SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1996
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period ________ to ________
COMMISSION FILE NUMBER 1-11988
GREG MANNING AUCTIONS, INC.
(Exact name of Small Business Issuer as specified in its Charter)
NEW YORK 22-2365834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
775 PASSAIC AVENUE
WEST CALDWELL, NEW JERSEY 07006
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (201) 882-0004
Check whether the Issuer (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 filing requirements for the past 90
days.
YES X NO _____
As of October 8, 1996, Issuer had 4,419,997 shares of its Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): YES ______ NO X .
GREG MANNING AUCTIONS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Table of Contents
Consolidated Balance Sheet - September 30, 1996 (Unaudited)
Consolidated Statements of Operations and Retained Earnings -
Three months ended September 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows -
Three months ended September 30, 1996 and 1995 (Unaudited)
Notes to Consolidated Financial Statements
as of September 30, 1996
Item 2. Management's Discussion and Analysis
<PAGE>
GREG MANNING AUCTIONS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 278,742
Accounts receivable
Auctions receivable 7,128,353
Advances to consignors 2,507,782
Notes receivable - current portion 578,997
Inventory 4,383,382
Deferred tax asset 106,000
Prepaid expenses and deposits 238,204
----------------
Total current assets 15,221,460
Property and equipment, net 765,453
Goodwill 1,781,885
Marketable securities 215,200
Notes receivable - long-term portion 733,928
Other assets 732,275
================
Total assets $ 19,450,201
================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C>
Demand notes payable $ 5,925,000
Notes payable - current portion 517,412
Payable to third party consignors 3,648,119
Accounts payable 892,944
Accrued expenses 191,045
Income taxes payable 351,506
----------------
Current liabilities 11,526,026
Notes payable - long-term portion 863,416
Deferred income taxes 3,121
----------------
Total liabilities 12,392,563
----------------
Commitments and Contingencies -
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued
Common stock, $.01 par value. Authorized
20,000,000 shares; 4,419,997 issued and outstanding 44,200
Additional paid in capital 6,798,401
Unrealized loss on marketable securities (13,400)
Retained earnings 228,437
----------------
Total stockholders' equity 7,057,638
----------------
Total liabilities and stockholders' equity $ 19,450,201
================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1995 1996
---------------- ----------------
Operating revenues
<S> <C> <C>
Sales of merchandise $ 1,111,370 $ 1,257,349
Commissions from third parties 681,045 653,458
Commissions from affiliate - CRM 1,065 680
---------------- ----------------
1,793,480 1,911,487
---------------- ----------------
Operating expenses
Cost of merchandise sold 840,563 833,287
General and administrative 1,135,201 906,116
Marketing 102,453 142,934
---------------- ----------------
2,078,217 1,882,337
---------------- ----------------
Operating profit (loss) (284,737) 29,150
Other income (expense)
Interest and other income 94,510 179,036
Interest expense (131,127) (186,419)
---------------- ----------------
Income (loss) before income taxes (321,354) 21,767
Provision (benefit) for income taxes (127,588) 17,598
---------------- ----------------
Net income (loss) (193,766) 4,169
Retained earnings, beginning of period (312,115) 224,268
---------------- ----------------
Retained earnings, end of period (505,881) 228,437
================ ================
Weighted average number of shares outstanding
and common share equivalents 3,915,336 4,771,200
---------------- ----------------
Earnings (loss) per common and common
equivalent share $ (0.05) $ 0.00
================ ================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1995 1996
--------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (193,766) $ 4,169
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 85,312 85,267
Provision for bad debts (105,000) -
Deferred tax asset 250,392 -
Changes in assets (increase) decrease:
Auctions receivable 3,358,517 1,465,061
Advances to consignors (475,861) (413,297)
Other receivables (3,791) -
Notes receivable - 121,097
Inventory (1,242,366) (887,156)
