SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Name of Small Business Issuer 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)
Registrant's telephone number, including area code: (973) 882-0004
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
Common Stock, $.01 par value The Nasdaq Stock Market
Boston Stock Exchange
Warrants to purchase Common Stock The Nasdaq Stock Market
Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 such filing requirements for the past
90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were $15,051,165.
<PAGE>
The aggregate market value of the Common Stock held by non-affiliates of
the Issuer as of September 22, 1997 (based on closing sale price of $2.1875 per
share as reported on NASDAQ), was $6,824,993.
As of October 10, 1997, Issuer had 4,419,997 shares of its Common Stock
outstanding.
Portions of the Registrant's definitive proxy statement, which will be
filed within 120 days of June 30, 1997, are incorporated by reference into Part
III.
Transitional Small Business Disclosure Format (Check One): Yes No X
THE REMAINDER OF THIS PAGE WAS PURPOSELY LEFT BLANK
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PART I.
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Greg Manning Auctions, Inc. (the "Company") was founded by Greg Manning,
its Chairman and Chief Executive Officer, who has conducted public auctions of
rare stamps, stamp collections and stocks since 1966. The Company believes,
based on its knowledge of the market, that it is one of the largest auction
houses of rare stamps in the world (although there is no publicly available data
with respect to stamp auction sales). In addition to stamps, the Company has
expanded its business to include other types of collectibles and similar items,
such as sports-related collectibles and rare autographs and documents, and the
reproduction and marketing of replicas of certain historical items.
The Company conducts its operations directly and through its subsidiaries
Ivy & Mader, Inc. ("Ivy & Mader"), which it acquired in late 1993, and Greg
Manning Galleries, Inc. ("Galleries").
In addition to auctions, which is the Company's primary method of sale, the
Company enters into "private treaty" transactions in which owners of
collectibles arrange to have their property sold to third-parties in privately
negotiated transactions. The Company also purchases collectibles for sale for
its own account.
The Company seeks to provide the highest quality service and personal
attention to its clients. The Company's longevity in its core business of rare
stamps, stamp collection and stock auctions has enabled it to develop an
international network of clients, both dealers and collectors, buyers and
sellers, who use the Company's services on a consistent basis. The Company
believes that its extensive auction and marketing experience in the rare stamp
markets can be applied and utilized in other areas of the collectibles business.
The Company has expanded by taking advantage of such opportunities through its
acquisition of Ivy & Mader and will consider other acquisitions as appropriate.
PHILATELY
Philately, often referred to as stamp collecting, has grown steadily during
the twentieth century. The stamp market is currently worldwide and modern
telecommunications have facilitated the development of an international network
of dealers and collectors who interact regularly to pursue their interest in
philately.
Transactions in the stamp industry are generally effected through thousands
of dealers and auction houses and directly between collectors or dealers.
Because the predominant participants in the long term philatelic markets are
collectors and dealers, and not speculative investors, rare stamps have
historically shown remarkable resilience, not only to stock market cycles, but
to economic conditions in general. Even after substantial declines between 1981
and 1985 (which was caused by speculators' selling investment holdings following
a significant rise in prices during the late 1970's due to speculative investor
demand), prices in the rare stamp market stabilized in 1986 and 1987 and have
remained fairly constant since that time.
Rare stamp and stamp collection auctions are the Company's core
business. As a leading philatelic auction house, the Company provides the full
range of services necessary to facilitate the sale and purchase of stamp
collections, dealer stocks, accumulations, sets and single rare stamps. The
Company believes, based on its knowledge of the market, that it is one of the
world leaders in specialized auctions of stamp collections, dealer's stocks and
accumulations (although there is no publicly available data with respect to
stamp auction sales).
Ivy & Mader, acquired in 1993, holds auctions devoted primarily to the sale
of high quality, single rare stamps. In contrast, Greg Manning Auctions, Inc.
("GMA") typically holds auctions in which each lot contains several thousand
stamps. Ivy & Mader sells to a larger number of collectors, and GMA sells to a
larger number of dealers. As with GMA, Ivy & Mader earns a commission, based on
the hammer price at auction, of approximately 10% from the seller and 15% from
the buyer.
Although Ivy & Mader offers potential consignors the opportunity to sell
their rare stamps through auction, private treaty, or by outright purchase, the
potential consignors for Ivy & Mader almost always decide to sell by public
auction. The availability of working capital to make cash advances to the
consignors is a major benefit to Ivy & Mader, as many of that firm's consignors
request cash advances.
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As noted above, the Company believes that the combination of GMA with Ivy &
Mader creates one of the world's largest combined philatelic auction houses, and
provides a competitive advantage to the Company through the complementary nature
of the two companies' distinct specialty areas. Because of the relative
sophistication of the operations and computer support of the two firms, the
Company believes that significant efficiencies may be obtained by combining the
two systems, and taking the best features from both systems. The resulting
operating system and computer related auction support system may be replicated
many times over for use by other auction firms that are acquired or merged into
the Company's combined operations.
Galleries is engaged primarily in the business of conducting stamps
auctions by mail. Until recently, Galleries was engaged in the business of
auctioning antiquities collectibles, under its own name and the name of Harmer
Rooke Numismatics, Ltd. During the year ended June 30, 1997, the Company
determined that Galleries should refocus its business in the area of mail
auctions and Galleries held several such auctions during the year. In addition,
subsequent to year-end Galleries acquired the assets of Cee-Jay Stamp Auctions,
Inc., a company engaged in the stamp mail auction business. (The Company is
currently liquidating the remainder of its inventory of antiquities
collectibles.) Galleries also conducts auctions of historical items, including
rare autographs and documents.
The Company's founder, Chairman and Chief Executive Officer, Greg
Manning, has been in the business of buying and selling stamps full time since
1964 and began to conduct public stamp auctions in 1966. Mr. Manning is a member
of numerous philatelic organizations throughout the world and is a regular
columnist for Linn's Stamp News, the largest stamp publication in the United
States.
SPORTS TRADING CARDS AND SPORTS MEMORABILIA
Recognizing the growing interest in sports trading cards and sports
memorabilia, the Company broadened its business in November 1991 to include the
sale of such sports collectibles. The sports collectibles industry is relatively
new and immature, when compared to philately and certain other more traditional
collectibles such as rare coins and antiquities. However, it has grown rapidly
in recent years, with the emergence of price guides and hobby magazines, and
appears to be continuing to experience increasing collector interest.
Management believes that the Company can apply its expertise in the rare
stamp auction business to facilitate continued expansion in its sports trading
card and memorabilia auction business. The Company does not anticipate
significant difficulty in obtaining desirable amounts of sports trading cards
and sports memorabilia for sale, even though it will generally focus on pre-1980
manufactured cards, which are typically more scarce and expensive than more
recent cards and memorabilia.
CLIENT SERVICES AND METHODS OF SALE FOR COLLECTIBLES OWNERS
The Company's business depends on its ability to attract owners of
collectibles who desire to sell their property at auction or by private treaty.
The Company seeks to provide the highest quality service to such owners,
providing them with an efficient and secure means by which to sell their
property. The Company's ability to provide quality service to its clients on a
consistent basis has enabled it to develop long-standing relationships with many
professional dealers and collectors and to develop a reputation in the industry
for client service. The Company enjoys repeat business and receives a
substantial amount of business as a result of referrals. In addition to its
industry reputation, the Company relies on advertising in trade publications to
promote its services to potential clients, such as professional dealers,
collectors, and estate administrators.
The Company is able to offer most clients several options for the sale of
their property. An owner desiring to sell property may choose to (1) consign it
to the Company for sale at auction to the highest bidder, (2) place it with the
Company under a private treaty for sale at a price negotiated by the Company
with a buyer, or (3) sell it directly to the Company for a negotiated price. The
Company has available to it a staff of experts who are knowledgeable in many
areas of collectibles, and who are able to make reasonable estimates of the
price at which an item may be expected to sell at auction or privately. The
Company's experts can examine an owner's property and furnish a presale auction
estimate, which represents the Company's opinion of the current value of the
property based on recent selling prices of similar properties, and the quality,
rarity, authenticity, physical condition and history of prior ownership of the
subject item. These capabilities permit the Company to assist a client in
deciding the appropriate method of sale.
<PAGE>
Generally, an owner desiring to use the Company's services to sell
property at auction or by private treaty will deliver the property to the
Company on a consignment basis, contracting with the Company to sell the
property to the highest bidder. The Company and the consignor will enter into a
written contract which sets forth the terms and conditions of the consignment
with respect to settlement, commissions and cash advances, if any, and the
determination of the authenticity of the property. The Company will hold
consignment property until the next regularly scheduled auction sale, or if the
sale is to be by private treaty, for no longer than six months. With respect to
private treaty sales, if the consigned property is not sold within the agreed
upon price parameters during such time, the Company will inform the owner of the
situation and provide the owner with the following options: (a) continue for
another period under a private treaty arrangement at the existing or at new
price parameters, (b) consign the property for sale at the next auction, (c)
sell the property outright to the Company at a price determined by the Company's
experts, or (d) have the property returned.
The Company's range of client services for owners also includes making
necessary arrangements for the pick-up and transport of property (fully insured
for loss or damage) to the Company's vault for storage and safe-keeping, and all
matters relating to displaying and promoting the property to potential buyers.
Certain aspects of these services are discussed in more detail in the following
subsections.
AUCTION SALES
The Company sells property primarily by public auction. Selling by auction
generally provides owners the opportunity to realize the highest sales price
available in the market, although there is always the inherent risk that the
auction price may not be as high as a property owner expected or desired. At
public auction, the Company generally earns a commission from the seller of 10%
to 15% and a commission of 15% from the buyers. The Company earns a commission
from the buyers of 15% in all of the Company's markets, except it's auctions of
sports collectibles, which the Company earns 10%.
One key to reducing the risks associated with the auction process for
property owners is achieving high levels of participation in the auctions by
potential buyers. Through the use of print advertisements in Linn's Stamp News
and other industry publications, the Company advertises its stamp auctions to
potential purchasers. For sports trading card and memorabilia auctions, the
Company advertises in Sports Collectors Digest and other major trade
publications. For other collectibles, the Company advertises in The Maine
Antique Digest, Minerva and other similar trade publications. In addition to
advertisements, the Company promotes each auction through advance distribution
of a catalogue for that auction to customers on the mailing lists of the Company
and to potential customers who respond to the Company's advertisements and
appearances at trade shows. Each catalogue describes and often depicts the items
to be sold at auction, contains the Company's estimates of prices to be realized
for each item, and depending on the market, may be produced in full color.
Auctions are generally open to public bidding and, in an effort to
increase international participation at auctions, the Company has facilities for
bidding by mail and facsimile, which may be done prior to auction. Thus,
although the Company's auctions take place primarily in New York and New Jersey,
purchasers and sellers throughout the world are able to participate at the
auctions.
The Company manages three types of auctions: (1) live auctions; (2)
mail and absentee auctions; and (3) telephone auctions. The type of auction
utilized for each sale is determined in advance of such auction, and the
decision on which type of auction to use is made based on a variety of factors
including the type of property to be sold, the market into which the property
will be sold, the size of the auction, and other factors. In each type of
auction, a catalogue or list of lots is mailed and otherwise distributed to all
interested customers in order to facilitate the bidding process by providing
descriptions of each lot by lot number.
In a live auction, bidders may bid in person or by telephone on each lot as
presented in the order shown in the catalogue at the time and date of the
auction. Before the auction, bidders may bid by lot as shown in the catalogue
and communicate such bids to the Company by mail, fax or by telephone. At the
auction, the auctioneer typically opens the bidding at levels based on bids
received prior to auction. The property being auctioned is sold to the highest
bidder, whether such bid was received before the auction or at the time of sale,
and such highest bidder must pay the hammer price, the applicable buyer's
premium and applicable sales tax. The auctioneer regulates the bidding and
reserves the right to refuse any bid believed by him not to be made in good
faith.
In an absentee auction, bidders may bid on each lot as shown in the
catalogue and communicate such bids to the Company by mail, fax and telephone
before the auction. At or about the closing date of the auction (as published in
the catalogue), the bids are compiled and ordered by lot, from highest to lowest
bid. In certain instances on certain lots, bidders are contacted with current
bid information on such lots, providing the bidders an opportunity to increase
the bids previously submitted. Once all bids have been received, posted and
finalized, the Company, acting as an agent for each bidder, determines the
highest bid on each lot as authorized by the bidder (up to the maximum limit as
authorized by the bidder) in an increment over the next highest bid as described
in the auction catalogue. The highest bidder on each lot is declared the winner,
and such bidder must pay the winning bid plus the applicable buyer's premium and
applicable sales tax.
