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, 1998
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
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 $ 8,690,421.
The aggregate market value of the Common Stock held by non-affiliates
(excludes Greg Manning and Afinsa Bienes tangibles S.A.) of the Issuer as of
September 21, 1998 (based on closing sale price of $1.875 per share as reported
on NASDAQ), was $5,021,244.
As of September 21, 1998, 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, 1998, 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
<PAGE>
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
The Company conducts its operations directly and through its
subsidiaries Ivy & Mader Philatelic Acutions, 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 may contain 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 5% to 15%
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.
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 stamp
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 Galleries. During the year ended June 30, 1997, the Company determined
that Galleries should refocus its business in the area of mail stamp auctions
and Galleries held several such auctions during the year. In addition, in July,
1997, 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.) Galleries also
occasionally 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.
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 5%
to 15% and a commission of 15% from the buyers. The Company earns a commission
from the buyers of 10% to 15% in all of the Company's markets.
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. 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 Jersey, New York and
Maryland, 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.
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 10% to 15% of the hammer price of the property and sellers are charged a
commission of 5% 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.
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.
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.
The Company stores consigned property in a high security vault located
at the West Caldwell headquarters. The security system installed is rated by an
alarm service company, 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, in July, 1997, the assets of Cee-Jay Stamp Auctions, Inc., a
Maryland-based company which primarily conducts public and mail stamp auctions.
This expansion is not considered material to operations or the financial
statements.
In September, 1998, the Company purchased the inventory of the former
Nahan Galleries of New York City, New Orleans and Tokyo. The Company will
process the sale and marketing of this collection through the new Greg Manning
Fine Art Division of the Company.
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 is
presently involved in purchase negotiations for a company. No definitive
agreement has yet been reached. The impact on the Company could be significant.
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. In November, 1997, CRM
transferred beneficial ownership of 1,300,000 shares of the Company's common
stock to Greg Manning.At June 30, 1998, CRM held no shares 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, 1998, 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.
In May, 1998, the Company purchased from CRM inventory independently
appraised at $262,927. Included in Accounts Payable at June 30, 1998 is
approximately $78,500 which is due to CRM and will be paid in the ordinary
course of business.
Regulatory Matters
Regulation of the auction business varies from jurisdiction to
jurisdiction. In New York City, where some of the Company's auctions were 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 Matthew Bennett, Inc., Charles Shreve Galleries, Inc. H.R. Harmer,and 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 Lelands, Mastro Auctions and Teletrade.
Employees
The Company presently has 20 full-time employees, including its
President, Chief Executive Officer and Chairman of the Board, Greg Manning;
Executive Vice President, William T. Tully, Jr.; and Chief Financial Officer,
James A. Smith. 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 $116,000.
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.
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, each of which initially entitled the holder to
purchase one share of common stock at an exercise price of $3.4375 per share. At
June 30, 1998, 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, each of which initially entitled the holder to purchase,
through May 13, 1998, one Unit (each consisting of two shares of Common Stock
and two Underwriters' Warrants at an exercise price of $10.31 per Unit. All of
the warrants referred to above expired on May 13, 1998. None of such warrants
had been exercised.
The Company's Common Stock is listed on the Boston Stock Exchange
("BSE") under the symbols "GGM", and is quoted on the Nasdaq SmallCap System
("NASDAQ") under the symbol "GMAI". 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 totaled 85 at
September 15, 1998.
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, 1997 and 1998 are shown in the
following schedule:
<TABLE>
<CAPTION>
For the years ended June 30,
1997 1998
(Quarter) High Low High Low
<S> <C> <C> <C> <C>
First $4.125 $2.000 $2.438 $1.844
Second $2.688 $1.500 $2.313 $1.188
Third $1.688 $1.125 $1.844 $1.125
Fourth $2.375 $1.312 $2.125 $1.188
</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, 1997 and 1998, and
shows the comparisons for the respective years subdivided by source and market:
<TABLE>
<CAPTION>
For the year ended June 30, Percentages
------------------------------------- -----------------------------
1997 1998 1997 1998
------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Aggregate Sales $32,346,179 $22,487,908 100% 100%
===================================== =============================
By source:
A. Auction $20,654,995 $16,343,918 64% 73%
B. Sales of inventory 11,691,184 6,143,990 36% 27%
------------------------------------- -----------------------------
By market:
A. Philatelics $28,853,579 $21,685,478 89% 96%
B. Sports collectibles 1,043,009 588,148 3% 3%
C. Other collectibles 2,449,591 214,282 8% 1%
------------------------------------- -----------------------------
</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
5% 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, 1998 compared with Year ended June 30, 1997
Revenues: For the year ended June 30, 1998, operating revenues decreased
$6,360,744 (42%) to $8,690,421 compared with $15,051,165 for the year ended June
30, 1997. This decrease in revenues is largely attributable to a decrease in
sales of Company-owned inventory of $5,547,000 and a decrease in commissions
earned of $813,550. The primary reason for these decreases was a lack of
material available for auction during the first six months of 1998 which led to
the inability of Ivy & Mader to hold an auction during the second quarter of
1998.
