SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
Ttle 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 $ 14,799,375.
The aggregate market value of the Common Stock held by non-affiliates
(excludes Greg Manning, Leon Liebman and Afinsa Bienes Tangibles S.A.) of the
Issuer as of September 7, 1999 (based on closing sale price of $15.063 per share
as reported on NASDAQ), was $48,516,447.
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As of September 7, 1999, Issuer had 6,812,245 shares of its Common Stock
outstanding.
Portions of the Registrant's definitive proxy statement, which will be
filed within 120 days of June 30, 1999, are incorporated by reference into Part
III.
Transitional Small Business Disclosure Format (Check One): Yes X No
THE REMAINDER OF THIS PAGE WAS PURPOSELY LEFT BLANK
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PART I.
Item 1. DESCRIPTION OF BUSINESS
General
Greg Manning Auctions, Inc. ("Greg Manning Auctions" or the "Company")
was founded by Greg Manning, its Chairman and Chief Executive Officer, who has
conducted public auctions of stamps since 1966. In October of 1998, the Company
acquired Teletrade, Inc. which gave the Company the platform to conduct auctions
over the Internet. As a result, Greg Manning Auctions believes it is now well
positioned to become a premier collectibles destination site on the Internet.
In addition to conducting its operations in the United States, Greg
Manning Auctions' goal is to become a leading collector destination site on the
Internet throughout the world. In furtherance of this goal, the Company has
recognized the opportunity that exists in Asia and Europe where the Internet has
not had the same penetration as it has to date in the U.S. Accordingly, in 1999,
Greg Manning Auctions established one of the first collectibles online auction
house in China, GMAI-ASIA.com, and conducted , the Company believes ,the first
ever online Internet stamp auction in that country. In addition, in 1999 the
Company, together with Afinsa Bienes Tangibles, S.A. formed GMAI-Europe.com, a
joint venture formed to conduct Internet auction and retail sales in Europe
through a newly established office in Madrid, Spain.
The Company believes, based on its knowledge of the market, that it is
one of the largest auction houses of stamps in the world (although there is no
publicly available data with respect to stamp auction sales). In addition to
stamps, stamp collections and stocks, the Company's expanded product line
includes items such as sports trading cards and memorabilia, movie posters, fine
art, rare coins, diamonds, comic books, Hollywood and Rock and Roll Memorabilia,
manuscripts and autographs. Based in West Caldwell, New Jersey, with offices in
Kingston, New York, the Company has approximately 75 full-time employees.
Greg Manning Auctions, Inc. is positioned for substantial growth after
acquiring Teletrade, which pioneered interactive telephone auctioning and is a
leading Internet auctioneer of coins, diamonds, and sports cards. The Company is
seeking to leverage its position as a preeminent traditional global stamp
auction house to become a high-end, full-service, state-of-the-art, fine
collectibles auction company with the most comprehensive services available in
the industry. It is the first publicly owned auction company to operate
real-time auctions simultaneously over the Internet and via telephone while
providing confidential transmission of bidder and seller information over the
Internet. While Greg Manning Auctions is one of the nation's leading stamp
auction house and one of the largest specialty stamp auction houses in the
world, the Company has refocused its business towards the electronic commerce
industry.
The Company conducts its operations directly and through its
subsidiaries: Greg Manning Auctions, Inc., which conducts the world's largest
auctions of intact stamp collections, stocks and accumulations; Ivy & Mader
Philatelic Auctions, Inc., which conducts auctions and produces a deluxe catalog
selling high-end individual stamps, sets and covers; Greg Manning Galleries,
Inc., which conducts mail, fax and telephone auctions of popular priced stamps
and covers; CEE JAY Auctions, which holds public auctions and generally sells
lower priced individual stamps, covers and large lots; and Teletrade, Inc., the
originator of phone-in coin auctions, which conducts live auctions on the
Internet and via telephone of rare coins, diamonds and sports cards. The Company
will soon inaugurate internet bidding for live auctions as well.
The Company believes that there are two major trends in the
collectibles marketplace that will have a positive influence on the Company's
business: First, the number of collectors and the interest in collecting is
growing, both in the United States and globally; and second, the Internet is
playing a key role in driving this heightened interest in collecting.
The Company is also establishing strategic alliances with companies
that, it believes, will help it to reach the broadest possible universe of
collectors. During 1999, the Company signed a joint marketing agreement with
AT&T Labs to promote Greg Manning's high-end auction services and AT&T Labs'
DjVu technology on AT&T Worldnet Services Home Page. The Company also signed a
definitive agreement with Butterfield & Butterfield, a wholly-owned subsidiary
of eBay Inc., under which Greg Manning will be a significant participant in a
future initiative by e-Bay to feature premier offerings of collectibles and fine
art from around the world. The Company's websites are: WWW.GREGMANNING.COM,
WWW.TELETRADE.COM, and www.gmai-asia.com.
