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, 1997
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 November 7, 1997, Issuer had 4,419,997 shares of its Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No X.
<PAGE>
GREG MANNING AUCTIONS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Table of Contents Page Number
Consolidated Balance Sheet - September 30, 1997 (Unaudited) 3
Consolidated Statements of Operations and Retained Earnings - 4
Three months ended September 30, 1996 and 1997 (Unaudited)
Consolidated Statements of Cash Flows - 5
Three months ended September 30, 1996 and 1997 (Unaudited)
Notes to Consolidated Financial Statements 6
as of September 30, 1997
Item 2. Management's Discussion and Analysis 10
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets
Current assets:
<S> <C>
Cash and cash equivalents $ 352,350
Accounts receivable
Auctions receivable 9,123,324
Advances to consignors 1,563,919
Note receivable - current portion 322,294
Inventory 3,716,688
Income taxes receivable 262,867
Due from affiliate - CRM 173,837
Deferred tax asset 184,000
Prepaid expenses and deposits 129,814
----------------
Total current assets 15,829,093
Property and equipment, net 735,598
Goodwill 1,742,853
Marketable securities 415,200
Notes receivable - long-term portion 48,981
Deferred tax asset 69,400
Other assets 357,275
================
Total assets $19,198,400
================
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $ 5,675,000
Note payable - current portion 582,485
Payable to third party consignors 3,937,707
Accounts payable 720,459
Accrued expenses 545,322
----------------
Current liabilities 11,460,973
Notes payable - long-term portion 295,130
----------------
Total liabilities 11,756,103
----------------
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 6,819,690
Unrealized loss on marketable securities (13,400)
Retained earnings 591,807
----------------
Total stockholders' equity 7,442,297
----------------
Total liabilities and stockholders' equity $19,198,400
================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------------
1996 1997
------------------ ------------------
Operating revenues
<S> <C> <C>
Sales of merchandise $ 1,257,349 $1,860,356
Commissions earned 654,138 529,506
------------------ ------------------
1,911,487 2,389,862
------------------ ------------------
Operating expenses
Cost of merchandise sold 833,287 1,555,510
General and administrative 906,116 1,121,009
Marketing 142,934 156,740
------------------ ------------------
1,882,337 2,833,259
------------------ ------------------
Operating profit (loss) 29,150 (443,397)
Other income (expense)
Interest and other income 179,036 97,851
Interest expense (186,419) (173,153)
------------------ ------------------
Income (loss) before income taxes 21,767 (518,699)
Provision for (benefit from) income taxes 17,598 (225,634)
------------------ ------------------
Net income (loss) 4,169 (293,065)
Retained earnings, beginning of period 224,268 884,872
------------------ ------------------
Retained earnings, end of period $ 228,437 $ 591,807
================== ==================
Net income (loss) per share $ 0.00 $ (0.07)
Weighted average number common and
equivalent shares outstanding 4,771,200 4,419,997
================== ==================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------------
1996 1997
------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 4,169 $ (293,065)
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 85,267 95,731
Provision for bad debts - 25,000
(Increase) decrease in assets:
Auctions receivable 1,465,061 1,681,591
Advances to consignors (413,297) 4,143,378
Notes receivables 121,097 231,208
Inventory (887,156) 181,563
Due from affiliate - CRM 56,186 (2,950)
Income taxes receivable 34,345 (262,867)
Prepaid expenses and deposits 71,629 6,701
Increase (decrease) in liabilities
Payable to third-party consignors (654,671) (4,238,234)
Accounts payable 128,317 (876,389)
Accrued expenses (97,866) 132,460
Income taxes payable 17,598 (121,786)
------------------- -------------------
(69,321) 702,341
------------------- -------------------
Cash flows from investing activities:
Capital expenditures for property and equipment (26,037) (36,309)
Additional goodwill (14,629) -
------------------- -------------------
(40,666) (36,309)
------------------- -------------------
Cash flows from financing activities:
Repayment of from demand notes payable (115,000) (800,000)
Repayment of loans payable (32,197) (148,903)
Cost for issuance of stock (22,580) -
------------------- -------------------
(169,777) (948,903)
------------------- -------------------
Net change in cash and cash equivalents (279,764) (282,871)
Cash and cash equivalents at beginning of period 558,506 635,221
=================== ===================
Cash and cash equivalents at end of period $ 278,742 $ 352,350
=================== ===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC
Notes to Consolidated Financial Statements
September 30, 1997
(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 autographs and rare documents. 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, 1997
and related consolidated statements of operations and retained earnings for the
three months ended September 30, 1996 and 1997 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, 1997 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. The Company does not 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.