<PAGE>
In a telephone auction, bidders may bid on each lot as shown in the
catalogue and communicate such bids to the Company by mail, fax and telephone
before the auction. On the date of the auction, beginning usually 3-4 hours
before the published time of the end of the sale, the Company receives inquiries
by telephone from bidders and prospective bidders about current bids on specific
lots. During these telephone inquiries, the caller directs the Company to enter
or modify the caller's bids on such specific lots. At the end of the specified
time period, the highest bid on each lot is declared the winner and, as in other
types of auctions, the successful bidder must pay the winning bid plus the
applicable buyer's premium and applicable sales tax.
The costs involved in conducting a typical auction include, among other
things, the cost of catalogues, insurance, transportation, auction advertising,
auction site rental fees, security, temporary personnel and expenses of certain
additional auction-related accounting and shipping functions. In general,
purchasers at public auctions pay a buyer's premium on auction purchases equal
to 15% of the hammer price of the property and sellers are charged a commission
of 10% to 15%, or slightly lower on high value properties, of the hammer price.
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 catalogue. 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.
After an auction, purchasers must make arrangements to take possession of
the auctioned property. The Company generally forwards the property to its buyer
by mail unless other arrangements are requested. As agent of the consignor, the
Company bills the buyer for property purchased, receives payment from the buyer,
and remits to the consignor at the settlement date the consignor's portion of
the buyer's payment, less consignor cash advances, if any, and commissions
payable to the Company. The Company often releases property sold at auction to
buyers, primarily dealers, before the Company receives payment, permitting such
buyers to take immediate possession on an open credit account basis (within
established credit limits) and to make payment generally within 30 days. Whether
or not the Company has received payment from such well established customers, it
must pay the consignor and generally will do so not later than the contracted
settlement date (generally 45 days after the sale of the consignor's property).
In instances where the buyer has not paid as of settlement date, the Company
assumes all risks of loss and responsibility of collection from the buyer. A lot
which has been submitted by mutual consent of the buyer and the Company for
review by a competent authority is not considered to be released to the buyer
and settlement is not completed with the consignor until such time as an opinion
is rendered by such competent authority. If the lot under review receives an
affirmative opinion from such competent authority, the settlement is immediately
completed, and the applicable amount is paid to the consignor. If such lot is
returned to the Company with a negative opinion from such competent authority,
no sale is deemed to have occurred, and the property is returned to the
consignor in satisfaction of the consignment agreement between the consignor and
the Company.
Extending credit to credit worthy buyers at auction is an important
marketing tool for the Company because it allows buyers who may not have
immediately available funds to settle at auction, the opportunity to settle at a
later date. The Company will generally extend credit only to buyers who have
done business with the Company in the past and have an established credit
standing in the industry.
When the Company does not grant credit to a buyer, under the standard terms
and conditions of the Company's auction sales, it is not obligated to pay the
consignor of the property if it has not been paid by the buyer. In such
instances, the Company holds auctioned property until it receives payment from
the buyer. If the buyer defaults on payment, the Company may cancel the sale and
return the property to the owner, re-offer the property at another auction, or
contact other bidders to negotiate a private sale.
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PRIVATE TREATY SALES
In a private treaty sale, the Company contracts with an owner of property
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, with the owner reserving
the right to reject any solicited selling price. In certain transactions, the
owner may set a fixed price which would be payable to the seller regardless of
the actual sales price ultimately received by the Company. The Company is
compensated for a private treaty sale either by a commission equal to a
percentage of the sales price, or, in the case of an owner established fixed
price, by retaining the difference between the actual sales price and the fixed
price. Private treaty sales are generally settled more promptly than auction
sales, with the buyer paying all or substantially all of the purchase price at
the time of sale, although in certain circumstances, the buyer may receive
extended payment terms. Should extended payment terms be granted, the Company
and the seller will negotiate a settlement of the remaining amounts due the
seller, which may or may not include a sharing of the credit risk or a deferral
of final payment until the Company has collected all of the outstanding balance
from the buyer.
A private treaty sale is attractive to some potential consignors because it
provides an opportunity for a sale at a fixed price or at a price controlled by
the consignor and not controlled by the bidders, as would be the case at public
auction. Often, a private treaty sale can be consummated more quickly than the
sale at auction, providing increased liquidity for the seller. For the Company,
private treaty sales provide an opportunity to realize increased revenues
because such sales involve less costs than auction sales, primarily because
there are minimal advertising expenses associated with such sales.
SALES OF THE COMPANY'S INVENTORY
The Company offers potential consignors the option to sell their property
outright to the Company for an amount determined by the Company's experts. In an
outright purchase, the Company establishes a price it is willing to pay for the
property. If the price is acceptable to the seller, or if a price can be
negotiated between the Company and the seller, the Company typically pays the
purchase price in full and takes possession immediately.
Unlike sales of consigned property at auction or by private treaty,
when selling its own inventory, the Company earns a profit or incurs a loss on
the sale of inventory to the extent the sales price exceeds or is less than the
purchase price paid by the Company for such inventory, respectively. Generally,
the Company provides (and it is expected that it will continue to provide) for
the sale of portions of its inventory at its public auctions. Occasionally, the
Company may sell inventory to a customer directly without placing the inventory
for sale at auction. The Company intends to sell all its inventory as quickly
and efficiently as possible, thereby promoting a high level of inventory
turnover and maintaining maximum liquidity.
CONSIGNOR ADVANCES
Frequently, an owner consigning property to the Company will request a cash
advance at the time the property is delivered to the Company, prior to its
ultimate sale at auction or otherwise. The cash advance is in the form of a
self-liquidating secured loan, using the consigned property as collateral. The
amount of the cash advance (generally limited to one half of the estimated
value) appears on the financial statements of the Company as "Advances to
consignors", but the value of the collateral is not recorded on the Company's
financial statements since the Company does not hold title to the collateral.
The Company is a secured party with respect to the collateral, holds a security
interest in the collateral and maintains possession of the collateral until it
is sold.
The ability to offer cash advances is often critical to the Company's
ability to obtain consignments of desirable property. In the case of property
sold at an auction, an owner may have to wait up to 45 days after the auction
sale date for settlement and payment of the owner's portion of the sales
proceeds. In many instances, an owner's motivation to consign property for sale
may include a need for cash on an immediate basis. Offering cash advances allows
the Company to attract owners who desire immediate liquidity while preserving
the opportunity to sell at auction at the highest available price. The Company
believes that its ability to make consignor advances on a consistent basis has
enabled it to receive regular consignments of high value lots from professional
dealers and private collectors.
The amount of a cash advance generally does not exceed 50% of the Company's
estimate of the value of the property when sold at auction. Consignors are given
the option of paying interest on such cash advances at a negotiated rate,
typically an annual rate of 12%, or allowing the Company to receive a higher
commission upon sale of the property.
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COMPUTERIZATION AND SECURITY
The Company maintains computerized tracking systems which are used to
catalogue and describe all of the property delivered to the Company. Property is
stored in the Company's specialized vault until it is sold or put on public
exhibition, in the case of property to be sold at auction, generally 21 days
before auction.
Tracking the consigned property aids in the prompt and efficient production
of catalogues for auctions. Such catalogues are an important marketing tool for
the Company to solicit business with both potential consignors and bidders. For
potential consignors, the Company utilizes the catalogues from prior auction
sales to demonstrate its expertise in presenting property to the bidders. For
bidders, the Company utilizes the catalogue as a direct solicitation and
enticement for participation in a given auction. The Company believes that the
computerization of the auction operations enables it to compete favorably with
any auction house in terms of service. During the year ended June 30, 1996, the
Company substantially completed an extensive upgrade to its existing computer
and software system including upgrades of the financial reporting system as well
as the implementation of a state of the art inventory tracking system. It is
fully expected that upon completion the Company will realize additional savings
from the greater efficiency of this new system.
The Company stores consigned property in two high security vaults located
at the new West Caldwell headquarters and at the Company's gallery in New York
City. The security system installed at both locations is rated by the alarm
service companies, and the Company believes that there is a significant level of
protection of an owner's property from theft, fire and other causes of damage.
In addition to the protection provided by the vault, the Company
provides insurance coverage for consigned property and the inventory of the
Company. The Company maintains a policy with Lloyds of London which management
believes provides adequate coverage for damage or loss while the property is
stored at the Company's offices. The policy also provides, what management
believes is adequate coverage for damage or loss during the transportation of
property from the customer to the Company's offices and from the Company's
offices to an auction location. The Company maintains the flexibility to obtain
higher limits for coverage as circumstances may require.
RECENT EXPANSION
During the year ended June 30, 1997, Galleries expanded its business by
developing a mail auction operation. It further expanded this business by
acquiring, after year-end, the assets of Cee-Jay Stamp Auctions, Inc., a
Maryland-based company which primarily conducts stamp auctions by mail. This
expansion is not considered material to operations or the financial statements.
FUTURE PLANNED EXPANSION
The Company continues to evaluate potential acquisition candidates in the
collectibles industry. The Company believes that a carefully analyzed and
structured acquisition of an existing operating company could be the most
effective manner to expand into certain new collectibles areas. The Company has
no current plans for any such acquisition, and there are no assurances that
attractive and appropriate acquisition opportunities will become available to
the Company on acceptable terms.
ARRANGEMENTS WITH CRM
CRM is wholly owned by Greg Manning, the Company's President, Chief
Executive Officer and Chairman of the Board. At June 30, 1997, CRM held
approximately 29% of the Company's Common Stock. CRM had historically been
engaged in the business of acquiring collectibles (including collectibles of the
type that are currently being sold by the Company) and selling them both through
direct sales and through consignments for sale at auction. In the past, CRM has
been an important source of property consigned to the Company for sale at
auction. Currently CRM no longer purchases any collectibles for resale. Although
CRM continues to provide the Company with property, the amount in relation to
the Company's overall business has been decreasing and for the year ended June
30, 1997, consignments by CRM were not material.
Pursuant to an Inventory Acquisition and Non-Competition Agreement (the
"CRM Inventory Agreement"), dated May 14, 1993, the Company was granted the
right to accept on a consignment basis any or all collectibles in CRM's existing
inventory on terms no less favorable than would be offered to third parties. The
CRM Inventory Agreement provides that, with respect to all property from CRM's
existing inventory that is accepted on consignment by the Company, the Company
will receive from CRM a commission in the amount of 10% of the sales price
(exclusive of any buyer's commission received by the Company); provided that the
Company will receive no commission from CRM with respect to items valued at over
$100,000 per lot (but will earn any commission or premium paid by the buyer).
The inventory available for consignment to the Company pursuant to the CRM
Inventory Agreement has been diminishing. The CRM Inventory Agreement also
provides that CRM will not compete with the Company for the acquisition of
collectibles from third parties that are suitable for acquisition by the Company
from time to time for use in its business.
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REGULATORY MATTERS
Regulation of the auction business varies from jurisdiction to
jurisdiction. In New York City, where some of the Company's auctions are held,
the New York City Department of Consumer Affairs licenses individual auctioneers
and administers a body of regulations that governs the conduct of auctions
occurring within New York City. The Company has on staff a New York City
licensed auctioneer who conducts most of the Company's auctions, and to the best
of management's knowledge and belief, the Company is in compliance with all
material and significant regulations governing its business activities.
COMPETITION
The world philatelic market, the sports trading card and memorabilia market
and the rare documents market are highly competitive. Among the Company's
primary competitors in the domestic and worldwide philatelic auction business
are Christies International PLC, Charles Shreve Galleries, Inc. and H.R. Harmer,
and with respect to the sale of single rare stamps, Robert A. Siegel Auction
Galleries, Inc. With respect to the Company's sports trading card and sports
memorabilia auction business, the Company's primary competitors are Superior
Auctions, Richard Wolffers, Lelands and Sotheby's Holdings, Inc.
EMPLOYEES
The Company presently has 26 full-time employees, including its President,
Chief Executive Officer and Chairman of the Board, Greg Manning; Executive Vice
President, William T. Tully, Jr.; and Vice President and `Chief Financial
Officer, Daniel M. Kaplan. The Company also employs David Graham as a Senior
Vice President. The Company also hires persons on a temporary basis to assist in
organizing its auctions and for other specialized purposes.
Item 2. DESCRIPTION OF PROPERY
The Company's headquarters are located in space leased under an agreement
that extends to May 31, 2000 (with an option to purchase) and consists of
approximately 18,600 square feet of office and warehouse facilities located at
775 Passaic Avenue, West Caldwell New Jersey at an annual rental of
approximately $145,700.