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 decreased by 54%,
from $3,405,000 for the year ended June 30,1997 to $1,575,000 for the year ended
June 30, 1998. This decrease of $ 1,830,000 was mainly attributable to a
decrease in non-auction philatelic sales which decreased gross margins by
$1,824,000 in the year ended June 30, 1998 over the previous year.
Operating Expenses: The Company's aggregate operating expenses,
exclusive of cost of merchandise sold, for the year ended June 30, 1998 totaled
$4,847,506 compared with $5,381,607 for the year ended June 30, 1997,
representing a decrease of $534,101 (or 10%). The primary changes in the
operating expenses for the year ended June 30, 1998 from the prior year were
decreases in marketing costs of $195,932 (25%) and salaries and wages of
$138,275 (8%). The decrease in overall costs in combination with the revenue
decreases had the effect of increasing operating costs as a percent of operating
revenue from 36% during the year ended June 30, 1997 to 56% for the year ended
June 30, 1998.
Interest income and expense: Interest expense decreased $237,025 (28%)
to $610,181 for the year ended June 30, 1998 as compared to that of the previous
year. This decrease was attributable to lower average borrowings caused
primarily by the financing of a lower level of advances to consignors and
decreased borrowings for inventory purchases during the most recent year. The
lower interest expense was offset by a decrease in interest income during the
year ended June 30, 1998 of approximately $331,000. The Company charges interest
on advances given to consignors and generally on receivables past 30 days. The
lower level of consignor advances during the year ended June 30, 1998 resulted
in this decrease in interest income.
Provision for Income Taxes: For the year ended June 30, 1998, the
Company recorded an income tax benefit of $55,000 compared to a provision of
$583,473 for the preceding year.
Net Income : The Company recorded net loss for the year ended June 30,
1998 of $231,552 compared to net income of $ 660,604 for the year ended June 30,
1997, reflecting a decrease of $892,156 (135%) during this period. The decrease
in operating profit of $2,108,787 during the year ended June 30, 1998 which was
offset by a gain on sale of marketable securities of $672,452 and a decrease in
the provision for income taxes of $638,473 compared to the previous year were
the main contributors to the change in earnings.
Year 2000 Compliance
Many currently installed computer systems, software products and other
equipment utilizing microprocessors are coded to accept only two digit entries
in the date code field. These date code fields will need to accept four digit
entries to distinguish twenty-first century dates from twentieth century dates.
This is commonly referred to as the "Year 2000 issue".
The Company is aware of the Year 2000 issue and has commenced a program
to identify, remediate, test and develop contingency plans for the Year 2000
issue (the "Y2K Program"), to be substantially completed by the summer of 1999.
The Company has retained a consultant who will assist in the management of the
Y2K Program as it relates to (1) the software and systems used in the Company's
internal business; and (2) third party vendors, manufacturers and suppliers. The
Company currently does not anticipate that the cost of the Y2K Program will be
material to its financial condition or results of operations. Nevertheless,
satisfactorily addressing the Year 2000 issue is dependent on many factors, some
of which are not completely within the Company's control. Should the Company's
internal systems or the internal systems of one or more significant vendor or
supplier fail to achieve Year 2000 compliance, the Company's business and its
results of operations could be adversely affected.
The foregoing statements are forward looking. The Company's actual
results could differ.
Liquidity and Capital Resources
The Company experienced a positive cash flow from operating activities
of $2,168,098 for the year ended June 30, 1998 as compared to a positive cash
flow of $ 219,061 for fiscal 1997, an increase of $1,949,037. This increase in
cash flow for the year ended June 30, 1998 was primarily attributable to a
decrease in auctions receivable and advances to consignors of approximately
$6,333,000 which was partly offset by decreases in accounts payable and payables
to third party consignors of approximately $4,013,000.