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.
<PAGE>
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. When however, 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 in question. 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
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:
<TABLE>
<CAPTION>
For the three months ended
September 30, Percentages
------------------------------------- -----------------------------
1996 1997 1996 1997
------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 5,304,628 $ 5,547,828 100% 100%
===================================== =============================
By source:
A. Auction $ 4,047,279 $ 3,687,472 76% 66%
B. Sales of inventory 1,257,349 1,860,356 24% 34%
------------------------------------- -----------------------------
By market:
A. Philatelics 5,005,971 5,382,491 95% 97%
B. Sports collectibles 280,861 165,337 5% 3%
C. Other collectibles 17,796 - 0% 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, 1997 was $277,727. The recoverability of goodwill
is evaluated at each year end balance sheet date as events or circumstances
indicate a possible inability to recover its carrying amount. This evaluation is
based on historical and projected results of operations and gross cash flows for
the underlying businesses.
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
for temporary changes in fair value of marketable securities are credited or
charged to a separate component of Stockholders' Equity.
<PAGE>
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. Outstanding
stock options and warrants for the three months ended September 30, 1997 were
excluded from earnings per common share computations because they were
antidilutive. Primary and fully diluted earnings per share are the same for the
three months ended September 30, 1996.
(3) Inventories
Inventories as of September 30, 1997 consisted of the following:
Stamps $ 2,002,885
Sports cards and sports memorabilia 581,033
Other collectibles 1,132,770
------------------
$ 3,716,688
==================
(4) Marketable Securities
As of September 30, 1997, the Company owned 11.4% 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 a cumulative unrealized loss of $22,400 which was offset by
deferred tax asset of $9,000. The decrease in net valuation of $13,400 was
charged to a separate component of Stockholders' Equity in previous periods.
(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 September 30, 1997, 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, 1997, such
auction and private treaty sales were not material.
<PAGE>
Scott Rosenblum, a director of the Company, is a partner of the law
firm Kramer, Levin, Naftalis & Frankel, which provides legal services to the
Company. Anthony L. Bongiovanni, Jr., also a director of the Company, is
president of Micro Strategies, Incorporated, which provides computer services to
the Company. Amounts charged to operations for services rendered by these firms
for the three months ended September 30, 1996 and 1997 were approximately $9,000
and $70,000 respectively, in the case of Kramer, Levin, Naftalis & Frankel, and
approximately $34,000 and $25,000 respectively, in the case of Micro Strategies,
Incorporated.
(6) Debt
The Company is party to a secured revolving credit and term loan
facility with Brown Brothers Harriman & Co. ("BBH&Co."). At September 30, 1997,
borrowing under the revolving credit facility and term loan totaled $5,675,000
and $218,750 respectively. Absent a material adverse change or event of default
as determined by BBH&Co., BBH&Co. has agreed to provide of the revolving credit
loan, 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. For the three months ended September 30, 1997, the
Company was not in compliance with the guideline relating to the formula of
earnings before interest, depreciation and taxes to interest expense. As a
result, BBH&Co. has the right under the credit agreement to demand immediate
payment of all amounts outstanding without the otherwise applicable 120 day
notice period
(7) Supplementary Cash Flow Information
<TABLE>
<CAPTION>
Following is a summary of supplementary cash flow information:
For the three months ended
September 30,
1996 1997
---------------- -----------------
<S> <C> <C>
Interest paid $174,610 $179,361
Income taxes paid 15,576 4,921
Noncash investing and financing activities:
Acquisition of inventory under note payable 700,000
</TABLE>
<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, 1997, the Company
earned a commission of 15% from the buyers in all markets except for sports
cards and mail auctions, which is a 10% premium.