Ivy & Mader leases approximately 3,570 square feet of office space in New
York City at an annual rental of approximately $114,240 subject to escalation,
until August 31, 2000. Galleries subleases approximately 3,570 square feet of
office space in New York City on the floor immediately above the floor occupied
by Ivy & Mader at an annual rental of approximately $98,100 until March 30,
1998. Although Galleries is a party to an agreement to sublease substantially
all of such space through the term of its own sublease (at an annual rate equal
to approximately $90,000), its sublessee has been in default under such
agreement since October 1996.
Item 3 LEGAL PROCEEDINGS
The Company is not a party to any litigation material to the Company's
financial position or results of operations nor, to the knowledge of the
Company, is any litigation of a material nature threatened.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
<PAGE>
PART II.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In May 1993, the Company completed a public offering (the "Public
Offering") of 747,500 units of its securities (the "Units") at $6.25 per Unit.
Each Unit consists of two shares of the Company's Common Stock and two callable
common stock purchase warrants (the "Warrants"), each of which initially
entitled the holder to purchase one share of common stock at an exercise price
of $3.4375 per share. As of June 30, 1997, after taking into account certain
adjustments, each Warrant entitles its holder to purchase 1.24 shares of Common
Stock at a price of $2.7733 per share and is exercisable for a four year period
commencing May 14, 1994. At June 30, 1997, none of these warrants had been
exercised. In connection with the Public Offering, the Company issued to the
underwriters in such offering unit purchase warrants (the "Unit Purchase
Warrants"), each of which initially entitled the holder to purchase, through May
14, 1998, one Unit (each consisting of two shares of Common Stock and two
Underwriters' Warrants (as hereinafter defined)) at an exercise price of $10.31
per Unit. As of June 30, 1997, after taking into account certain adjustments,
each Unit Purchase Warrant entitles the holder to purchase 1.4543 Units at an
exercise price of $7.0893 per Unit. The warrants (the "Underwriters' Warrants")
issuable upon exercise of the Unit Purchase Warrants will be subject to the same
terms and conditions of the Warrants, except that the Underwriters' Warrants
will not be freely transferable and will not be subject to repurchase by the
Company. At June 30, 1997, none of the Unit Purchase Warrants or Underwriters'
Warrants had been exercised.
On November 4, 1994, in a private placement to certain "accredited"
investors, the Company sold 257,500 shares of its common stock at $2.00 per
share. For the purchase price, each investor also received a warrant (the
"Purchaser Warrants") which initially entitled the holder to purchase one share
of Common Stock at of $1.75 per share (amended from $2.25 per share). The number
of shares of Common Stock issuable upon exercise of the Purchaser Warrants was
subsequently increased to 1.13 shares, and the exercise price was subsequently
reduced to $1.5528 per share. In connection with such private placement, the
Company also issued warrants (the "Agents' Warrants") to the placement agents in
the private placement, which warrants were similarly adjusted to entitle the
holders thereof to purchase 72,720 shares of Common Stock at an exercise price
of $1.74 per share. The Company registered the shares of Common Stock underlying
the Purchaser Warrants and the Agent's Warrants under the Securities Act of
1933, as amended (the "Act"). At June 30, 1997, all of the Purchaser Warrants
and Agents' Warrants had been exercised. The Company received approximately
$336,000 in net proceeds from the private placement offering in the year ended
June 30, 1995 and approximately $490,000 from the exercise of these warrants in
the year ended June 30, 1996.
On June 29, 1995, the Company consummated an offshore offering for sale of
500,000 units of its securities (the "Regulation S Offering"). For a purchase
price of $1.50 per unit, each purchaser received one share of the Company's
Common Stock and one warrant to purchase an additional share at $1.50 per
warrant (subject to certain adjustments). The Regulation S Offering was made
solely to certain offshore investors in compliance with, and under the exemption
to registration provided by, Regulation S under the Act. The Company received
approximately $721,000 in net proceeds from the Regulation S Offering in the
year ended June 30, 1995 and $750,000 from the exercise of these warrants in the
year ended June 30, 1996. At June 30, 1997, all of these warrants had been
exercised.
The Company's Common Stock and Warrants are listed on the Boston Stock
Exchange ("BSE") under the symbols "GGM" and "GGMW", respectively, and these
securities are quoted on the Nasdaq SmallCap System ("NASDAQ") under the symbols
"GMAI", "GMAIW" , respectively. Prior to May 19, 1993, there was no public
market for the Company's securities. According to American Stock Transfer &
Trust, the holders of record of the Company's Common Stock and Warrants totaled
86 and 56, respectively, at October 3, 1997.
The Company has not paid any dividends. The Company expects that a
substantial portion of the Company's future earnings will be retained for
expansion or development of the Company's business. However, the Company
intends, to the extent that earnings are available, consistent with the above
objectives, to consider paying cash dividends on its Common Stock in the future.
The amount of any such dividend payments could be restricted by the covenants or
other terms of any loan agreements to which the Company is then a party.
The quarterly high and low bid ranges on the NASDAQ for the Common Stock of
the Company for the years ended June 30, 1996 and 1997 are shown in the
following schedule:
<PAGE>
<TABLE>
<CAPTION>
For the years end June 30,
1996 1997
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $2.750 $1.500 $4.125 $2.000
Second $3.062 $1.938 $2.688 $1.500
Third $4.313 $2.125 $1.688 $1.125
Fourth $3.938 $2.875 $2.375 $1.312
</TABLE>
The quotations shown above reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company's aggregate sales are generated by the sale of property at
auction (the primary method of selling utilized by the Company), by private
treaty and by sale of the Company's inventory. The following table displays the
aggregate sales for the Company for the years ended June 30, 1996 and 1997, and
shows the comparisons for the respective years subdivided by source and market:
<TABLE>
<CAPTION>
For the year ended June 30, Percentages
------------------------------------- -----------------------------
1996 1997 1996 1997
------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Aggregate Sales $29,710,971 $32,346,179 100% 100%
===================================== =============================
By source:
A. Auction $16,959,411 $20,654,995 57% 64%
B. Sales of inventory 12,751,560 11,691,184 43% 36%
------------------------------------- -----------------------------
By market:
A. Philatelics $24,929,716 $28,853,579 84% 89%
B. Sports collectibles 747,746 1,043,009 2% 3%
C. Other collectibles 4,033,509 2,449,591 14% 8%
------------------------------------- -----------------------------
</TABLE>
Aggregate sales consist of the aggregate proceeds realized from the sale
of property, which include the Company's commissions when applicable. Property
sold by the Company is either consigned to it by the owner of the property, or
is owned by the Company directly. Aggregate sales of the Company's inventory are
classified as such without regard as to whether the inventory was sold at
auction or directly to a customer. Aggregate sales by auction and by private
treaty represent the sale of property consigned by third parties.
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) and a
commission of 10% to 15% from the buyers.
Year ended June 30, 1997 compared with Year ended June 30, 1996
Revenues: For the year ended June 30, 1997, operating revenues decreased
$386,025 (2.5%) to $15,051,165 compared with $15,437,190 for the year ended June
30, 1996. This decrease in revenues is largely attributable to a decrease in
sales of Company-owned inventory of $1,060,376 which was offset with an increase
in commissions earned of $674,351. The decrease in sales of Company-owned
inventory is largely attributable to the Company's phasing out of its
antiquities operations during the year ended June 30, 1997.
<PAGE>
The variation in any year in the composition of total revenues (as between
revenues resulting from inventory sales and commissions resulting from
consignment sales) is largely a function of availability, market demand and
conditions rather than any deliberate attempt by the Company to emphasize one
area over the other. Sellers/consignors of property to the Company generally
make their own determinations as to whether the property should be sold to the
Company for the specified price offered by the Company or offered for sale at
auction at a price that cannot be predicted in advance. Such determination is
based on the potential risks and rewards involved, and includes an evaluation of
the marketability of the property and the potential pool of buyers. The Company
engages in a similar analysis in determining whether to acquire inventory for
its own account and the price it is willing to pay for such inventory.
Gross margins on the sales of Company-owned inventory increased by 25%,
from $2,722,000 for the year ended June 30,1996 to $3,405,000 for the year ended
June 30, 1997. This increase of $683,000 was mainly attributable to the increase
in sales of merchandise in the philatelic operations which increased its gross
margins by $868,239 in the year ended June 30, 1997 over the previous year. The
other collectibles operations reflected a decrease in gross margins for the year
ended June 30, 1997 of $327,713 compared to the previous year, in large part due
to the Company's phasing out of its antiquities operations during this period.
Included in the gross margins for the year ended June 30, 1997 are three
transactions to two customers with sales of $6,600,000 and resulting in a gross
margin of $2,241,500.
OPERATING EXPENSES: The Company's aggregate operating expenses, exclusive
of cost of merchandise sold, for the year ended June 30, 1997 totaled $5,381,607
compared with $5,212,520 for the year ended June 30, 1996, representing an
increase of $169,087 (or 3%). The primary changes in the operating expenses for
the year ended June 30, 1997 from the prior year was an increased emphasis on
marketing resulting in increased costs of $185,358 (31%), increases in salaries
and wages of $62,452 (4%) and an increase in bad debt expense of $118,280 (81%)
mostly related to long term receivables that required partial write downs. The
primary offsetting reduction in operating expenses was the reduction in legal,
accounting and consulting expenses of $140,585 (24%). The increase in overall
costs in combination with the revenue decreases, had the effect of increasing
operating costs as a percent of operating revenue from 34% during the year ended
June 30, 1996 to 36% for the year ended June 30, 1997.
INTEREST INCOME AND EXPENSE: Interest expense increased $279,359 (49%)
to $847,207 for the year ended June 30, 1997 as compared to that of the previous
year. This increase was attributable to higher average borrowings caused
primarily by the financing of a higher level of advances to consignors and
additional borrowings for inventory purchases, and to a lesser extent,
marginally higher investment in other operating current assets during the most
recent year. The higher average borrowings as part of the Company's credit
facilities at Brown Brothers Harriman & Co. contributed to approximately $86,000
of the interest expense increase. The higher interest rates the Company paid for
financing contributed approximately $124,000 to this increase in interest
expense. The higher interest expense was offset by an increase in interest
income during the year ended June 30, 1997 of approximately $427,000. The
Company charges interest on advances given to consignors and generally on
receivables past 30 days. The higher level of consignor advances and increased
collections of interest on past due receivables during the year ended June 30,
1997 resulted in this increase in interest income.
PROVISION FOR INCOME TAXES: For the year ended June 30, 1997, the Company
recorded an income tax provision of $583,473 compared to $439,056 for the
preceding year. The provision included approximately $150,000 of deferred tax
benefit which was provided from timing differences between book and tax
deductibility.
NET INCOME: The Company recorded net income for the year ended June 30,
1997 of $660,604 compared to 536,383 for the year ended June 30, 1996,
reflecting an increase of $124,221 (23%) during this period. The increase in
operating profit of $1,187,958 during the year ended June 30, 1997 as compared
to the previous year was the main component of the overall earnings, whereas
during the year ended June 30, 1996, the gain on sale of marketable securities
of $1,067,303 was a material contributor of earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced a positive cash flow from operating activities of
$219,061 for the year ended June 30, 1997 as compared to a negative cash flow of
$2,684,410 for fiscal 1996, an increase of $2,903,471. This increase in cash
flow for the year ended June 30, 1997 was primarily attributable to an increase
in payables to third party consignors and other accounts payable by
approximately $4,700,000, largely due to a substantial increase in the auctions
held in June 1997, in addition to the operating profits of $1,383,032. This
increase was primarily offset by the increase in various receivables of
approximately $5,300,000 and cash expenditures for the increase of inventories
of approximately $400,000 during this year.
<PAGE>
The Company had a negative cash flow from investing activities of $174,548
for the year ended June 30, 1997 as compared to positive cash flow of $349,562
for the previous year, a decrease of $524,110. The negative cash flow for the
year ended June 30, 1997 was primarily attributable to capital expenditures for
property and equipment of approximately $109,000 and additional expenditures for
goodwill of approximately $66,000.
During the year ended June 30, 1997, the Company borrowed an additional
$1,400,000 from Brown Brothers Harriman & Co. ("Brown Brothers") in the form of
a term loan, due in July 1997, for the express purpose of extending additional
advances to consignors. During this same period, the Company reduced its
borrowings under its revolving credit facility by $565,000, paid other demand
notes in the amount of $400,000 and paid down on its term loans approximately
$402,000. This provided for a net increase in cash provided by financing
activities of approximately $32,000.