The Company had a positive cash flow from investing activities of
$656,995 for the year ended June 30, 1998 as compared to a negative cash flow of
$174,548 for the previous year, an increase of $831,543. The positive cash flow
for the year ended June 30, 1998 was primarily attributable to the sale of PICK
stock.
During the year ended June 30, 1998, the Company borrowed an additional
$738,000 from Brown Brothers Harriman & Co. ("Brown Brothers") in the form of
term loans, due in July 1998, 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 $1,610,000, paid other demand
notes in the amount of $485,000, and paid down on its term loans by $1,475,000.
This provided for a net decrease in cash provided by financing activities of
approximately $ 2,856,684.
The revolving credit agreement with Brown Brothers was entered into in
May 1995, as subsequently amended in February 1998, and provides for a credit
facility for working capital purposes in an aggregate amount of $4,750,000.
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, 1998, borrowings under this facility aggregated $3,465,000 and are payable
on demand. On June 29, 1995, the Company entered into a five year term agreement
for $375,000 ($162,500 balance at June 30, 1998) 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. As of June 30, 1998, the Company was not in compliance
with one guideline relating to the formula of earnings before interest,
depreciation and taxes to interest expense. As a result, Brown Brothers has the
right under the credit agreement to demand immediate payment of all amounts
outstanding. The Company has remained in compliance with all other guidelines of
the loan agreement and Brown Brothers has continued to offer its credit
facilities to the Company without interruption. Management has worked closely
with Brown Brothers and Brown Brothers has not indicated that it has any present
plans to discontinue its credit relationship with the Company . During the third
and fourth quarter, Brown Brothers granted the Company three separate demand
loans totaling $738,000, all of which were repaid in July, 1998.
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, 1997 and 1998, the Company's expense
relating to bad debt was approximately $264,411 and $240,161 respectively. Over
the past ten years the Company's history of bad debts has been less than 2% of
aggregate sales. For the year ended June 30, 1997 and 1998 these amounted to
.82% and 1.07% 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.
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, 1998, the Company owned 6.5% or 2,382,289 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 $137,643 and a fair value of approximately $289,655 The
securities purchased by the Company, which were acquired directly from PICK, may
be sold under Rule 144 of the Securities Act. (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.)
As of June 30, 1998, the Company owned 100,000 common shares of Pro Net
Link Corp., an internet service provider. These securities are classified as
available for sale having a cost of $200,000 and a fair value of approximately
$78,750. The securities are restricted and accordingly are subject to
restrictions on transferability.
The fair value of the Company's investment in PICK and Pro Net Link, as
stated in the financial statements included herein, has been estimated by the
Company utilizing brokered transactions as well as arms' length private
transactions, in PICK and Pro Net Link's common stock, as described in PICK and
Pro Net Link's public filings under the Securities Exchange Act of 1934, as
amended. Such valuation is contingent upon PICK and Pro Net Link'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.
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.
- 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 . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheet -- June 30, 1998 . . . . . . . . . . 18
Consolidated Statements Of Operations -- Years ended June 30, 1997 and
June 30, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 19
Consolidated Statement of Stockholders' Equity--Years ended June 30,
1997 and June 30, 1998 . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Cash Flows -- Years ended June 30, 1997 and
June 30, 1998 . . . . . . . . . . . . . . . . .. . . . . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . 22
<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, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended June 30, 1997 and 1998. 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, 1998, and the results of
their operations and their cash flows for the years ended June 30, 1997 and 1998
in conformity with generally accepted accounting principles.
Amper, Politziner & Mattia P.A.
