However, the
stockholders were liable for their respective share of income taxes on the
Company's taxable income. Subsequent to the reverse acquisition the Company
began to provide for corporate income taxes based on the combined federal and
state statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $22,299 for the nine months ended September 30, 1999, primarily
due to increased expenditures and the increased inventory levels that were
required as the Company continued to expand into rare coins, fine art and
collectibles on a retail level. Comparatively, cash increased $299,379 for the
nine months ended September 30, 1998 due to increased sales and profitability
during the period.
Net cash used in operating activities for the nine months ended September 30,
1999 was $2,133,973, consisting primarily of the increases in the Company's
inventory and accounts receivable that was partially offset by non-cash
operating expenses including consulting and legal services exchanged for
exercised stock warrants and common stock, depreciation and amortization and the
write-down of customer lists. Net cash provided by operating activities for the
nine months ended September 30, 1998 was $363,522, consisting primarily of the
Company's net income of $1,655,514 adjusted by increases in inventory and
accounts payable and a decrease in accounts receivable.
12
<PAGE>
Net cash used in investing activities for the nine months ended September 30,
1999 was $68,283, consisting primarily of additions to property and equipment.
Net cash used in investing activities for the nine months ended September 30,
1998 was $13,506 consisting primarily of additions to property and equipment.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $2,179,957, consisting primarily of borrowing under a revolving
credit agreement, proceeds of short term stockholder loans and the proceeds of a
convertible, interest-bearing stockholder note payable that were partially
offset by stockholder distributions. Net cash used in financing activities for
the nine months ended September 30, 1998 was $50,637 consisting primarily
consisting of the repayment of borrowing under a revolving credit agreement
partially offset by the proceeds of short-term note payable.
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 1999, the Company issued 70,000
common shares in exchange for inventory with a fair value of $135,000. There
were no non-cash investing and financing activities during the nine months ended
September 30, 1998.
On December 1, 1998, the Company's predecessor, TIA entered into a revolving
credit agreement with a limit of up to $600,000 with a rate of interest at the
prime rate plus 2.625% collateralized by the Company's assets and personal
guarantee of the Company's president. In September 1999, the revolving credit
agreement was terminated and the outstanding balance was repaid in full. The
credit facility was replaced with a revolving credit agreement with a limit of
up to $2,000,000, with a rate of interest at the prime rate plus 1.50%, which is
collateralized by the Company's assets and a personal guarantee of the Company's
president. The outstanding balance of the line of credit at September 30, 1999
was $ 2,000,000. In addition, the Company is attempting to negotiate an increase
in its line of credit to $7,500,000. The Company has also retained the services
of the Michelson Group to assist the Company in a potential bridge financing in
order to finance future growth. See Certain Relationships and Related
Transactions. The Company anticipates that the additional line of credit and
funds from the possible bridge financing will be used for increased inventory,
capital expenditures, and potential acquisitions. However, there can be no
assurances that the Company will be able to secure such financings.
On March 31, 1999 the Company's predecessor, TIA, executed a convertible,
interest-bearing note payable in exchange for cash advanced by the Company's
principal stockholder and president in the amount of $1,400,000. The note bears
interest at the rate of 9.0% per annum and the interest is payable quarterly.
The note, including, any unpaid interest, will become due and payable on March
31, 2004. The note's conversion provision grants the holder the right to convert
the principal amount, in whole or in part, into shares of common stock of the
Company at a conversion price of $1.00 per share at any time. The note grants
the holder the right to extend payment for up to five renewal periods of one
year each. Management may accelerate the repayment of the note based on the
availability of cash flow.
CAPITAL EXPENDITURES
The Company incurred capital expenditures of $59,416 during the nine- month
period ended September 30, 1999 consisting primarily of computer hardware,
computer software and office equipment. The Company will continue to incur
capital expenditures to further enhance its auction, marketing and accounting
computer hardware and software, and make leasehold improvements at its new
corporate headquarters in Newport Beach, California through the end of the
fiscal year ending December 31, 1999 and into the first quarter of the fiscal
year ending December 31, 2000.
Effective October 7, 1999, the Company began leasing 11,270 square feet of
administrative, customer support, retail, gallery, and auction space located in
Newport Beach, California at a monthly rental rate of $11,000 per month.
Beginning in January 2000, the Company intends to consolidate its Laguna Beach
and Tustin operations into this location. The lease is scheduled to terminate on
October 7, 2001. Unless the Company is able to negotiate the termination or
sublease of its Laguna Beach and Tustin offices on more favorable terms, the
company will be required to pay an aggregate of approximately $120,000 in rental
payments for its Laguna Beach premises and approximately $9,000 for its Tustin
premises over the course of their respective leases.
13
<PAGE>
YEAR 2000 DISCLOSURE
The Company has completed a review of its computer systems and non-information
technology ("non-IT") systems to identify all systems that could be affected by
the inability of many existing computer and micro-controller systems to process
time-sensitive data accurately beyond the year 1999, referred to as the Year
2000 or Y2K issue. The Company is dependent on third-party applications,
particularly with respect to such critical tasks as accounting, billing, and
inventory control. The Company also relies on its own computer and non-IT
systems, (which consists of personal computers, internal telephone systems,
internal network server, and operating systems). In conducting the Company's
review of its internal systems, the Company performed operational tests of its
systems that revealed no Y2K problems. As a result of its review, the Company
has discovered no problems with its systems relating to the Y2K issue and
believes that such systems are Y2K compliant. Costs associated with the
Company's review were not material to its results of operations.
While the Company believes that its procedures have been designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, there can be no
assurances that the Company's efforts, or those of third parties with whom the
Company interacts, have fully resolved all possible Year 2000 issues. Failure to
satisfactorily address the Year 2000 issue could have a material adverse effect
on the Company. The most likely worst case Y2K scenario which management has
identified to date is that, due to unanticipated Y2K compliance problems, the
Company may be unable to bill its customers, in full or in part, for product
sold. Should this occur, it would result in a material loss of some or all gross
revenue to the Company for an indeterminable amount of time, which could cause
the Company to cease operations. Although the Company has received written
assurances from all of its major suppliers (coin and collectibles suppliers such
as Heritage Wholesale and Lipton Rare Coins) that they are, or will be, Year
2000 compliant, should any such supplier fail to adequately address the Year
2000 problem, the Company's only recourse for any damages suffered as a result
would be through litigation. The Company has not yet developed a contingency
plan to address this worst case Y2K scenario, and does not intend to develop
such a plan in the future.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the
period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FROM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TANGIBLE ASSET GALLERIES, INC.
By /s/ Silvano DiGenova
-----------------------
Silvano DiGenova
President & CEO
Dated: March 1, 2000
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001091539
<NAME> TANGIBLE ASSET GALLERIES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 19,986
<SECURITIES> 0
<RECEIVABLES> 1,677,045
<ALLOWANCES> 0
<INVENTORY> 6,767,574
<CURRENT-ASSETS> 8,517,716
<PP&E> 123,964
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,660,948
<CURRENT-LIABILITIES> 5,131,320
<BONDS> 0
0
0
<COMMON> 18,170
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,660,948
<SALES> 5,490,967
<TOTAL-REVENUES> 5,490,967
<CGS> 4,471,799
<TOTAL-COSTS> 4,471,799
<OTHER-EXPENSES> 1,502,188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (483,020)
<INCOME-TAX> (49,936)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,084)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