The Company's operating expenses consist of the cost of sales of the
Company's inventory and general and administrative expenses and marketing
expenses for the three months ended September 30, 1996 and 1997. 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, 1997
Compared With The Three Months Ended September 30, 1996
The Company recorded a increase in revenues of $478,375 (25%), from
$1,911,487 for the three months ended September 30, 1996 to $2,389,862 for the
three months ended September 30, 1997. This increase was primarily attributable
to the increases in revenues from the sale of the Company's inventories of
$603,012 (48%) for the three month period ended September 30, 1997 compared to
the prior year.
Gross margins on the sales of the Company's inventory decreased by
$119,211 (28%) in the three months ended September 30, 1997 compared to the
three months ended September 30, 1996. The overall gross margin declined to 16%
on inventory sales during the three months ended September 30, 1997 from 34% for
the comparable period in the prior year. The stamp area had a decrease in gross
margins to 15% during the three months ended September 30, 1997 compared to 33%
for the prior year comparable period, which was approximately 7% higher than the
Company normally averages in the stamp area. During the quarter ended September
30, 1997 the Company sustained a loss on a large lot that had the effect of
reducing gross margins in the stamp area by approximately 6%. During this same
quarter, the Company did not hold any sports auctions and the overall gross
margins due to the reduced sports activity declined approximately 2% as compared
to the same period of the previous year.
The Company's operating expenses increased by $228,699 (22%) during the
three months ended September 30, 1997 compared to the same period in the prior
year. These costs resulted in operating costs of 53% of operating revenues for
the three months ended September 30, 1997 compared to 55% for the comparable
period in the prior year. The primary cost increases were attributable to the
approximately $99,900 in operating costs for the mail auction operations which
had its start up in the quarter ended June 30, 1997 and legal, accounting and
consulting costs which were approximately $55,600 higher than that of the same
period in the prior year.
Interest income decreased by $81,185 substantially due to a lower level
of outstanding interest bearing advances to consignors during the quarter ended
September 30, 1997 as compared to the three months ended September 30, 1996.
This was partially offset by an decrease in interest expense of $13,266 during
the three months ended September 30, 1997 as compared to the comparable period
of the prior year due primarily to reduced overall borrowings.
Net Income: The Company's decrease in operating profits (loss) of
$472,547 during the three months ended September 30, 1997 as compared to the
same period of the prior year was the primary component of the net loss of
$293,065 for the three months ended September 30, 1997 compared to the net
income of $4,169 during the three months ended September 30, 1996.
<PAGE>
Liquidity and Capital Resources
At September 30, 1997, the Company's working capital position was
$4,368,120, compared to $4,645,765 as of June 30, 1997. This decrease of
$277,645 was primarily due to decreases in auctions receivable (1,681,591),
advances to consignors ($4,143,378), current portion of notes receivable
($231,208), and inventories ($181,563). These decreases to working capital were
offset by a decrease in payables to third party consignors ($4,238,234) and
accounts payable ($876,389). These items were the material cause of the positive
cash flow from operating activities of $702,341.
The Company experienced a decrease in cash flow from investing
activities for the three months ended September 30, 1997 of $36,309. This was
attributable to solely capital expenditures during this period.
The Company experienced a decrease in cash flow from financing
activities for the three months ended September 30, 1997 of $948,903. This was
attributable to the Company reducing its demand notes payable under its
revolving credit and term loan facility by $800,000 and payments made on its
term loans of $148,903.
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. This will include the Company's
financial resources and working capital needs, and the necessity of continuing
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 13, 1997
Greg Manning
Chairman and Chief Executive Officer
William Tully
Vice President and Acting Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------------------------------------
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 352350
<SECURITIES> 415200
<RECEIVABLES> 11094915
<ALLOWANCES> 265000
<INVENTORY> 3716688
<CURRENT-ASSETS> 15829093
<PP&E> 1410214
<DEPRECIATION> 674616
<TOTAL-ASSETS> 19198400
<CURRENT-LIABILITIES> 1140973
<BONDS> 0
0
0
<COMMON> 44200
<OTHER-SE> 7287922
<TOTAL-LIABILITY-AND-EQUITY> 19198400
<SALES> 1860356
<TOTAL-REVENUES> 2389862
<CGS> 1555510
<TOTAL-COSTS> 1277749
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25000
<INTEREST-EXPENSE> 173153
<INCOME-PRETAX> (518699)
<INCOME-TAX> (225634)
<INCOME-CONTINUING> (293065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (293065)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