September 23, 1998
Edison, New Jersey
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
June 30, 1998
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 603,630
Accounts receivable
Auctions receivable 7,707,860
Advances to consignors 1,744,010
Inventory 2,042,729
Taxes Receivable 111,000
Deferred tax asset 176,000
Prepaid expenses and deposits 79,846
----------------
Total current assets 12,465,075
Property and equipment, net 540,236
Goodwill 1,727,717
Marketable securities 368,405
Other non-current assets
Inventory 1,801,225
Advances to consignors 639,218
Other Receivables 964,226
Other 157,275
----------------
Total assets $18,663,377
================
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $ 4,203,000
Notes payable - current portion 309,211
Payable to third party consignors 5,403,169
Accounts payable 442,683
Accrued expenses 651,984
----------------
Current liabilities 11,010,047
Notes payable - long-term portion 117,624
----------------
Total liabilities 11,127,671
----------------
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 gain on marketable securities 18,496
Retained earnings 653,320
----------------
Total stockholders' equity 7,535,706
----------------
Total liabilities and stockholders' equity $18,663,377
================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations
Years ended June 30,
-----------------------------------------
1997 1998
------------------- -------------------
<S> <C> <C>
Operating revenues
Sales of merchandise $ 11,691,184 $ 6,143,990
Commissions earned 3,359,981 2,546,431
------------------- -------------------
15,051,165 8,690,421
------------------- -------------------
Operating expenses
Cost of merchandise sold 8,286,526 4,568,670
General and administrative 4,604,676 4,266,507
Marketing 776,931 580,999
------------------- -------------------
13,668,133 9,416,176
------------------- -------------------
Operating profit (loss) 1,383,032 (725,755)
Other income (expense)
Gain on sale of marketable securities - 672,452
Interest and other income 708,252 376,932
Interest expense (847,207) (610,181)
------------------- -------------------
Income (loss) before income taxes 1,244,077 (286,552)
Provision for (benefit from) income taxes 583,473 (55,000)
------------------- -------------------
Net income (loss) $ 660,604 $ (231,552)
=================== ===================
Basic and diluted earnings (loss)
per share $ .15 $ (.05)
===== =======
Weighted average shares outstanding 4,419,997 4,419,997
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statement of Stockholders' Equity
Years ended June 30, 1997 and 1998
Unrealized Retained
Preferred stock Common stock Additional gain (loss) on earnings/
----------------------- ------------------------
Number Par Number Par Paid-in marketable (Accumulated
of shares value of shares value capital securities Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Unrealized gain on
marketable securities 31,896 31,896
Net loss (231,552) (231,552)
--------------- ------- --------- --------- ----------- -------------- --------- ---------
Balance, June 30, 1998 - - 4,419,997 $44,200 $ 6,819,690 $ 18,496 $ 653,320 $7,535,706
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
Years ended June 30,
-------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (231,552) $ 660,604
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization 370,334 343,614
Provision for bad debts 239,750 264,411
Gain on sale of marketable securities (672,452) -
Deferred tax expense (benefit) 56,000 (150,521)
(Increase) decrease in assets:
Auctions receivable 2,393,837 (2,091,100)
Advances to consignors 3,939,372 (3,612,812)
Notes receivables - 421,727
Inventory 317,224 (402,025)
Due from affiliate - CRM - (132,265)
Income taxes receivable (111,000) 34,345
Prepaid expenses and deposits 56,669 173,318
Other assets (294,580) 75,000
Increase (decrease) in liabilities:
Payable to third-party consignors (2,772,772) 3,873,151
Accounts payable (1,240,069) 832,221
Accrued expenses 117,337 141,515
Income taxes payable - (212,122)
--------------- --------------
2,168,098 219,061
--------------- --------------
Cash flows from investing activities:
Capital expenditures for property and equipment (62,010) (108,726)
Additional goodwill (53,403) (65,822)
Proceeds from sale of marketable securities 772,408 -
--------------- --------------
656,995 (174,548)
--------------- --------------
Cash flows from financing activities:
Net proceeds from (payment of)
demand notes payable (1,535,000) 435,000
Repayment of loans payable (659,684) (401,507)
Repayment of Term note payable (1,400,000) -
Proceeds from Term note payable 738,000 -
Net proceeds from issuance of stock - (1,291)
--------------- --------------
(2,856,684) 32,202
--------------- --------------
Net change in cash and cash equivalents (31,591) 76,715
Cash and cash equivalents at beginning of period 635,221 558,506
=============== ==============
Cash and cash equivalents at end of period $ 603,630 $ 635,221
=============== ==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
==============================================================================
GREG MANNING AUCTIONS, INC.
==============================================================================
Notes to Consolidated Financial Statements
June 30, 1997 and 1998
(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.
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.
Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Inventory
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, 1998 was $346,266. Amortization of goodwill was $89,224
and $91,766 for the years ended June 30, 1997 and 1998, 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.
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, 1998 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, 1998 based upon
quoted market prices for the same or similar instruments.
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 15
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. Advertising expense was $314,464 and $241,313 for 1997 and 1998.
Earnings per common and common equivalent share
The Company has adopted Statement of Financial Accounting Standards No.
128 ("SFAS 128"), "Earnings Per Share". In accordance with SFAS 128, primary
earnings per share have been replaced with basic earnings per share, and fully
diluted earnings per share have been replaced with diluted earnings per share
which includes potentially dilutive securities such as outstanding options and
convertible securities. Prior periods have been presented to conform with SFAS
128.