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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 auction business
selling rare stamps, stamp collections and stocks 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 Teletrade and will consider other acquisitions as appropriate.
Teletrade
Teletrade conducts live auctions simultaneously over the Internet and
via telephone. Teletrade is believed to be the largest interphonic (combined
Internet and Telephone Systems) auction house for coins, sports cards, and
diamonds in North America. In 1998, Teletrade had aggregate sales of
approximately $24 million. GMAI's Teletrade usually auctions over 5,000 lots
each week from its Internet site at www.teletrade.com where it holds coin and
sports auctions five days a week 52 weeks a year. In addition to its easy to use
Internet bidding technology, GMAI's Teletrade offers bidders the option to place
bids and receive "real time" bid status information via a unique, proprietary,
touch-tone telephone and computer technology which GMAI's Teletrade developed
and owns.
Teletrade auctions are full-service auctions and all of its offerings
are backed by a full satisfaction guarantee. Unlike person-to-person Internet
auctions, GMAI's Teletrade holds in its possession each of the items offered for
sale and professionally ships all items sold to buyers. GMAI's Teletrade also
collects all monies due from buyers and promptly remits sale proceeds to
consignors. Teletrade's mission is to provide an innovative yet safe auction
process that protects both buyers and consignors, including each party's
confidentiality.
Technology
Greg Manning utilizes advanced technology to enhance the collecting
experience. Greg Manning's technology provides the Company with the opportunity
to add features and options for the benefit of the customer. The Company already
possesses a proprietary technology that permits bidding by touch-tone telephone
in an Internet auction. The Company believes that touch-tone bidding and bid
tracking is a convenience feature for those customers in the United States who
have access to the Internet, but elect instead to use their cell phone or
telephone. The technology also provides Greg Manning the opportunity to enter
markets where the penetration of the Internet is not as deep as in the United
States. This also allows the Company to add retail selling opportunities, while
maintaining the cost advantages of the "virtual" business.
Philately
Philately, or stamp collecting, has grown steadily during the twentieth
century. The stamp collecting 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 a large part of the
Company's 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).
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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.
Greg Manning Galleries ("Galleries") is engaged primarily in the
business of conducting stamp auctions by mail and occasionally conducts auctions
of art and historical items, including rare autographs and documents. Beginning
in fiscal 1999, Galleries also began conducting auctions of comics, movie
posters and Hollywood and Rock and Roll memorabilia.
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 to include the sale of such
sports collectibles. In addition, with the recent acquisition of Teletrade, the
Company has substantially expanded its product line and business in sports
trading cards, especially certified cards, and sports memorabilia. Teletrade
holds biweekly internet/telephone live auctions of both certified and raw sports
cards.The sports collectibles industry 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.
Coins
In 1986, Teletrade was the first company to fully automate the
auctioning of coins via touch-tone phone technology. Since then it has added the
Internet to its auctioning system as a tool to enhance its auction platform..
With a focus on superior customer support and quality service and for
being responsive to customer needs, Teletrade is now the largest full-service
auction house for certified coins in North America. Teletrade's long history in
this field has created a wealth of over 10 years of pricing information. The
online price guide is the first online source showing real prices paid by real
buyers for specific items in auctions, and is offered to Teletrade participants
free of charge. With 13 years of experience in the business, Teletrade has close
ties with many of the industries largest dealers.
Hollywood and Rock `n Roll Memorabilia
The Company has recently begun auctioning apparel and equipment, owned,
and sometimes concert-used, by Rock and Roll artists. In most cases these items
are unique, which means that collectors can attain a certain "closeness" to
their favorite artist or group by owning pieces from their private wardrobe or
archive. The Company has developed relationships with well known artists and
managers which play a vital role in the acquisition of not only specialty items,
but entire collections as well. The Company achieved record levels on many items
in our April 1999 auction.
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The collecting of movie props and other original film related
articles has also become a fast growing hobby, within which the Company played a
key role in 1999 to bring Hollywood collectibles to market. The Company has also
sought to cultivated important contacts within the film industry to enable it to
supply its collector base and auction venues with appropriate products.