The revolving credit agreement with Brown Brothers was entered into in May
1995, and provides for a credit facility for working capital purposes in an
aggregate amount of $6,000,000. Borrowings under this facility are based on a
formula of account receivables, inventory and consignor advances. This credit
facility is used to fund cash advances and inventory purchases as well as to
provide additional liquidity using the Company's auction receivables and other
assets as collateral. At June 30, 1997, borrowings under this facility
aggregated $5,075,000 and are payable on demand. On June 29, 1995, the Company
entered into a five year term agreement for $375,000 ($237,500 balance at June
30, 1997) with Brown Brothers, the proceeds which were used to fund expenses
relating to the Company's move to and refurbishment of its current West
Caldwell, New Jersey location.
The loan agreements with Brown Brothers contain various financial and
operating guidelines to which the Company must adhere and which, among other
things, prohibit payment of dividends or like distributions without the consent
of Brown Brothers. Brown Brothers has agreed that, absent a material adverse
change (as determined by Brown Brothers) or event of default, it will provide
the Company with a 120-day notification period prior to issuing a demand for
repayment, provided that the Company is in compliance with such guidelines.
Brown Brothers has advised the Company that, because the facility is a demand
credit facility rather than a contractually committed credit facility, the
failure of the Company to be in compliance with such guidelines is not, in
itself, an event of default, and that the only consequence of its failure to be
in such compliance is that Brown Brothers has the right to demand immediate
repayment of all amounts outstanding without the otherwise applicable 120-day
advance notice period. The Company believes that at June 30, 1997, it was in
compliance with such guidelines.
A buyer of auctioned property may be permitted to take possession of the
property before payment is made. Most accounts receivable are collected within
30 to 60 days, which is consistent with business practice in the collectible
markets. For the years ended June 30, 1996 and 1997, the Company's expense
relating to bad debt was approximately $146,131 and $264,411 respectively. Over
the past ten years the Company's history of bad debts has been less than 1% of
aggregate sales. For the year ended June 30, 1996 and 1997 these amounted to
.49% and .82% respectively, of aggregate sales.
Because of the nature of the auction business of the Company, there is a
relationship between accounts receivable, advances to consignors, and payable to
consignors. Depending upon the relationship of the balance sheet date to a given
auction sale date and a settlement date for a given auction, these balances
could change substantially from one balance sheet date to another.
In the cycle of any single auction, the effect on the balance sheet and on
the Company's cash flows is significant when compared to the total assets of the
Company.
The cycle for a single auction begins with consignors contracting with the
Company to sell their property at auction. Typically these contracts are signed
from 8 to 16 weeks in advance of the auction sale date. No entry is made on the
balance sheet of the Company when the Company receives the property for auction
or when a contract for the consignment to the auction is signed. Since the
contract for the sale of the property is for services not yet rendered, there is
no financial statement impact.
At the time of the consignment, or any time thereafter until the auction
sale date, the consignor may request a cash advance which is a prepaid portion
of the prices to be realized of the property irrevocably committed to be sold in
the auction. The cash advance takes the form of a self-liquidating, secured loan
to the consignor, using the property consigned as collateral. Cash advances to
consignors are often used as a marketing tool in order to obtain property for a
sale. When the cash advance is made, there is an increase of the accounts of the
Company in cash advances to consignors, and simultaneously, there is a
corresponding decrease in cash.
<PAGE>
Approximately 6 weeks after the auction date, often referred to as the
settlement date, the payables to consignors decrease to zero as all the
consignors are paid and the Company withholds a portion of the amounts due the
consignor for the sale of the property as an offset to repay the principal
amount and the accrued interest on, the cash advances to consignors (or loans to
consignors), and there is a decrease in cash, corresponding to the net amount
paid to the consignors.
The entire cycle for a single auction typically is about 14 to 22 weeks in
duration. Because of the high level of activity in the Company, single auction
cycles do not occur in series, with the next cycle beginning immediately after
the previous cycle ends. Rather, single auction cycles occur in parallel. For
example, when a certain cycle ends, a second cycle may be at the midpoint, while
yet a third cycle is just beginning. Depending upon the relative values of the
property consigned to each sale in the three cycles in this example, and
depending upon the demand for auction advances in each of the cycles, the
cumulative effect on the balance sheet, and particularly the current assets and
current liabilities and the Company's cash flows, is very significant.
The Company has developed both a customer and supplier base of major stamp
dealers and collectors throughout the world that services the Company's stamp
operations, which is the core the Company's business. Although intense
competition exists for the acquisition of quality properties for purchase or
consignment from estates and private collectors, the Company believes that the
short-term and long-term availability of these items will continue to be
sufficient to augment the core dealer-based business. While there can be no
assurance that prices of and demand for the collectibles offered by the Company
will not decrease in the future, demand has traditionally not been adversely
affected by negative economic conditions. Because the Company has observed an
increase in the general market for sports trading cards and sports memorabilia,
it has moderately expanded its operations in this area. The sports collectibles
market is, however, more volatile than the stamp market.
However, the Company's need for liquidity and working capital may increase
as a result of its potential business expansion activities. In addition to the
need for such capital to enhance the Company's ability to offer cash advances to
a larger number of potential consignors of property (which is an important
aspect of the marketing of an auction business), the Company will require
additional working capital in the future in order to further expand its sports
trading card and sports memorabilia auction business, to acquire collectibles
for sale in the Company's business, to expand into sales of other collectibles
and to initiate any other new business activities.
As of June 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 The
securities purchased by the Company, which were acquired directly from PICK, are
restricted and accordingly are subject to restrictions on transferability. (Greg
Manning, the Company's President, Chief Executive Officer and Chairman of the
Board, was a member of the Board of PICK and resigned this position during the
year ended June 30, 1997.)
The fair value of the Company's investment in PICK, as stated in the
financial statements included herein, has been estimated by the Company
utilizing arms' length private transactions, in PICK's common stock, as
described in PICK's public filings under the Securities Exchange Act of 1934, as
amended. Such valuation is contingent upon PICK's ability to generate future
cash flows and the Company believes it is reasonably possible, based upon a
review of such public filings, that the estimated value could change
substantially in the near term.
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 will consider exploring financing
alternatives including increasing its working capital credit facilities or
raising additional debt or equity capital.
<PAGE>
FINANCIAL REPORTING MATTERS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which requires impairment losses to be recorded on
long-lived assets used in operations where indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company has adopted Statement 121 in the year ended June 30, 1997 and, based on
current circumstances, does not believe the effect of the adoption is material.
INFLATION
The effect of inflation on the Company has not been significant during the
last two fiscal years.
SAFE HARBOR STATEMENT
From time to time, information provided by the Company, including but not
limited to statements in this report, or other statements made by or on behalf
of the Company, may contain "forward-looking" information within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. The cautionary statements set forth
below identify important factors that could cause actual results to differ
materially from those in any forward-looking statements made by or on behalf of
the Company:
- The business of the Company is substantially dependent upon obtaining
collectibles on consignment for sale at auction, and to a lesser extent
the ability of the Company to purchase collectibles outright for sale
at auction. At times there is a limited supply of collectibles
available for sale by the Company, and such supply varies from time to
time. While the Company generally has not experienced a lack of
collectibles that has prevented it from conducting appropriately sized
auctions on an acceptable schedule, no assurance can be given that the
Company will be able to obtain consignments of suitable quantities of
collectibles in order to conduct auctions of the size, and at the
times, the Company may desire in the future. The Company's inability to
do so would have a material adverse effect on the Company.
- The development and success of the Company's business has been and
will continue to be dependent substantially upon its President,
Chairman and Chief Executive Officer, Greg Manning, and significantly
upon its Executive Vice President, William T. Tully, Jr. The
unavailability of Mr. Manning, for any reason, would have a material
adverse effect upon the business, operations and prospects of the
Company, and the unavailability of Mr. Tully could adversely affect the
Company's expansion prospects if a suitable replacement is not engaged.
- The Company frequently grants credit to certain purchasers at its
auctions permitting them to take immediate possession of auctioned
property on an open account basis, within established credit limits,
and to make payment in the future, generally within 30 days. This
practice facilitates the orderly conduct and settlement of auction
transactions, and enhances participation at the Company's auctions. In
such events, however, the Company is liable to the seller who consigned
the property to the Company for the net sale proceeds even if the buyer
defaults on payment to the Company. While this practice has not
resulted in any material loss to the Company, the dollar volume of the
Company's potential exposure from this practice could be substantial at
any particular point in time.
- The business of selling stamps and other collectibles at auction is
highly competitive. The Company competes with a number of auction
houses throughout the United States and the world. While the Company
believes that there is no dominant company in the stamp auction or
collectibles business in which it operates, there can be no assurances
that other concerns with greater financial and other resources and name
recognition will not enter the market.
- The Company may be adversely affected by the costs and other effects
associated with (i) legal and administrative cases and proceedings;
(ii) settlements, investigations, claims and changes in those items;
and (iii) adoption of new, or changes in, accounting policies and
practices and the application of such policies and practices.
<PAGE>
- The Company's results of operations may also be affected by the
amount, type and cost of financing which the Company maintains, and any
changes to the financing.
- The Company intends to consider appropriate acquisition candidates as
described in "Future Planned Expansion" herein. There can be no
assurance that the Company will find or consummate transactions with
suitable acquisition candidates in the future.
<PAGE>
Item 7. FINANCIAL STATEMENTS
The Financial Statements of the Company, together with the report of
independent accountants thereon, are presented under this Item 7:
INDEX
Page
Number
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Balance Sheet -- June 30, 1997 . . . . . . . . . . . . . . . . .19
Consolidated Statements Of Operations -- Years ended June 30, 1996 and
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Consolidated Statement of Stockholders' Equity--Years ended June 30,
1996 and June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . .. . . .21
Consolidated Statements of Cash Flows -- Years ended June 30, 1996 and
June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .22
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 23
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Greg Manning Auctions, Inc.
We have audited the accompanying consolidated balance sheet of Greg Manning
Auctions, Inc. and Subsidiaries as of June 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Greg Manning
Auctions, Inc. and its Subsidiaries as of June 30, 1997, and the results of
their operations and their cash flows for the years ended June 30, 1996 and 1997
in conformity with generally accepted accounting principles.