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. The dilutive effect of the outstanding options would be
reflected in diluted earnings per share by application of the treasury stock
method. There is no dilutive effect to these options for 1997 and 1998.
(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, 1998, is $816,120 from one customer,
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.
Non-current advances to consignors represents monies due upon
the sale of specific items held as consigned goods which management does not
expect to sell currently. Such items have an appraised value in excess of
$1,000,000.
Non-current other receivables is collateralized by an interest
in a mortgage receivable.
As of June 30, 1998, the allowance for doubtful accounts
included in auction receivables was approximately $150,000.
<TABLE>
<CAPTION>
(5) Inventories
Current Non-current Total
<S> <C> <C> <C>
Stamps $ 1,648,097 $ 358,225 $ 2,006,322
Sports cards and
sports memorabilia 344,116 331,000 675,116
Other collectibles 50,516 1,112,000 1,162,516
------- --------- ---------
$ 2,042,729 $1,801,225 $ 3,843,954
========= =========== ==========
</TABLE>
The non-current inventory represents an estimate of total inventory which is not
expected to be sold currently.
<TABLE>
<CAPTION>
(6) Property and Equipment, net
Estimated
Useful Lives
--------------------
<S> <C> <C>
Equipment $ 567,333 3-5 years
Furniture and fixtures 207,169 3-5 years
Vehicles 54,501 3-5 years
Property under capital leases 185,394 3-5 years
(computers and office equipment)
Leasehold improvements 413,732 5 years
-----------------
1,428,129
Less accumulated depreciation
and amortization 887,893
-----------------
Net property and equipment $ 540,236
=================
</TABLE>
Depreciation and amortization expense for the years ended June
30, 1997 and 1998 was $254,389 and $282,551, respectively. These amounts include
amortization of assets under capitalized leases of $46,283 and $34,127 for the
years ended June 30, 1997 and 1998, respectively.
(7) Income Taxes
Deferred tax attributes resulting from differences between
financial accounting amounts and tax bases of assets and liabilities at June 30,
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets and liabilities
Allowance for doubtful accounts $ 59,000
Inventory uniform capitalization 96,000
Inventory valuation reserve 34,000
Other (7,000)
-------
Sub-total 182,000
Valuation allowance (6,000)
-------
Net current deferred tax asset $ 176,000
==========
Noncurrent assets and liabilities
Depreciation 24,000
Goodwill amortization (24,000)
Unrealized gain on marketable
securities (12,000)
State net operating loss carryforward 82,000
--------
Sub-total 70,000
Valuation allowance (70,000)
--------
Net noncurrent deferred tax asset $ -
========
</TABLE>
The provision for (benefit from) income taxes for the years ending June 30
consist of the following:
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
Current tax expense (benefit) $ 734,094 $ (111,000)
Deferred tax expense (benefit) (150,621) (20,000)
Net Change in valuation allowance 76,000
---------------- ----------------
$ 583,473 $ (55,000)
======== ========
</TABLE>
A reconciliation between the actual income tax expense (benefit) and income
taxes computed by applying the statutory Federal income tax rate is as follows:
<TABLE>
<CAPTION>
Years ended June 30,
-------------------------------------
1997 1998
---------------- ----------------
<S> <C> <C>
Federal income tax at 34% $ 423,000 $ (98,000)
State income tax, net 125,000 -
Certain non-deductible expenses 31,000 40,000
Other 4,473 3,000
------ -----
$ 583,473 $ (55,000)
========= ========
</TABLE>
The Company has net operating loss carryforwards for state tax purposes of
$1,375,000 expiring at various times from 2001 through 2005.
(8) Marketable Securities
As of June 30, 1998, the Company owned 6.5% or 2,382,289 common
shares of PICK Communications, which is primarily engaged in the business of
issuing prepaid telephone cards. During the year ended June 30, 1998, the
Company sold 1,730,000 shares of PICK for approximately $772,408, resulting in a
pretax gain on the sale of marketable securities of approximately $ 672,452.
The Company also owned at June 30, 1998, 100,000 shares of Pro Net Link
Corp., an internet service provider.
The fair value of PICK and Pro Net Link has been estimated by the
Company's management utilizing brokered transactions as well as arms-length
private transactions in the companies' common stock, as described in public
filings under the Securities Exchange Act of 1934, as amended. These securities
are classified as available for sale. The valuation assigned to this investment
is contingent upon the companies' 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.