Due from affiliate - CRM (12,927) 56,186
Income taxes receivable (377,980) 34,345
Prepaid expenses 47,392 71,629
Other assets 32,304 -
Changes in liabilities (decrease) increase
Payable to third-party consignors (1,965,972) (654,671)
Accounts payable 162,123 128,317
Customer deposits (79,720) -
Accrued expenses and other liabilities 103,424 (97,866)
Income taxes payable - 17,598
--------------- --------------
(417,919) (69,321)
--------------- --------------
Cash flows from investing activities:
Capital expenditures for property and
equipment (45,951) (26,037)
Additional goodwill (11,162) (14,629)
Purchase of PICK Communications Corp. stock (250,000) -
--------------- --------------
(307,113) (40,666)
--------------- --------------
Cash flows from financing activities:
Repayment of notes payable (39,000) (115,000)
Repayment of loans payable (336,678) (32,197)
Net proceeds from issuance of stock 711,654 (22,580)
--------------- --------------
335,976 (169,777)
--------------- --------------
Net decrease in cash and cash equivalents (389,056) (279,764)
Cash and cash equivalents at beginning of period 956,801 558,506
=============== ==============
Cash and cash equivalents at end of period $ 567,745 278,742
=============== ==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(1) Organization, Business and Basis of Presentation
Greg Manning Auctions, Inc., together with its wholly owned
subsidiaries Ivy & Mader Philatelic Auctions, Inc. and Greg Manning Galleries,
Inc. (collectively, the Company), is a public auctioneer of collectibles
including rare stamps, stamp collections and stocks, and regularly conducts rare
stamp auctions bringing together purchasers and sellers located throughout the
world. The Company accepts property for sale at auctions from sellers on a
consignment basis, and earns a commission on the sale. In addition to stamps,
the other collectibles auctioned by the Company include trading cards and sports
memorabilia and other collectibles such as antiquities and rare coins. The
Company also sells collectibles by private treaty for a commission, and sells
its own inventory at auction, wholesale and retail.
The accompanying consolidated balance sheet as of September 30, 1996
and related consolidated statements of operations and retained earnings for the
three months ended September 30, 1996 and 1995 and consolidated statements of
Cash Flows for the three month periods then ended, have been prepared from the
books and records maintained by the Company, in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation SB. Accordingly, they
do not include all information and disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, which are of a normal recurring nature, considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and disclosures thereto in the
Company's Form 10-KSB for the year ended June 30, 1996 filed with the Securities
and Exchange Commission.
(2) Summary of Certain Significant Accounting Policies
Revenue Recognition
Revenue is recognized by the Company when the rare stamps and
collectibles are sold and is represented by a commission received from the buyer
and seller. Auction commissions represent a percentage of the hammer price at
auction sales as paid by the buyer and the seller.
In addition to auction sales. the Company also sells via private
treaty. This occurs when an owner of property arranges with the Company to sell
such property to a third party at a privately negotiated price. In such a
transaction, the owner may set selling price parameters for the Company, or the
Company may solicit selling prices for the owner, and the owner may reserve the
right to reject any selling price. In certain transactions, the Company may be
requested to guarantee a fixed price to the owner, which would be payable
regardless of the actual sales price ultimately received. The Company recognizes
as private treaty revenue an amount equal to a percentage of the sales price, or
in the case of a guaranteed fixed price, the difference between the actual sales
price and the guaranteed fixed price when the properties are sold.
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 1996 (UNAUDITED) -
CONTINUED
The Company also sells its own inventory at auction, wholesale and
retail. Revenue with respect to inventory at auction is recognized when sold and
for wholesale or retail sales, revenue is recognized when delivered or released
to the customer or to a common carrier for delivery.