Amper, Politziner & Mattia
October 9, 1997
Edison, New Jersey
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
June 30, 1997
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 635,221
Accounts receivable
Auctions receivable 10,829,915
Advances to consignors 5,707,297
Note receivable - current portion 456,536
Inventory 3,898,251
Due from affiliate - CRM 170,887
Deferred tax asset 184,000
Prepaid expenses and deposits 136,515
----------------
Total current assets 22,018,622
Property and equipment, net 656,793
Goodwill 1,766,080
Marketable securities 215,200
Notes receivable - long-term portion 145,947
Deferred tax asset 69,400
Other assets 657,275
================
Total assets $25,529,317
================
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $ 6,475,000
Note payable - current portion 590,420
Payable to third party consignors 8,175,941
Accounts payable 1,596,848
Accrued expenses 412,862
Income taxes payable 121,786
----------------
Current liabilities 17,372,857
Notes payable - long-term portion 421,098
----------------
Total liabilities 17,793,955
----------------
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 884,872
----------------
Total stockholders' equity 7,735,362
----------------
Total liabilities and stockholders' equity $25,529,317
================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations
Years ended June 30,
----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Operating revenues
Sales of merchandise $12,751,561 $11,691,184
Commissions earned 2,685,629 3,359,981
---------------- ----------------
15,437,190 15,051,165
---------------- ----------------
Operating expenses
Cost of merchandise sold 10,029,596 8,286,526
General and administrative 4,620,947 4,604,676
Marketing 591,573 776,931
---------------- ----------------
15,242,116 13,668,133
---------------- ----------------
Operating profit 195,074 1,383,032
Other income (expense)
Gain on sale of marketable securities 1,067,303
Interest and other income 280,910 708,252
Interest expense (567,848) (847,207)
---------------- ----------------
Income before income taxes 975,439 1,244,077
Provision for income taxes 439,056 583,473
---------------- ----------------
Net income 536,383 660,604
================ ================
Net income per share - primary $ 0.12 $ 0.15
Weighted average number common and
dilutive equivalent shares outstanding 4,379,673 4,520,157
================ ================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statement of Stockholders' Equity
Years ended June 30, 1996 and 1997
Unrealized Retained
Preferred stock Common stock Additional gain (loss) on earnings/
----------------------- ------------------------ Paid-in marketable (Accumulated
Number Par Number Par capital securities Deficit) Total
of shares value of shares value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 - - 3,607,661 36,077 5,708,026 $ - (312,115) 5,431,988
Proceeds from exercise
of warrants - net 812,336 8,123 1,012,955 1,021,078
Proceeds from sale of warrant 100,000 100,000
Unrealized gain on
marketable securities 1,405,000 1,405,000
Net income 536,383 536,383
________ ________ _________ _______ _________ __________ __________ __________
Balance, June 30, 1996 - - 4,419,997 44,200 6,820,981 1,405,000 224,268 8,494,449
Cost of registration (S-3) (1,291) (1,291)
Unrealized loss on
marketable securities (1,418,400) (1,418,400)
Net income
660,604 660,604
________ ________ _________ _______ _________ __________ __________ __________
Balance, June 30, 1997 - - 4,419,997 44,200 6,819,690 (13,400) 884,872 7,735,362
========== ======= ========== ======== =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
Years ended June 30,
-------------------------------
1996 1997
--------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 536,383 $ 660,604
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 339,013 343,614
Provision for bad debts 146,131 264,411
Gain on sale of marketable securities (1,067,303) -
Deferred tax expense (benefit) 217,043 (150,521)
(Increase) decrease in assets:
Auctions receivable (227,743) (2,091,100)
Advances to consignors (857,281) (3,612,812)
Notes receivables (737,466) 421,727
Inventory 54,301 (402,025)
Due from affiliate - CRM (38,622) (132,265)
Income taxes receivable 228,911 34,345
Prepaid expenses and deposits 106,311 173,318
Other assets (2,696) 75,000
Increase (decrease) in liabilities:
Payable to third-party consignors (1,394,933) 3,873,151
Accounts payable (273,354) 832,221
Accrued expenses 117,495 141,515
Income taxes payable 169,400 (212,122)
--------------- --------------
(2,684,410) 219,061
--------------- --------------
Cash flows from investing activities:
Capital expenditures for property and equipment (119,260) (108,726)
Additional goodwill (79,178) (65,822)
Purchase of investment stock (460,000) -
Proceeds from sale of marketable securities 1,008,000 -
--------------- --------------
349,562 (174,548)
--------------- --------------
Cash flows from financing activities:
Net proceeds from demand notes payable 1,295,000 435,000
Repayment of loans payable (479,525) (401,507)
Net proceeds from issuance of stock 1,121,078 (1,291)
--------------- --------------
1,936,553 32,202
--------------- --------------
Net change in cash and cash equivalents (398,295) 76,715
Cash and cash equivalents at beginning of period 956,801 558,506
=============== ==============
Cash and cash equivalents at end of period $ 558,506 $ 635,221
=============== ==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Notes to Consolidated Financial Statements
June 30, 1996 and 1997
(1) Nature of Business and Summary of Significant Accounting Policies
Greg Manning Auctions, Inc. and its wholly-owned subsidiaries (the
"Company") is in the business of conducting auctions and private sales of
collectibles, including rare stamps, stamp collections and stocks, as well as
other collectibles such as rare documents, sports trading cards and sports
memorabilia.
REVENUE RECOGNITION
Revenue is recognized when the collectibles are sold and is represented by
an auction 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.
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 catalogue. 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 the lot in question. To date, returns have not been
material. Large collections are generally sold on an "as is" basis.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
CONCENTRATION OF CREDIT RISK
The Company frequently extends trade credit in connection with its auction
sales which are held throughout the United States. The Company evaluates each
customer's creditworthiness on a case-by-case basis; generally the customers who
receive trade credit are professional dealers who have regularly purchased
property at the Company's auctions or whose reputation within the industry is
known and respected by the Company.
In situations where trade credit is extended, the purchaser generally takes
possession of the property before payment is made by the purchaser to the
Company, and the Company is liable to the consignor for the net sales proceeds
(auction hammer price less commission to the Company). The Company pays the
consignor generally not later than the 45th day after the sale, and when trade
credit is extended, the Company assumes all risk of loss associated with the
trade credit, and the responsibility of collection of the trade credit amount
from the purchaser. Losses to date under these situations have not been
material.
<PAGE>
Certain significant sales of inventory owned by the Company are made with
extended payment terms (up to twelve months). The Company evaluates each
customer's credit worthiness on a case by case basis; generally these customers
are professional dealers or other individuals who have purchased property at the
Company's auctions or whose reputation within the industry is known and
respected by the Company. These significant receivables are collateralized by
certain assets held by the Company.
As of June 30, 1997, 47% ($2,651,000) of advances to consignors consists of
amounts advanced to an individual and related entities. The amount due from this
consignor after settlement subsequent to June 30, 1997, is collateralized by
certain assets.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
The Company periodically reviews the age and turnover of its inventory to
determine whether any inventory has become obsolete or has declined in value and
incurs a charge to operations for known and anticipated inventory obsolescence.
The Company has not incurred any material charges to operations for inventory
obsolescence. Inventories are stated at the lower of cost or market. Cost is
determined by specific identification.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in results of operations for the period.
Leasehold improvements are amortized over the shorter of the estimated useful
lives or the remaining life of the lease. The cost of repairs and maintenance is
charged to operations as incurred.
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 June
30, 1997 was $254,499. Amortization of goodwill was $86,233 and $89,224 for the
years ended June 30, 1996 and 1997, respectively. The recoverability of goodwill
is evaluated at each 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.
INVESTMENTS
The Company accounts for marketable securities pursuant to the Statement of
Financial Accounting Standards (SFAS) 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.
Approximately $416,000 of other investments, which consist of investments
in private companies and a venture capital partnership that have no readily
determinable market, are carried at cost, which approximates fair value.
FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable approximated fair value as
of June 30, 1997 because of the relative short maturity of these instruments.
The carrying value of notes receivable, demand notes payable to bank and loans
payable approximated fair value at June 30, 1997 based upon quoted market prices
for the same or similar instruments.
<PAGE>
STOCK-BASED COMPENSATION
During 1997, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial accounting and reporting
standards for stock-based compensation plans. The statement encourages, but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. In accordance with SFAS 123, since the Company has
elected to follow APB Opinion No.25, Note 16 discloses proforma effects on net
income as if compensation expense was recorded.
MARKETING COSTS
Advertising and catalogue costs are the only costs included in marketing
costs under the direct-response advertising method. These costs are expensed as
incurred, which occurs in the same quarter that the related auction takes place.
As a result, assets of the Company do not include any of these costs.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share of the Company's Common
Stock is computed using the weighted average number of common and common
equivalent shares outstanding for each year. Primary and fully diluted earnings
per share are the same for the years ended June 30, 1996 and 1997.
(2) SIGNIFICANT TRANSACTIONS
During the year ended June 30, 1997, two customers in three separate
transactions purchased certain inventory for an aggregate selling price of
$6,600,000, which increased operating profit by $2,241,500. Included in accounts
receivable at June 30, 1997, is $2,300,000 from one customer, collateralized by
certain assets.
During the year ended June 30, 1996, an individual and related entities
purchased certain inventory for $2,935,000, which increased operating profit by
$1,110,000. Included in notes receivable at June 30, 1997 is $602,000,
collateralized by certain assets.
In the foregoing transactions, the Company has physical possession of the
collateral, and has the right to sell such assets upon certain defined
circumstances of default.
It is reasonably possible that changes in this volatile and competitive
industry could occur in the near term which could adversely affect the value of
the collateral outlined above.
(3) CONCENTRATION OF CASH
The Company maintains its cash in bank deposit accounts which, at times may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
(4) RECEIVABLES
Advances to consignors represent advance payments, or loans, to the
consignor prior to the auction sale, collateralized by the items received and
held by the Company for the auction sale and the proceeds from such sale.
Interest on such amounts is generally charged at an annual rate of 12%. Such
advances generally are not outstanding for more than six months from the date of
the note.
<PAGE>
As of June 30, 1997, the allowance for doubtful accounts included in
auction receivables was $240,000.
<TABLE>
<CAPTION>
(5) NOTE RECEIVABLE
In connection with sale of merchandise, due in quarterly installments
<S> <C>
of $100,000, including interest at 8.25%, maturing November 4, 1998 $ 602,483
Less: current portion 456,536
-------
Notes receivable - long-term portion $ 145,947
=========
</TABLE>
<TABLE>
<CAPTION>
(6) INVENTORIES
<S> <C>
Stamps $ 2,209,948
Sports cards and sports memorabilia 555,729
Other collectibles 1,132,574
--------------------
$ 3,898,251
====================
</TABLE>
<TABLE>
<CAPTION>
(7) PROPERTY AND EQUIPMENT, NET
Estimated
Useful Lives
--------------------
<S> <C> <C>
Equipment $ 546,421 3-5 years
Furniture and fixtures 74,362 3-5 years
Vehicles 46,209 3-5 years
Property under capital leases 185,394 3-5 years
(computers and office equipment)
Leasehold improvements 413,732 5 years
-----------------
1,266,118
Less accumulated depreciation
and amortization 609,325
-----------------
Net property and equipment $ 656,793
=================
</TABLE>
Depreciation and amortization expense for the years ended June 30, 1996 and
1997 was $252,780 and $254,389, respectively. These amounts include amortization
of assets under capitalized leases of $62,767 and $46,283 for the years ended
June 30, 1996 and 1997, respectively.
(8) INCOME TAXES
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities at June 30, 1997 are
as follows:
<TABLE>
<CAPTION>
Current assets and liabilities
<S> <C>
Allowance for doubtful accounts $ 96,000
Inventory valuation reserve 34,000
Accrued officers bonuses 54,000
Net operating loss carryforward -
---------
Net current deferred tax asset $ 184,000
=========
Noncurrent assets and liabilities
Unrealized loss on marketable securities 9,000
Depreciation 23,400
Goodwill amortization (21,000)
State net operating loss carryforward 58,000
---------
Net noncurrent deferred tax asset $ 69,400
=========
</TABLE>
<TABLE>
<CAPTION>
The provisions for income taxes for the years ending June 30 consist of the following:
Years ended June 30,
-------------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Current tax expense $222,013 $734,094
Deferred tax expense (benefit) 217,043 (150,621)
-------- ---------
$439,056 $583,473
========= =========
</TABLE>
The provision for income taxes for the year ended June 30, 1996 was reduced by
$130,000 from the benefit of net operating loss carryforwards.
<TABLE>
<CAPTION>
A reconciliation between the actual income tax expense and income taxes computed
by applying the statutory Federal income tax rate is as follows:
Years ended June 30,
-------------------------------------
1996 1997
---------------- ----------------
<S> <C> <C> <C>
Federal income tax at 34% $ 332,000 $ 423,000
State income tax, net 59,000 125,000
Certain non-deductible expenses 40,000 31,000
Other 8,056 4,473
------ -----
$ 439,056 $ 583,473
========= =========
</TABLE>
The Company has net operating loss carryforwards for state tax purposes of
$980,000 expiring at various times from 2002 through 2004.
<PAGE>
(9) MARKETABLE SECURITIES
As of June 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 a 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 $0.225, as of June 30,
1997 as reported on the electronic bulletin board. The decrease in valuation,
net of deferred tax benefit, for the year ended June 30, 1997 of $1,418,400 was
charged to a separate component of Stockholders' Equity. The shares acquired by
the Company are not registered under the Securities Act and accordingly are
subject to restrictions on transferability. During the year ended June 30, 1996,
the Company sold 387,711 shares of PICK for approximately $1,090,000, resulting
in a pretax gain on the sale of marketable securities of approximately
$1,067,000.
The fair value of PICK has been estimated by the Company's management
utilizing arms-length private transactions in PICK's common stock, as described
in PICK's public filings under the Securities Exchange Act of 1934, as amended.
The valuation assigned to this investment is contingent upon PICK's ability to
generate future cash flows and it is reasonably possible, based upon a review of
such public filings, that the estimate could change substantially in the near
term.
(10) LEASES
The Company conducts its business on premises leased in various
locations under leases that expire through the year 2000. The Company utilizes
property and equipment under both operating and capital leases. Future minimum
lease payments under noncancelable leases in effect at June 30, 1997 are set
forth below:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 361,000
1999 262,000
2000 198,000
2001 28,000
Thereafter -
----------------
Total future minimum lease payments $ 849,000
================
</TABLE>
Rent expense was $329,139 and $342,036 for 1996 and 1997, respectively.