<TABLE>
<CAPTION>
Cost Market Value Unrealized Gain(Loss)
<S> <C> <C> <C>
Pick Communications $ 137,643 $ 289,655 $ 152,012
Pro Net Link 200,000 78,750 (121,250)
------- ------ ---------
Total $ 337,643 $ 368,405 $ 30,762
========= ========= ========
</TABLE>
The unrealized gain is classified as a separate component of
stockholders' equity, net of tax, in the amount of $18,496.
(9) Leases
The Company conducts its business on premises leased in various
locations under leases that expire through the year 2002. The Company utilizes
property and equipment under both operating and capital leases. Future minimum
lease payments under noncancelable leases in effect at June 30, 1998 are set
forth below:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 185,000
2000 177,000
2001 103,000
2002 3,000
Thereafter -
----------------
Total future minimum
lease payments $ 468,000
================
</TABLE>
Rent expense was $342,036 and $340,306 for 1997 and 1998,
respectively.
(10) Related-party Transactions
The Company accepts rare stamps and other collectibles for sale
at auction on a consignment basis from Collectibles Realty Management, Inc.
("CRM"). 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 seller's 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, 1997 and 1998, 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. Until
November, 1997 CRM owned approximately 29% of the shares of the Company's common
stock. In November, 1997, CRM transferred beneficial ownership of 1,300,000
shares of the Company's common stock to Mr. Manning. At June 30, 1998, Mr.
Manning owned approximately 29% of the shares of the Company's common stock. At
June 30, 1998, CRM owned none of the shares of the Company's common stock.
In May, 1998, the Company purchased from CRM inventory
independently appraised at $262,927. Included in Accounts Payable at June 30,
1998 is approximately $78,500 which is due to CRM and will be paid in the
ordinary course of business.
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 1998 were approximately $184,000 and
$124,248 respectively, in the case of Kramer, Levin, Naftalis & Frankel, and
approximately $127,000 and $ 75,736 respectively, in the case of Micro
Strategies, Incorporated.
In the normal course of business, Afinsa Bienes Tangibles S.A.
("Afinsa") , the beneficial owner of 442,000 shares of the Company's Common
Stock, consigned material to the Company which was auctioned during the fiscal
year ended June 30, 1998 for a total hammer price of $811,500.
(11) Debt
<TABLE>
<CAPTION>
<S> <C>
Demand Notes Payable
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 $4,750,000. 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 81/2% at June 30, $3,465,000
1998,and are payable on demand.
In March and April 1998, the Company borrowed
an additional $738,000 from Brown Brothers in
the form of three term notes bearing interest
at 101/2% per annum and payable in July, 1998.
Paid in full in July, 1998. 738,000
-------
Total Demand Notes Payable $4,203,000
===========
</TABLE>
<TABLE>
<CAPTION>
Notes Payable
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. $ 162,500
Notes payable in connection with purchase of inventory,
quarterly principal payments of $121,250 plus interest at
8% through October 1998. 208,750
Various capital lease obligations, various monthly
payments through October 2000 55,585
-------------
426,835
Less current portion 309,211
-------------
Notes payable - long-term portion $ 117,624
=============
</TABLE>
The approximate aggregate amount of all maturities for the
years ending June 30 are as follows:
1999 $ 309,000
2000 98,000
2001 20,000
The Company's obligations to Brown Brothers 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. As of June 30, 1998, the Company was not in compliance with one
guideline relating to the formula of earnings before interest, depreciation and
taxes to interest expense. As a result, Brown Brothers has the right under the
credit agreement to demand immediate payment of all the demand notes payable.
The Company has remained in compliance with all other guidelines of the loan
agreement and Brown Brothers has continued to offer its credit facilities to the
Company without interruption. Management has worked closely with Brown Brothers
and Brown Brothers has not indicated that it has any present plans to
discontinue its credit relationship with the Company. During the third and
fourth quarter, Brown Brothers granted the Company three separate demand loans
totaling $738,000, all of which were repaid in July, 1998.
(12) 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 $65,822 and $53,402 for the years ended June
30, 1997 and 1998, respectively, and are accounted for as an increase to
goodwill and amortized over the goodwill's remaining life.
(13) Significant Agreements
Agreements with CRM
The CRM Inventory Agreement 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. 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, 1997 and 1998, consignments by CRM were
not material, accounting for less than 1% of revenues.