The Company does not provide any guarantee with respect to the
authenticity of property offered for sale at auction. Each lot is sold as
genuine and as described by the Company in the catalog. However, when, in the
opinion of a competent authority mutually acceptable to the Company and the
purchaser, a lot is declared otherwise, the purchase price will be refunded in
full if the lot is returned to the Company within a specified period. In such
event, the Company will return such lot to the consignor before a settlement
payment has been made to such consignor for such lot. To date, returns have not
been material. Large collections are generally sold on an "as is" basis.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Business Segment
<TABLE>
<CAPTION>
The company operates in one segment, the auctioning or private treaty
sale of rare stamps and other collectibles. Set forth below is a table of
aggregate sales of the Company, subdivided by source and market:
For the three months ended
September 30 Percentages
----------------------------------- ---------------------
<S> <C> <C> <C> <C>
1995 1996 1995 1996
----------------------------------- ---------------------
Aggregate Sales $ 5,201,509 $ 5,304,628 100% 100%
=================================== =====================
By source:
A. Auction $ 4,090,139 $ 4,047,279 79% 76%
B. Sales of inventory 1,111,370 1,257,349 21% 24%
----------------------------------- ---------------------
By market:
A. Philatelics $ 4,583,934 $ 5,005,971 88% 95%
B. Sports collectibles 221,282 280,861 4% 5%
C. Other collectibles 396,293 17,796 8% 0%
----------------------------------- ---------------------
</TABLE>
Goodwill
Goodwill primarily includes the excess purchase price paid over the
fair value of the net assets acquired. Goodwill is being amortized on a
straight-line basis over twenty to twenty five years. Total accumulated
amortization at September 30, 1996 was $187,502. The recoverability of goodwill
is evaluated at each year end balance sheet date as events or circumstances
indicate a possible inability to recover their carrying amount. This evaluation
is based on historical and projected results of operations and gross cash flows
for the underlying businesses.
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 1996 (UNAUDITED) -
CONTINUED
Investments
The Company accounts for marketable securities pursuant to the
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this statement, the Company's
marketable securities with a readily determinable fair value have been
classified as available for sale and are carried at fair value with an
offsetting adjustment to Stockholders' Equity. Net unrealized gains and losses
on marketable securities are credited or charged to a separate component of
Stockholders' Equity.
Earnings (loss) per common and common equivalent share
Earnings (loss) per common and common equivalent share of the Company's
Common Stock ("Common Stock") is computed using the weighted average number of
common and common equivalent shares outstanding for each period. Primary and
fully diluted earnings per share are the same for the three months ended
September 30, 1996. Outstanding stock options and warrants for the three months
ended September 30, 1995 were excluded from earnings per common share
computations because they are antidilutive.
<TABLE>
<CAPTION>
(3) Inventories
Inventories as of September 30, 1996 consisted of the following:
<S> <C>
Stamps $ 2,585,272
Sports Cards and Sports Memorabilia 625,709
Antiquities 1,172,401
--------------
$ 4,383,382
==============
</TABLE>
(4) Marketable Securities
As of September 30, 1996, the Company owns 9.5% or 4,112,289 common
shares of PICK Communications, which is primarily engaged in the business of
issuing prepaid telephone cards. These securities are classified as available
for sale having a cost of $237,599 and a fair value of approximately $215,200
resulting in an cumulative unrealized loss of $22,400 which was offset by
deferred tax asset of $9,000. The fair value of the securities has been reduced
from $2,580,000 at June 30, 1996 as a result of a corresponding reduction in the
closing price per share from $3.00 at June 30, 1996 to $.25 at November 11,
1996, as reported on the electronic bulletin board. The decrease in net
valuation for the three months ended September 30, 1996 of $1,418,400 was
charged to a separate component of Stockholders' Equity.
(5) Related-party Transactions
The Company accepts rare stamps and other collectibles for sale at
auction on a consignment basis from Collectibles Realty Management, Inc.,
("CRM") which owned approximately 29%, as of
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 1996 (UNAUDITED) -
CONTINUED
September 30, 1996, of the Company's common stock. Such stamps and collectibles
have been auctioned by the Company or sold at private treaty under substantially
the same terms as for third party customers and the Company charges CRM a
seller's commission for items valued at under $100,000 per lot. In the case of
auction, the hammer price of the sale, less any seller's commission, is paid to
CRM upon successful auction, and in the case of private treaty, the net price
after selling commissions is paid to CRM. For the three months ended September
30, 1996, such auction and private treaty sales were not material.