(11) RELATED-PARTY TRANSACTIONS
The Company accepts rare stamps and other collectibles for sale at auction
on a consignment basis from CRM. 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. In the case of auction, the hammer price of the sale, less the
seller's commission (for lots valued at under $100,000; no sellers commission is
payable for lots valued at over $100,000), is paid to CRM upon successful sale,
and in the case of private treaty, the net price after selling commissions is
paid to CRM. For the years ended June 30, 1996 and 1997, such auction and
private treaty sales (net of commission) were not material.
Greg Manning, Chairman and Chief Executive Officer of the Company, owns all
of the outstanding shares of CRM common stock. Messrs. Manning and William Tully
are executive officers of CRM and the Company. CRM owned 100% of the common
stock of the Company prior to the May 1993 public offering, and at June 30,
1997, owned approximately 29% of the shares of the Company's common stock.
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 year
ended June 30, 1997 and 1996 were approximately $184,000 and $199,000
respectively, in the case of Kramer, Levin, Naftalis & Frankel, and
approximately $127,000 and $167,000 respectively, in the case of Micro
Strategies, Incorporated.
(12) DEBT
The Company has a revolving credit agreement with Brown Brothers Harriman &
Co. ("Brown Brothers") pursuant to which Brown Brothers agreed to provide the
Company with a credit facility of up to $6,000,000. The Company pays an annual
fee for the facility equal to one quarter of one percent of the total amount of
such facility. Borrowings under this facility bear interest at the rate of 2%
above Brown Brothers base rate, which was 8 1/2% at June 30, 1997. Borrowings
under this facility at June 30, 1997 aggregated $5,075,000 and are payable on
demand.
<PAGE>
In November 1996, the Company borrowed an additional $1,400,000 from Brown
Brothers in the form of a term note bearing interest at 12% per annum. The term
note was paid in full in July 1997.
Total borrowings under the two facilities above were $6,475,000 at June 30,
1997.
<TABLE>
<CAPTION>
Additional borrowings are outlined below:
<S> <C>
Note payable to Brown Brothers, monthly principal
payments of $6,250 plus interest at prime plus 1 1/2%
through June 2000. Personally guaranteed by the
Chairman of the Company. $ 237,500
Notes payable in connection with purchase of inventory,
quarterly principal payments of $121,250 plus interest at
8% through October 1998. 693,750
Various capital lease obligations, various monthly
payments through October 2000 80,268
-------------
1,011,518
Less current portion 590,420
-------------
Notes payable - long-term portion $ 421,098
=============
</TABLE>
The approximate aggregate amount of all long-term
maturities for the years ending June 30 are as follows:
1998 $590,000
1999 304,000
2000 92,000
2001 25,000
The Company's obligations under the above revolving credit and term loan
facilities are collateralized by the Company's accounts receivable, advances to
consignors, and inventory. The loan agreements contain various guidelines
(including those relating to minimum tangible net worth and interest coverage
ratio) which the Company must adhere to and which prohibits payment of dividends
or like distributions without the consent of Brown Brothers. The Company
believes that at June 30, 1997, it was in compliance with such guidelines.
(13) COMMITMENTS AND CONTINGENCIES
As part of the purchase of the Ivy & Mader Philatelic Auctions, Inc. in
1993, the Company is required to pay additional amounts for fifteen years from
the date of purchase depending upon the financial performance of Ivy. These
additional amounts totaled $79,178 and $65,822 for the years ended June 30, 1996
and 1997, respectively, and are accounted for as an increase to goodwill and
amortized over the goodwill's remaining life.
<PAGE>
(14) SIGNIFICANT AGREEMENTS
AGREEMENTS WITH CRM
CRM had historically been engaged in the business of acquiring
collectibles (including collectibles of the type that are currently sold by the
Company) and selling them both through direct sales and through consignments for
sale at auction. Currently CRM no longer purchases any collectibles for resale.
In the past, CRM has been an important source of property consigned to the
Company for sale at auction. Although CRM continues to provide the Company with
property, the amount in relation to the Company's overall business has been
decreasing. For the year ended June 30, 1996 and 1997, consignments by CRM were
not material, accounting for less than 1% of revenues.
The CRM Inventory Agreement also provides that CRM will not compete with
the Company for the acquisition of collectibles from third parties that are
suitable for acquisition by the Company from time to time for use in its
business.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Greg Manning,
Chief Executive Officer of the Company and Mr. William Tully, Executive Vice
President of the Company. The agreement with Mr. Manning, as amended, expires on
June 30, 1999 and provides for Mr. Manning's services as President and Chief
Executive Officer of the Company, with an annual salary of $210,000 for the
years ended June 30, 1998 and 1999, plus a bonus based on income before income
taxes of the Company (subject to increase by the Board of Directors), together
with a nonaccountable expense reimbursement of $25,000 per annum. Under his
prior employment agreement, Mr. Manning received (i) in the year ended June 30,
1996, a salary equal to $175,000 per annum and a bonus equal to $54,758,and (ii)
in the year ended June 30, 1997, a salary equal to $175,000 per annum and a
bonus equal to $105,271.
The agreement with Mr. Tully, as amended, has a term ending on June 30,
1998 and provides for his services as Executive Vice President. Mr. Tully's
agreement provides for salary plus a bonus based on income before income taxes
of the Company. Mr. Tully received (i) in the year ended June 30, 1996, a salary
equal to $124,353 per annum and a bonus equal to $17,379, and (ii) in the year
ended June 30, 1997, a salary of $130,383 per annum and a bonus equal to
$30,136.
The Company currently maintains a $1,000,000 life insurance policy on the
life of Mr. Manning with benefits payable to the Company.
(15) SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Following is a summary of supplementary cash flow information:
For the year ended June 30,
1996 1997
----------------- -----------------
<S> <C> <C>
Interest paid $ 556,801 $ 828,322
Income taxes paid 53,121 794,426
Noncash investing and financing activities:
Acquisition of inventory under note payable 385,971 700,000
Note receivable in conjunction with sale of division 210,000
Sale of stock 81,704
Acquisition of PCT stock relating to sale of inventory 200,000
</TABLE>
<PAGE>
(16) CAPITAL STOCK AND WARRANTS
In May 1993, the Company completed a public offering (the "Public
Offering") of 747,500 units of its securities (the "Units") at $6.25 per Unit.
Each Unit consists of two shares of the Company's Common Stock and two callable
common stock purchase warrants (the "Warrants"), each of which initially
entitled the holder to purchase one share of common stock at an exercise price
of $3.4375 per share. As of June 30, 1997, after taking into account certain
adjustments, each Warrant entitles its holder to purchase 1.24 shares of Common
Stock at a price of $2.7733 per share and is exercisable for a four year period
commencing May 14, 1994. At June 30, 1997, none of these warrants had been
exercised. In connection with the Public Offering, the Company issued to the
underwriters in such offering 65,000 unit purchase warrants (the "Unit Purchase
Warrants"), each of which initially entitled the holder to purchase, through May
14, 1998, one Unit (each consisting of two shares of Common Stock and two
Underwriters' Warrants (as hereinafter defined) at an exercise price of $10.31
per Unit. As a result of the private placement offering and the Regulation S
offering, the underwriters to whom Unit Purchase Warrants were issued in
connection with the Company's initial public offering were entitled to an
adjustment in the exercise price of such Unit Purchase Warrants from $10.31 to
$7.0893 each, and an adjustment in the number of units for which the Unit
Purchase Warrants are exercisable from one unit per Unit Purchase Warrant to
1.4543 units per Unit Purchase Warrant. The warrants (the "Underwriters'
Warrants") issuable upon exercise of the Unit Purchase Warrants will be subject
to the same terms and conditions of the Warrants, except that the Underwriters'
Warrants will not be freely transferable and will not be subject to repurchase
by the Company. At June 30, 1997, none of the Unit Purchase Warrants or
Underwriters' Warrants had been exercised.
On November 4, 1994, in a private placement to certain "accredited"
investors, the Company sold 257,500 shares of its common stock at $2.00 per
share. For the purchase price, each investor also received a warrant (the
"Purchaser Warrants") which initially entitled the holder to purchase one share
of Common Stock at $1.75 per share (amended from $2.25 per share). The number of
shares of Common Stock issuable upon exercise of the Purchaser Warrants was
subsequently increased to 1.13 shares, and the exercise price was subsequently
reduced to $1.5528 per share. In connection with such private placement, the
Company also issued warrants (the "Agents' Warrants") to the placement agents in
the private placement, exercisable for 72,720 shares of Common Stock at an
exercise price of $1.74 per share. At June 30, 1997, all of the Purchaser
Warrants and Agents' Warrants had been exercised. The Company received
approximately $336,000 in net proceeds from the private placement offering in
the year ended June 30, 1995 and approximately $490,000 from the exercise of
these warrants in the year ended June 30, 1996.
On June 29, 1995, the Company consummated an offshore offering for sale of
500,000 units of its securities (the "Regulation S Offering"). For a purchase
price of $1.50 per unit, each purchaser received one share of the Company's
Common Stock and one warrant to purchase an additional share at $1.50 per
warrant (subject to certain adjustments). The Regulation S Offering was made
solely to certain offshore investors in compliance with, and under the exemption
to registration provided by, Regulation S under the Act. At June 30, 1997, all
the warrants had been exercised. The Company received approximately $721,000 in
net proceeds from the Regulation S Offering in the year ended June 30, 1995 and
$750,000 from the exercise of these warrants in the year ended June 30, 1996.
In February 1996, the Company issued to an individual in a private
placement, a warrant to purchase, at any time prior to March 1, 1997, 400,000
shares of the Company's Common Stock at an exercise price of $4.00 per share.
This warrant has expired without being exercised.
STOCK OPTION PLAN
The Company's 1993 Stock Option Plan, as amended (the "1993 Plan"), is
administered by the Board of Directors or a Stock Option Committee thereof
(hereinafter, the "Committee") and provides for the grant of options to purchase
shares of common stock to such officers, directors and employees of the Company,
consultants to the Company, and other persons or entities as the Committee may
select. A total of 650,000 shares of common stock has been reserved for issuance
pursuant to the plan. The option exercise price is determined by the Committee
in its sole discretion; provided, however, that the exercise price of an option
shall be at least 100% of the fair market value (as defined) of a share of
common stock on the date the option is granted. Options granted have a maximum
ten year term and vest over periods up to four years. All options granted
through June 30, 1997 have been granted with exercise price equal to market
value on the date of grant. Outlined below is a summary of the changes under the
Plan:
<PAGE>
<TABLE>
<CAPTION>
1996 1997
---------------------------------------- ---------------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding - beginning of year 307,500 $ 3.05 494,500 $ 2.99
Granted 221,000 2.93 205,000 1.38
Exercised - - - -
Forfeited (34,000) 3.18 (67,000) 2.75
--------------- ----- --------------- ----
Outstanding - end of year 494,500 $ 2.99 632,500 $ 2.50
=============== ======= =============== ======
Exercisable - end of year 271,250 $ 3.01 340,875 $ 3.07
=============== ======= =============== ======
</TABLE>
The weighted average fair value of options granted during 1996 and 1997 was
$1.43 and $.55, respectively.
<TABLE>
<CAPTION>
Following is a summary of the status of stock options outstanding at June 30, 1997:
<S> <C> <C>
Exercise price range $1.38 - $2.00 $2.81 - 3.38
Outstanding options
Number 255,000 377,500
Weighted average remaining contractual life 9.2 years 7.2 years
Weighted average exercise price $1.50 $3.17
Exercisable options
Number 50,000 290,875
Weighted average exercise price $2.00 $3.25
</TABLE>
Proforma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1997, respectively: risk-free interest rates of 6.5%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 47%; and weighted-average expected life of the option
of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
<PAGE>
For purposes of proforma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Company's
proforma information follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ----------
<S> <C> <C>
Proforma net income $ 528,823 $ 623,604
Proforma earnings per share
Primary .12 .14
Fully diluted .11 .14
</TABLE>
There was no compensation expense recorded from stock options for the years
ended June 30, 1996 and 1997.
On September 10, 1997, the Board authorized a repricing plan, subject to
shareholder approval, pursuant to which employees and certain consultants with
non-qualified stock options awarded under the 1993 Plan and bearing exercise
prices equal to or in excess of $2.8125 per share, with certain exceptions, will
be permitted to exchange their old options for new options, exercisable at a
price equal to the Fair Market Value of the Company's Common Stock on December
10, 1997 (the proposed date of the 1997 Annual Meeting of Shareholders),
provided that such Fair Market Value is less than the exercise price of the old
options. The determination of Fair Market Value will be made in accordance with
the terms of the 1993 Plan. Certain consultants to the Company will not be
entitled to participate in the repricing plan
In addition, the Board of Directors has adopted, also subject to
shareholder approval, the Company's 1997 Stock Incentive Plan (the "1997 Plan"),
which, among other things, increases the number of shares available for issuance
under the 1993 Plan and the 1997 Plan to 850,000 in the aggregate.