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, in the year ended June 30,
1997, a salary equal to $175,000 per annum and a bonus of $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, 1997, a
salary of $130,383 per annum and a bonus of $30,136 and (ii) in the year ended
June 30, 1998, a salary of $ 132,272 per annum. The Company and Mr. Tully are
continuing to operate under his most recent employment agreement and expect to
enter into a new agreement shortly.
The Company currently maintains a $1,000,000 term life insurance
policy on the life of Mr. Manning with benefits payable to the Company.
<PAGE>
(14) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
<TABLE>
<CAPTION>
For the year ended June 30,
1997 1998
----------------- -----------------
<S> <C> <C>
Interest paid $ 828,322 $ 625,100
Income taxes paid 794,426 176,901
Noncash investing and financing
activities:
Acquisition of inventory under
note payable 700,000 -
</TABLE>
(15) 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, 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, 1998, 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, each of which initially entitled
the holder to purchase, through May 13, 1998, one Unit (each consisting of two
shares of Common Stock and two Underwriters' Warrants ) at an exercise price of
$10.31 per Unit. All of such warrants referred to above expired on May 13, 1998.
None of such warrants had been exercised.
Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan") and 1997
Stock Option Plan, (the "1997 Plan"), are 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 850,000 shares of
common stock has been reserved for issuance pursuant to the plans. The Committee
does not intend to make any further awards under the 1993 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, 1998 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 Plans:
<TABLE>
<CAPTION>
1997 1998
---------------------------------------- ---------------------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding - beginning of year 494,500 $ 2.99 632,500 $ 2.50
Granted 205,000 1.38 286,500 1.38
Repurchased - - (286,500) 3.22
Exercised - - - -
Forfeited (67,000) 2.75 (31,000) 2.99
-------------- ----- -------------- ----
Outstanding - end of year 632,500 $ 2.50 601,500 $ 1.43
============= ======= ============= ======
Exercisable - end of year 340,875 $ 3.07 550,500 $ 1.43
============= ======= ============= ======
</TABLE>
On December 10, 1997, the exercise price of 286,500 options was
changed pursuant to the repricing plan described below. The exercise price was
reduced from a weighted average of $3.22 to $1.38, the fair market value of the
Company's common stock on December 10, 1997. This change is shown as granted and
repurchased in the above table.
The weighted average fair value of options granted during 1997
and 1998 was $.55 and $.67.
<PAGE>
<TABLE>
<CAPTION>
Following is a summary of the status of stock options outstanding at June 30,
1998:
<S> <C> <C>
Exercise price $1.38 $2.00
-------- ------
Outstanding options
Number 551,500 50,000
Weighted average remaining
contractual life 7.0 years 6.7 years
Weighted average exercise price $1.38 $2.00
Exercisable options
Number 500,500 50,000
Weighted average exercise price $1.38 $2.00
</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 1997 and 1998, 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.
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>
1997 1998
--------------- ----------
<S> <C> <C>
Proforma net income (loss) $ 623,604 $ (265,157)
Proforma earnings (loss)per share
Basic .14 (.06)
Diluted .14 (.06)
</TABLE>
There was no compensation expense recorded from stock options for
the years ended June 30, 1997 and 1998.
On September 10, 1997, the Board authorized a repricing plan
which was subsequently approved by the shareholders, 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, were 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 date of the Annual Meeting of
Shareholders), that is, $1.38 per share. Certain consultants to the Company were
not entitled to participate in the repricing plan. The repricing plan has been
fully implemented.
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.
(16) Pension Plans
The Company maintains an employee savings plan under the
Internal Revenue Code Section 401(k). Employees are eligible to participate in
the plan after six months of service and become fully vested after five years of
service. Employee contributions are discretionary to a maximum of 15% of
compensation. For all plan members, the Company contributed 10% of all eligible
employees contributions to a maximum annual contribution of $500 per employee.
The Company's total contribution was approximately $0 and $11,900 for the years
ended June 30, 1997 and 1998.
(17) New Accounting Pronouncements
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 Accounting
Principles Board Opinion 15. Companies that were exempt from the provisions of
Opinion 15 will now need to make those disclosures. The Company will adopt SFAS
129 for the year ended June 30, 1999. Adoption of this statement is not
anticipated to have a material effect on the Company's financial position or
results of operations.
In June 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 Company will adopt SFAS 130 for the
year ended June 30, 1999. Adoption of this statement is not anticipated to have
a material effect on the Company's financial position or results of operations.