(6) Debt
The Company is party to secured revolving credit and term loan facility
with Brown Brothers Harriman & Co. ("BBH&Co."). At September 30, 1996, borrowing
under the revolving credit facility and term loan totaled $5,525,000 and
$293,750 respectively. Absent a material adverse change or event of default as
determined by BBH&Co., BBH&Co. has agreed to provide the Company with a 120-day
notification period prior to issuing a demand for repayment, so long as the
Company is in compliance with certain financial and operating guidelines. The
Company believes that at September 30, 1996, it was in compliance with such
guidelines.
<TABLE>
<CAPTION>
(7) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
For the three months ended
September 30,
1995 1996
------------- -------------
<S> <C> <C>
Interest paid $131,127 $174,610
Income taxes paid - 15,576
Noncash investing and financing activities:
Acquisition of inventory under note payable - 700,000
Note receivable in conjunction with sale of
division 210,000 -
Acquisition of fixed assets under capital leases 78,839
-
</TABLE>
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SEPTEMBER 30, 1996 (UNAUDITED) -
CONTINUED
(8) Subsequent Event
In September 1996, the Company entered into an agreement setting forth
the principal terms of the acquisition of the Latham Companies, Inc., the parent
company of Larry Latham Auctioneers, Inc. In November 1996 it was determined
that the parties were unable to reach a final agreement for the acquisition.
Accordingly, the proposed transaction will not be consummated.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
GENERAL
The Company's revenues are represented by the sum of (a) the proceeds
from the sale of the Company's inventory, and (b) the portion of sale proceeds
from auction or private treaty that the Company is entitled to retain after
remitting the sellers' share, consisting primarily of commissions paid by
sellers and buyers. Generally, the Company earns a commission from the seller of
10% to 15% (although the commission may be slightly lower on high value
properties). During the three month period ended September 30, 1996, the Company
earned a commission of 15% from the buyers in all markets except for sports
cards which is a 10% premium.
The Company's operating expenses consist of the cost of sales of the
Company's inventory and such expenses directly incurred by the Company relating
to general and administrative expenses and marketing expenses for the three
months ended September 30, 1996 and 1995. General and administrative expenses
are incurred to pay employees and to provide support and services to those
employees, including the physical facilities and data processing. Marketing
expenses are incurred to promote the services of the Company to sellers and
buyers of collectibles through advertising and public relations, producing and
distributing its auction catalogs and conducting auctions.
<PAGE>
Three months ended September 30, 1996
Compared with the three months ended September 30, 1995
The Company recorded an increase in revenues of $118,007 (7%), from
$1,793,480 for the three months ended September 30, 1995 to $1,911,487 for the
three months ended September 30, 1996. This increase was primarily attributable
to the increase in revenues from the sale of the Company's inventories of
$145,979 (13%) with a decrease in commission revenue of $27,972 (4%) for the
three month period ended September 30, 1996 compared to the prior year.
Gross margins on the sales of the Company's inventory increased by
approximately $153,000 (57%) in the three months ended September 30, 1996
compared to the three months ended September 30, 1995. This increase in margins
was primarily due to the above mentioned increase in the sales of merchandise
and the increase in the gross margin percent from 24% for the three months ended
September 30, 1995 to 34% for the three months ended September 30, 1996.
The Company's operating expenses totaled $1,049,050 exclusive of cost
of merchandise sold, for the three months ended September 30, 1996, and
represented a decrease of $188,604 (15%) from the three months ended September
30, 1995. The decrease in General and Administrative costs by the Company is
primarily due to the cost reductions in the Galleries division. This was
partially offset by the expansion of the sports department. The increases in
marketing costs was due to a more aggressive marketing campaign in the
philatelic areas.