It is expected that the repricing plan and the 1997 Plan will be presented
to the shareholders for approval in connection with the 1997 annual meeting of
shareholders.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and by-laws contain certain
anti-takeover provisions that could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company without negotiating with its Board of
Directors. Such provisions could limit the price that certain investors might be
willing to pay in the future for the Company's securities. Certain of such
provisions provide for a Board of Directors with staggered terms, allow the
Company to issue preferred stock with rights senior to those of the common
stock, or impose various procedural and other requirements which could make it
more difficult for stockholders to effect certain corporate actions.
(17) OTHER INFORMATION
In November 1996 it was determined that the Company's proposed acquisition
of the Latham Companies, Inc., the parent company of Larry Latham Auctioneers,
Inc., would not be consummated.
(18) NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement
128, "Earnings per Share," superseding Opinion 15. The main goals of the
Statement is to harmonize the EPS calculation in the United States with those
common in other countries and with International Accounting Standard No. 33 and
to address criticisms from consultants that Opinion 15 contained unnecessarily
complex and arbitrary provisions. The Statement is effective for fiscal years
after December 15, 1997.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure." Statement 129 continues the existing requirements to
disclose the pertinent rights and privileges of all securities other than
ordinary common stock but expands the number of companies subject to portions of
its requirements. Specifically, the Statement requires all entities to provide
the capital structure disclosures previously required by Opinion 15. Companies
that were exempt from the provisions of Opinion 15 will now need to make those
disclosures. The Statement is effective for financial statements for periods
ending after December 15, 1997.
<PAGE>
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Statement 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of the Statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners
("Comprehensive income"). Comprehensive income is the total of net income and
all other nonowner changes in equity. The Statement is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted.
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." Statement No. 131 requires disclosures
for each segment that are similar to those required under current standards with
the addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic date by country, as opposed to broader geographic
regions as permitted under current standards. The Statement is effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted.
In management's opinion, SFAS Nos. 128, 129,130 and 131 when adopted, will
not have a material effect on the Company's financial statements.
<PAGE>
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
- --------------------------------------------------------------------------------
On October 31, 1995, the Company dismissed Price Waterhouse, LLP (PW) as its
independent auditors. Amper, Politziner & Mattia was engaged as the Company's
independent auditors for the fiscal years ended June 30, 1996 and 1997.
PART III.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The following persons are all of the directors and executive officers of
the Company:
Greg Manning, age 51, has been Chairman of the Board of the Company since its
inception in 1981 and Chief Executive Officer since December 8, 1992. Mr.
Manning was the Company's President from 1981 until August 12, 1993 and from
March 8, 1995 to the present. Mr. Manning also has been Chairman of the Board
and President of CRM since its inception, which he founded as "Greg Manning
Company, Inc." in 1961. Mr. Manning is currently on the Board of Directors of
the State Bank of South Orange, New Jersey and is Chairman of the bank's audit
committee and member of the bank's executive committee. During the year ended
June 30, 1997, Mr. Manning resigned as a director of PICK Communications Corp.
William T. Tully, Jr., age 51, has been Executive Vice President of the Company
since August 1990. From August 12, 1993 to August 14, 1994, and since February
22, 1995, Mr. Tully has been Chief Operating Officer. From the Company's
inception in 1981 until August 14, 1994, Mr. Tully was Secretary and Treasurer
of the Company, and from December 8, 1992 until August 14, 1994, and from June
5, 1995 to date, Mr. Tully has been a director. Mr. Tully was Senior Vice
President of the Company since its inception in 1981 until August 1990. Mr.
Tully has been Executive Vice President of CRM from August 1990, and has served
CRM in other management capacities since 1974.
David C. Graham, age 57, has been a Senior Vice President of the Company since
August 1990 and has been Senior Vice President of CRM since August 1990. Mr.
Graham has served the Company and CRM in various capacities since September
1978. Mr. Graham has been a licensed auctioneer since 1965. Prior to joining the
Company, Mr. Graham was employed by H.R. Harmer, a public auction house, from
1955 to 1977.
Daniel M. Kaplan, CPA, age 52, has been Chief Financial Officer of the Company
since October 18, 1995. Mr. Kaplan served as controller of Horowitz Rae Book
Manufacturers, Inc. from 1994 to 1995, as controller of Apex One, Inc. during
1993 and as a private management consultant from 1991 to 1993. Mr. Kaplan was
associated with Spectra Physics, Inc. and The Newark Group, Inc. from 1976 to
1991.
Scott S. Rosenblum, age 48, has been a director of the Company since December 8,
1992. Mr. Rosenblum has been a partner (since 1991) in the law firm of Kramer,
Levin, Naftalis & Frankel, and previously (from 1984 to 1991) was a partner in
the law firm of Stroock & Stroock & Lavan. Mr. Rosenblum received his J.D.
degree from the University of Pennsylvania.
Anthony L. Bongiovanni, Jr., age 38, is President of Micro Strategies,
Incorporated, a leading developer and supplier of microcomputer based business
applications throughout the New York, New Jersey and Pennsylvania areas, which
he founded in 1983. Mr. Bongiovanni has a B.S. in mechanical engineering from
Rensellaer Polytechnical Institute.
Albertino de Figueiredo, age 66, was appointed as a director of the Company on
September 10, 1997. In 1980, Mr. De Figueiredo founded AFINSA, S.A, a company
engaged in the business of philatelics and numismatics, and is currently
Chairman of the Board of AFINSA, S.A. and its subsidiaries. Mr. De Figueiredo is
also Vice-Chairman of the Board of Directors of FINARTE ESPANA, an art auction
house, and a member of the Executive Board of ASCAT, the International
Association of the Stamp Catalogue and Philatelic Publishers.
<PAGE>
Mr. William J. Dolan resigned as a member of the Board of Directors effective
May 8, 1997. On June 27, 1997, the Board of Directors appointed Mr. Bongiovanni
to fill the vacancy created by Mr. Dolan's resignation. On September 10, 1997,
the Board of Directors appointed Mr. De Figueiredo to fill another vacancy in
the Board of Directors.
The Company's directors are elected at the annual meeting of stockholders. The
Certificate of Incorporation provides that the members of the Board of Directors
be divided into three classes, as nearly equal in size as possible, with the
term of office of one class expiring each year. Accordingly, only those
directors of a single class can be changed in any one year and it would take
elections in three consecutive years to change the entire Board. Mr. Tully has
been elected to serve until the 1999 annual meeting of stockholders. Mr.
Bongiovanni has been appointed, and Mr. Rosenblum has been elected, to serve
until the 1997 annual meeting of stockholders. Mr. De Figueiredo has been
appointed, and Mr. Manning has been elected, to serve until the 1998 annual
meeting of stockholders. The Certificate of Incorporation also provides that
directors may be removed only for cause and that any such removal must be
approved by the affirmative vote of at least a majority of the outstanding
shares of capital stock of the Company entitled to vote generally in the
election of directors. While the Company believes that the foregoing provisions
are in the best interests of the Company and its stockholders, such requirements
may have the effect of protecting management against outside interests and in
retaining its position.
There are no family relationships among any of the directors or executive
officers of the Company.
The following sets forth the name of each officer, director and beneficial owner
of more than 10% of the Common Stock of the Company who failed to file on a
timely basis, as described on Forms 3, 4 and 5 and amendments thereto furnished
to the Company, reports required by Section 16 (a) of the Securities Exchange
Act of 1934 during the year ended June 30, 1997 and prior years and, for each
such person, the number of late reports, the number of transactions that were
not reported on a timely basis and any known failure to file a required form:
Scott S. Rosenblum (director): For year ended June 30, 1997, one late report.
ADVISORY COMMITTEE
The Company has an advisory committee (the "Advisory Committee") that includes
prominent collectors and other individuals involved in the philatelic and
collectibles business, with whom Mr. Manning has developed relationships over
the years. The members of the Advisory Committee individually meet from time to
time with the Company's Chairman and Chief Executive Officer to discuss current
trends or developments in the collectibles market. Members of the Advisory
Committee receive no compensation for their services, and their availability is
subject to their personal schedules and other time commitments. The Company
reimburses members for their reasonable out-of-pocket expenses in serving on the
Advisory Committee.
The Company believes that the members of the Advisory Committee have no
fiduciary or other duties, obligations or responsibilities to the Company or its
stockholders, and they will not acquire any such duty, obligation or
responsibility as a result of any meeting or consultation they may have with
management of the Company. Each member of the Advisory Committee has entered
into an agreement with the Company which, among other things, confirms that the
member has no such duty, obligation or responsibility, but also commits the
member to keep confidential and not disclose (or in any manner use for personal
benefit or attempt to profit from) any non-public information relating to the
Company that the member receives in such capacity, except to the extent that
disclosure is required by applicable law or legal process or to the extent the
information becomes public other than as a result of a breach of any member's
confidentiality agreement. The members serve at will and may resign, or be asked
to discontinue their services, at any time.
The members of the current Advisory Committee and their principal occupations
are as follows:
Sir Ronald Brierley, age 59, is Founder/President of Brierley Investments,
Limited, a publicly held New Zealand investment company. Sir Ronald is also
Chairman of GPG P/C, an investment company based in London, England. Sir Ronald
serves on the boards of Advance Bank, Australia, Ltd., Adriadne Australia Ltd.,
Australia Oil & Gas Corporation, Ltd., and the Australian Gaslight Company, and
he is also a trustee of Sydney Cricket and Sports Ground Trust. Sir Ronald has
had a life-long interest in stamps, beginning as a schoolboy, when he formed
Kiwi Stamp Company and acquired a dealer's certificate from the New Zealand
Stamp Dealers Federation. Sir Ronald has been selling and collecting stamps
since that time, and in 1989, he acquired a significant interest in Stanley
Gibbons, Ltd., a world renown stamp company located in London, England.
<PAGE>
Robert G. Driscoll, age 65, has been Chief Executive Officer (since 1981) of
Barrett & Worthen, Inc. and the Brookman Stamp Company of Bedford, New
Hampshire, both of which are engaged in the business of buying and selling
stamps. Mr. Driscoll served as Vice President of H.E. Harris Company, a
subsidiary of General Mills from 1978 to 1981, after having founded R&R Stamp
Company in 1958 and serving as its President until it was sold in 1978 to
General Mills. Mr. Driscoll is a past President of the American Stamp Dealers
Association (from 1977 to 1978) and is a lifetime member of the American First
Day Cover Society. He has been a member of the American Philatelic Society for
over 45 years.
Herman Herst, Jr., age 88, is recognized as the most prolific philatelic author
in the world, and has written numerous articles on philately and has authored
several stamp related books, including Nassau Street. Mr. Herst was President of
Herman Herst Jr. Auctions Inc., a public auction house (from 1934 to 1972) and
conducted a private retail stamp business as a sole proprietorship. He was also
an active philatelic auctioneer for many years, until his semi-retirement in
1981. He is a former President of the Society of Philatelic Americans and served
two terms on the Board of Directors of the American Stamp Dealers Association.
Among his many accomplishments, Mr. Herst received the John Luff Award from the
American Philatelic Society, the merit award from the Society of Philatelic
Americans and the Collectors Club of New York's award for Service to Philately.
He is currently a senior member of the American Society of Appraisers, an
honorary life member of the Philatelic Traders' Society of London and an
honorary life member of the American Stamp Dealers Association, a life member of
the Philatelic Traders' Society of London and an honorary life member of the
Writer's Unit of the American Philatelic Society. He is also the only American
stamp dealer to have ever served on the council of the Philatelic Traders'
Society of London.
Herbert LaTuchie, age 78, is President of House of Collectors, a retail
collectibles business, as well as President of Herb LaTuchie Auctions, a public
auction house of stamps. He was Chairman of the Board and Chief Executive
Officer (from 1954 to 1986) of Modern Builders Supply Company, Inc. and Modern
Manufacturing, Inc., the latter of which is one of the ten leading distributors
of building products in the United States. Mr. LaTuchie has been a life-long
collector of rare stamps, and he also collects sheet music and other paper
collectibles.