In June 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 Company
will adopt SFAS 131 for the year ended June 30, 1999. Adoption of this statement
is not anticipated to have a material effect on the Company's financial position
or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers
Disclosures about Pensions and Other Postretirement Benefits". Statement No. 132
modifies the disclosure requirements for pensions and other postretirement
benefits, but does not change the measurement or recognition of those plans. The
Company will adopt SFAS 132 for the year ended June 30, 1999. Adoption of this
statement is not anticipated to have a material effect on the Company's
financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". Statement No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities and measure them at fair value. Under certain
circumstances, the gains or losses from derivatives may be offset against those
from the items the derivatives hedge against. The Company will adopt SFAS No.
133 in the fiscal year ending June 30, 1999. Adoption of this statement is not
anticipated to have a material effect on the Company's financial position or
results of operations.
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". SOP
No. 98-1 establishes standards for recording the costs of software for internal
use. SOP No. 98-1 indicates that certain costs incurred I n the development or
purchase of software designated for internal use should be capitalized. All
other associated costs should be expensed. The Company will adopt SOP 98-1 in
the fiscal year ended June 30, 1999. Adoption of this statement is not
anticipated to have a material effect on the Company's financial position or
results of operations.
In April, 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-Up Activities". SOP 98-5 requires the costs of start-up
activities and organization costs to be expensed as incurred. It defines
start-up activities as one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory,
conducting business with a new class of customer, initiating a new process in an
existing facility, or commencing a new operation. The Company will adopt SOP
98-5 in the fiscal year ending June 30, 1999. Adoption of this statement is not
anticipated to have a material effect on the Company's financial position or
results of operations.
(18)"Year 2000"
The Company is aware of the Year 2000 issue and has commenced a program
to identify, remediate, test and develop contingency plans for the Year 2000
issue (the "Y2K Program"), to be substantially completed by the summer of 1999.
The Company has retained a consultant who will assist in the management of the
Y2K Program as it relates to (1) the software and systems used in the Company's
internal business; and (2) third party vendors, manufacturers and suppliers. The
Company currently does not anticipate that the cost of the Y2K Program will be
material to its financial condition or results of operations. Nevertheless,
satisfactorily addressing the Year 2000 issue is dependent on many factors, some
of which are not completely within the Company's control. Should the Company's
internal systems or the internal systems of one or more significant vendor or
supplier fail to achieve Year 2000 compliance, the Company's business and its
results of operations could be adversely affected.
(19) Subsequent Events
The Company is presently involved in purchase negotiations for a
company. No definitive agreement has yet been reached. The impact on the Company
could be significant.
In September, 1998, the Company purchased the inventory of the former
Nahan Galleries of New York City, New Orleans and Tokyo. The Company will
process the sale and marketing of this collection through the new Greg Manning
Fine Art Division of the Company.
<PAGE>
- -----------------------------------------------------
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 52, 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 52, 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 58, 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.
James A. Smith, CPA, age 46, has been Chief Financial Officer of the Company
since December 12, 1997. Mr. Smith served as Chief Financial Officer of Imatec,
Ltd. from 1996 to 1997, and as Controller of Ferrara Food Company from 1992 to
1996.
Scott S. Rosenblum, age 49, 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 39, 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 67, 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. On September 10,
1997, the Board of Directors appointed Mr.
De Figueiredo to fill a 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 2000 annual meeting of stockholders. Mr. De Figueiredo has been
appointed, and Mr. Manning has been elected, to serve until the 2001 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.
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 60, 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.
Robert G. Driscoll, age 66, 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 89, 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 79 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 72, 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 56, 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, 1998 and is incorporated by reference.
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, 1998 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, 1998 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, 1998 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. Incorporated by
reference to Exhibit 10.3 to Form 10-KSB of the Company for the
period ended June 30, 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 10.1 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: September 25, 1998
/s/ Greg Manning
--------------------
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: September 25, 1998
/s/ Greg Manning
---------------------
Greg Manning
Chairman of the Board
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ James A. Smith
------------------------
James A. Smith
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ William T. Tully, Jr.
--------------------------
William T. Tully, Jr.,
Executive Vice President and
Director
/s/ Anthony Bongiovanni
------------------------
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 10.1 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.
10.17 1997 Stock Option Plan. Incorporated by reference to Exhibit A to
the Proxy Statement of the Company dated October 28, 1997.
27 Financial Data Schedule*
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
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