Interest expense increased by $55,292 in the three months ended
September 30, 1996 compared to the three months ended September 30, 1995 as a
result of the higher average daily borrowings for the comparable period
($42,000) and higher interest rate on the Company's revolving credit facility
($13,000). The borrowings under the Company's secured revolving credit facility
are utilized to support the operations of the Company, including the advances to
consignors, auctions receivables and merchandise inventories.
Net Income: The Company recorded income before income taxes of $21,767
for the three months ended September 30, 1996 compared to a loss before income
taxes of $321,354 for the three months ended September 30, 1995. This change was
primarily due to an increase in operating profits of approximately $314,000
during the three months ended September 30, 1996 compared to the prior year as
outlined above.
<PAGE>
Liquidity and Capital Resources
At September 30, 1996, the Company's working capital position was
$3,695,434, compared to $3,170,150 as of June 30, 1996. This increase of
$525,284 was primarily due to an increase in inventories purchased for future
auctions ($1,587,156), a decrease in payables to consignors ($654,671) and an
increase in advances to consignors ($413,297). These increases to working
capital were offset by a decrease in auctions receivable ($1,465,061), an
increase in the current portion of loans payable ($290,906) and a decrease in
cash ($279,764). These items were the material cause of the negative cash flow
from operating activities of $69,321.
The Company experienced a decrease in cash flow from investing
activities for the three months ended September 30, 1996 of $40,666. This was
attributable to the purchase of equipment of $26,037 and additional goodwill
related to the purchase of Ivy and Mader, in the amount of $14,629.
The Company experienced a decrease in cash flow from financing
activities for the three months ended September 30, 1996 of $169,777. This was
primarily attributable to the Company reducing its notes and loans payable in
the amount of $147,197.
The Company's need for liquidity and working capital is expected to
increase as a result of any proposed business expansion activities. In addition
to the need for such capital, and to enhance the Company's ability to offer cash
advances to a larger number of potential consignors of property (which
management believes is an important aspect of the marketing of an auction
business). In addition, the Company will likely require additional working
capital in the future in order to further expand its sports trading card and
sports memorabilia auction business as well as to acquire collectibles for sale
in the Company's business.
Management believes that the Company's cash flow from ongoing
operations supplemented by the Company's working capital credit facilities will
be adequate to fund the Company's working capital requirements for the next 12
months. However, to complete any of the Company's proposed expansion activities
or to make any significant acquisitions, the Company may consider exploring
financing alternatives including increasing its working capital credit
facilities or raising additional debt or equity capital.
The decision to expand, the desired rate of expansion, and the areas of
expansion will be determined by management and the Board of Directors only after
careful consideration of all relevant factors, including the Company's financial
resources and working capital needs, and needs to continue its growth and
position in its core business area of stamp auctions.
<PAGE>
GREG MANNING AUCTIONS, INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-k.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on form 8-k
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
GREG MANNING AUCTIONS, INC.
Dated: November 14, 1996
Greg Manning
Chairman and Chief Executive Officer
Daniel Kaplan
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Page Number in
Exhibit Sequentially
No. Description Numbered Copy
- -------- ------------------------------------------ ---------------
27 Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000895516
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 278742
<SECURITIES> 215200
<RECEIVABLES> 7253353
<ALLOWANCES> 125000
<INVENTORY> 4383382
<CURRENT-ASSETS> 15221460
<PP&E> 1203662
<DEPRECIATION> 438209
<TOTAL-ASSETS> 19450201
<CURRENT-LIABILITIES> 11526026
<BONDS> 0
0
0
<COMMON> 44200
<OTHER-SE> 7013438
<TOTAL-LIABILITY-AND-EQUITY> 19450201
<SALES> 1257349
<TOTAL-REVENUES> 1911487
<CGS> 833287
<TOTAL-COSTS> 1882337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186419
<INCOME-PRETAX> 21767
<INCOME-TAX> 17598
<INCOME-CONTINUING> 4169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4169
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