Joseph Levy, Jr., age 71, is president of Levy Venture Management, a real estate
rental development group involved in automotive retailing real estate in three
states. He is also a real estate developer of several properties located in
Illinois. Prior to joining Levy Venture Management, Mr. Levy was President of
Walton Chrysler-Plymouth (from 1953 to 1960), a car dealership in Chicago,
Illinois, and of Carol Buick (from 1961 to 1984), a car dealership in Evanston,
Illinois. He serves as a director of the Evanston Historical Society. He is also
a trustee of Evanston Hospital and the Culver Educational Foundation, a trustee
of the Chicago Historical Society and the Levy Senior Centers. Mr. Levy is a
collector of stamps, coins, watches and other collectibles.
Hector D. Wiltshire, age 55, is President and CEO of Wiltshire Technologies,
Inc., a high technology venture capital and consulting group, and is an
experienced collector of rare stamps. Mr. Wiltshire is a member of the
Association of Certified and Corporate Accountants (A.C.C.A) and the British
Computer Society (M.B.C.S.). Mr. Wiltshire holds degrees in Executive Business
Administration and marketing.
Item 10. EXECUTIVE COMPENSATION
Information regarding Executive Compensation will be in the
definitive proxy statement of the Company to be filed within 120 days of June
30, 1997 and is incorporated by reference.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding Security Ownership of Certain Beneficial
Owners and Management will be in the definitive proxy statement of the Company
to be filed within 120 days of June 30, 1997 and is incorporated by reference.
Item 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS
Information regarding Certain Relationships and Transactions will
be in the definitive proxy statement of the Company to be filed within 120 days
of June 30, 1997 and is incorporated by reference.
<PAGE>
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
Exhibit
No.
Description
-----------------------------------------------------------------------------
(a) (1) All Financial Statements of the Company for the year ended
June 30, 1997 are filed herewith. See Item 7 of this Report
for a list of such financial statements.
(2) Exhibits -- See response to paragraph (c) below.
(b) Reports on Form 8-K
Report on Form 8-K, filed on December 4, 1996.
(c) Exhibits
3.1 Restated Certificate of Incorporation of Registrant. Incorporated
by reference to Exhibit 3(a) to the Company's Form SB-2, Registration
Number 33-55792-NY, dated May 14, 1993 (the "1993 Form SB-2").
3.2 By-laws, as amended, of Registrant. Incorporated by reference to
Exhibit 3(b)to the 1993 Form SB-2.
10.1 1993 Stock Option Plan. Incorporated by reference to Exhibit
10(a) to the 1993 Form SB-2 and incorporated by reference to Exhibit A
to the Proxy Statement of the Company dated January 31, 1994.
10.2 Employment Agreement between Greg Manning and Registrant dated as
of May 14, 1993. Incorporated by reference to Exhibit 10(b) to the Form
SB-2 and incorporated by reference to Exhibit 4.1 to Form 10-QSB of
the Company for the period ended December 31, 1995, dated February 13,
1996, as amended.
10.3 Second Amendment to Employment Agreement between Greg Manning and
Registrant, dated as of September 11, 1997.*
10.4 Employment Agreement between William T. Tully and Registrant,
dated as of May 14, 1993. Incorporated by reference to exhibit 10(c) to
the form 1993 Form SB-2 and incorporated by reference to Exhibit 10.26
to Form 10-QSB of the Company for the period ended December 31, 1993
and dated February 22, 1994.
10.5 Inventory Acquisition and Non Competition Agreement between
Collectibles Realty Management, Inc. and Registrant, dated as of July
1, 1993. Incorporated by reference to Exhibit 10(e) to the 1993 Form
SB-2.
10.6 Financial Consulting Agreement with JWCharles Securities, Inc.
and Corporate Securities, Inc. Incorporated by reference to Exhibit
10(f) to the 1993 Form SB-2.
10.7 Registration Rights Agreement dated November 4, 1994, among the
Company and the holders of restricted stock. Incorporated by reference
to Exhibit 10.1 of the Company's Report on Form 8-K, dated November 4,
1994.
10.8 Shareholder's Common Stock Purchase Warrant, dated November 4,
1994, among the Company and the Selling Shareholders. Incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 8-K, dated
November 4, 1994.
<PAGE>
10.9 Placement Agent's Common Stock Purchase Warrant, dated November 4,
1994, among the Company and JW Charles Securities, Inc. and Corporate
Securities Group, Inc. Incorporated by reference to Exhibit 10.3 of the
Company's Report on Form 8-K, dated November 4, 1994.
10.10 Demand Promissory Note, dated June 1, 1995, of Greg Manning
Auctions, Inc.(Maker) to Brown Brothers Harriman & Co. (Holder).
Incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 8-K, dated May 26, 1995.
10.11 Demand Promissory Note, dated June 3, 1996, of Greg Manning
Auctions, Inc. (Maker) to Brown Brothers Harriman & Co. (Holder).
Incorporated by reference to Exhibit 10.10 of the Company's Report on
Form 10-KSB for the year ended June 30, 1996.
10.12 General Security Agreement, dated May 26, 1995, from Greg
Manning Auctions, Inc. to Brown Brothers Harriman & Co. Incorporated
by reference to Exhibit 10.2 of the Company's Report on Form 8-K,
dated May 26, 1995.
10.13 Guaranty, dated May 26, 1995, from Greg Manning Auctions, Inc.
and Ivy & Mader Philatelic Auctions, Inc. to Brown Brothers Harriman &
Co. Incorporated by reference to Exhibit 10.3 of the Company's Report
on Form 8-K, dated May 26, 1995.
10.14 Secured Promissory Note, dated November 19, 1996, by Greg Manning
Auctions, Inc., as maker, in favor of Brown Brothers Harriman & Co., as
payee. Incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 8-K, dated December 4, 1996.
10.15 Form of Stock Purchase Agreement, in connection with the offering
made pursuant to the exemption from registration provided by Regulation
S under the Securities Act of 1933. Incorporated by reference to the
Company's Report on Form 8-K, dated July 3, 1995.
10.16 Form of Purchase Warrant, in connection with the offering made
pursuant to the exemption from registration provided by Regulation S
under the Securities Act of 1933. Incorporated by reference to the
Company's Report on Form 8-K,dated July 3, 1993.
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
GREG MANNING AUCTIONS, INC.
Date: October 14, 1997
Greg Manning
Chairman of the Board
Chief Executive Officer & Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
Date: October 14, 1997
Greg Manning
Chairman of the Board
Chief Executive Officer and Director
(Principal Executive Officer)
Daniel M. Kaplan
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
William T. Tully, Jr.
Executive Vice President and
Director
Anthony Bongiovanni
Director
<PAGE>
EXHIBIT INDEX
Exhibit
No.
Description
-----------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation of Registrant. Incorporated
by reference to Exhibit 3(a) to the Company's Form SB-2, Registration
Number 33-55792-NY, dated May 14, 1993 (the "1993 Form SB-2").
3.2 By-laws, as amended, of Registrant. Incorporated by
reference to Exhibit 3(b) to the 1993 Form SB-2.
10.1 1993 Stock Option Plan. Incorporated by reference to Exhibit 10(a)
to the 1993 Form SB-2 and incorporated by reference to Exhibit A to
the Proxy Statement of the Company dated January 31, 1994.
10.2 Employment Agreement between Greg Manning and Registrant dated as
of May 14, 1993. Incorporated by reference to Exhibit 10(b) to the Form
SB-2 and incorporated by reference to Exhibit 4.1 to Form 10-QSB of
the Company for the period ended December 31, 1995, dated February 13,
1996, as amended.
10.3 Second Amendment to Employment Agreement between Greg Manning and
Registrant, dated as of September 11, 1997.*
10.4 Employment Agreement between William T. Tully and Registrant,
dated as of May 14, 1993. Incorporated by reference to Exhibit 10(c) to
the form 1993 Form SB-2 and incorporated by reference to Exhibit 10.26
to Form 10-QSB of the Company for the period ended December 31, 1993
and dated February 22, 1994.
10.5 Inventory Acquisition and Non Competition Agreement between
Collectibles Realty Management, Inc.and Registrant, dated as of July 1,
1993. Incorporated by reference to Exhibit 10(e) to the 1993 Form
SB-2.
10.6 Financial Consulting Agreement with JWCharles Securities, Inc.
and Corporate Securities, Inc. Incorporated by reference to Exhibit
10(f) to the 1993 Form SB-2.
10.7 Registration Rights Agreement dated November 4, 1994, among the
Company and the holders of restricted stock. Incorporated by reference
to Exhibit 10.1 of the Company's Report on Form 8-K, dated November 4,
1994.
10.8 Shareholder's Common Stock Purchase Warrant, dated November 4,
1994, among the Company and the Selling Shareholders. Incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 8-K, dated
November 4, 1994.
10.9 Placement Agent's Common Stock Purchase Warrant, dated November 4,
1994, among the Company and JW Charles Securities, Inc. and Corporate
Securities Group, Inc. Incorporated by reference to Exhibit 10.3 of the
Company's Report on Form 8-K, dated November 4, 1994.
10.10 Demand Promissory Note, dated June 1, 1995, of Greg Manning
Auctions, Inc.(Maker) to Brown Brothers Harriman & Co. (Holder).
Incorporated by reference to Exhibit 10.1of the Company's Reporton Form
8-K, dated May 26, 1995.
<PAGE>
10.11 Demand Promissory Note, dated June 3, 1996, of Greg Manning
Auctions, Inc.(Maker) to Brown Brothers Harriman & Co. (Holder).
Incorporated by reference to Exhibit 10.10 of the Company's Report on
Form 10-KSB for the year ended June 30, 1996.
10.12 General Security Agreement, dated May 26, 1995, from Greg Manning
Auctions, Inc. to Brown Brothers Harriman & Co. Incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 8-K, dated
May 26, 1995.
10.13 Guaranty, dated May 26, 1995, from Greg Manning Auctions, Inc.
and Ivy & Mader Philatelic Auctions, Inc. to Brown Brothers Harriman &
Co. Incorporated by reference to Exhibit 10.3 of the Company's
Report on Form 8-K, dated May 26, 1995.
10.14 Secured Promissory Note, dated November 19, 1996, by Greg Manning
Auctions, Inc., as maker, in favor of Brown Brothers Harriman & Co., as
payee. Incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 8-K, dated December 4, 1996.
10.15 Form of Stock Purchase Agreement, in connection with the offering
made pursuant to the exemption from registration provided by Regulation
S under the Securities Act of 1933. Incorporated by reference to the
Company's Report on Form 8-K, dated July 3, 1995.
10.16 Form of Purchase Warrant, in connection with the offering made
pursuant to the exemption from registration provided by Regulation S
under the Securities Act of 1933. Incorporated by reference to the
Company's Report on Form 8-K,dated July 3, 1993.
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 3 on Form S-3 to Registration Statement on Form SB-2 (No. 33-55792-NY) and
the Prospectus contained therein of our report dated October 9, 1997 appearing
on page 18 of Greg Manning Auctions, Inc.'s Annual Report on Form 10-KSB for the
years ended June 30, 1997 and June 30, 1996.
Amper, Politziner & Mattia
October 14, 1997
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the "Amendment"), made as of this
11th day of September 1997 and effective as of July 1, 1997, by and between Greg
Manning Auctions, Inc., a New York corporation having its principal office at
775 Passaic Avenue, West Caldwell, New Jersey 07006 (the "Company"), and Greg
Manning, an individual residing at 5 Hunter's Glen Road, Far Hills, New Jersey
07931 (the "Executive").
WHEREAS, the Company and the Executive entered into an Employment
Agreement dated as of May 14, 1993, as amended by an amendment effective as of
June 30, 1995 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the Agreement in
certain respects;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto, desiring to be legally bound, hereby agree as follows:
1. Paragraph 1 of the Agreement is hereby amended to extend the term of the
Agreement to June 30, 1999 (subject to earlier termination as provided in the
Agreement).
2. Paragraph 3(a) of the Agreement is hereby amended to delete the first
sentence thereof and insert in lieu thereof the following:
(a) For the full, prompt and faithful performance of all of his duties and
services hereunder, the Company shall pay the Executive an annual base salary of
$210,000 per year for the period of his employment hereunder.
3. All capitalized terms used herein and not otherwise defined shall have
their respective meanings as set forth in the Agreement.
4. This Amendment shall be effective for all purposes as of July 1,
1997. Except as hereby amended, all the terms and conditions of the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
GREG MANNING AUCTIONS, INC.
By: William T. Tully, Jr., Chief Operating
Officer and Executive Vice President
Greg Manning
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