Movie Posters
Movie posters have recently become of increasing interest to
collectors. They were originally created to advertise films at movie theatres
and were never mass-produced for a consumer market. The scarcity of these
posters has created a significant level of demand in the hobby. Although the
hobby has been active for the last twenty years, recent awareness by the public
has created a surge in both demand and value, and indications are that this will
continue in the indefinite future. With that in mind, the Company has been
active in buying and selling, both privately and through auction, a broad
spectrum of posters to cover all areas of collecting interest from vintage eras
to the latest releases. The Company's most recent auction of these posters set
several world records.
Comic Books
There has recently been increased interest in the collectibility of
the popular arts, comic books, animation celluloids, original artworks and
drawing (for the exterior and interior of comic books and also for use in the
production of animated films). Related material has been found to have
particular appeal amongst collectors between the ages of thirty five and fifty
years old. This segment of the market, sometimes referred to as the "baby boomer
generation", is responsible for the vast majority of sales of the 1950's-1970's
comic books and related items.
GMAI has been seeking to cultivate a substantial clientele within
this market for this material. GMAI also buys and sells vintage comic books
privately, specializing in the high end of market with emphasis on the most
popular and desirable subjects, such as Superman and Batman.
Diamonds
With the recent acquisition of Teletrade, the Company has
expanded its product line and broadened its business to include the sale of
certified diamonds. Two internet/telephone auctions are conducted each week and
the Company believes that it is the only Internet/telephone auction company that
regularly auctions diamonds. The average value per lot auctioned is $5,000 and
the Company charges both the buyers and sellers a commission of 0 - 5.5%,
depending on the price realized. The Company has established close working
relationships with the largest diamond manufacturers and dealers in the world,
who provide on consignment a high volume and steady stream of certified
diamonds. Every diamond auctioned has been certified by GIA, a respected
worldwide gemological institute , and comes with a diamond grading report issued
by GIA's Gem Trade Laboratory. Additionally, diamonds sold are internationally
registered in the buyer's name, by use of the Gemprint(TM) system, and legally
recognized documentation of ownership is provided. Consumers receive a discount
of up to 10% from participating insurance companies on diamonds which are
Gemprint(TM) registered.
Art
In August 1998, the Company expanded its specialties and added fine art
to its product line by acquiring the inventory of a former major art gallery
with offices in New York City, New Orleans and Tokyo. This collection of limited
edition prints, oil paintings, watercolors, drawings, sculptures, and
photographs, represents prominent artists, including many of the international
giants of the 20th Century.
The Company's appearance at ArtExpo-New York this past March served as
the primary introduction and established the Company as a presence in the fine
art scene. In June, the division launched a site on Artnet.com, one of the
leading fine art Internet venues. Entering their database of galleries and
artists has increased circulation to the Company's own site and has paved the
way for the Company to become a leader in the fine art Internet market.
The division currently offers this inventory through Internet sales and
direct sales at retail and wholesale prices. The Company plans to expand its
sales by holding Internet auctions.
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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
between 5% to 15% and a commission from the buyer of between 10% to 15% in most
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,
Coin World and other industry publications, the Company advertises its 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 most auctions
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, telephone and facsimile, which may be done prior to auction.
Thus, although the
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Company's auctions take place primarily in New Jersey and New York , purchasers
and sellers throughout the world are able to participate at the auctions.
The Company manages four types of auctions: (1) live auctions; (2) mail
and absentee auctions; (3) Internet/Telephone auctions and (4) 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 or previously established reserve prices. 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 high 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 an Internet/Telephone auction, registered bidders can place "maximum
bids" either on the www.teletrade.com web site or via touch-tone telephone. This
allows the bidder to place the highest amount they are willing to pay on a lot
and the computer will bid on behalf of the bidder up to the maximum bid amount.
This feature relieves the bidder from having to monitor the auction while in
progress. Once the auction has begun, bidders can access the current bids. After
the auction is over, results are available to both buyers and sellers and can be
accessed as soon as 15 minutes after the auction has closed. Prices realized are
available as well. Winning bidders mail their payments to Teletrade and their
package is then shipped. Consignors are paid within 36 days of the auction
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 except as noted in its
terms and conditions of sale. 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.
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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.
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<PAGE>
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 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 vaults 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 high security vaults located
at the West Caldwell headquarters and the Kingston, New York facility. 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 vaults, 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.
The Company has devoted significant attention and resources to its
WWW.GREGMANNING.COM web site. This site received a complete overhaul in June
1999 and is continuing its development as the centerpiece of the Company's
e-commerce activities. Recent initiatives for the Company's web site include the
addition of a retail component and electronic catalogs.
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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.
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, Robert A.
Siegel, Philatelists on Line and eBay. With respect to the Company's sports
trading card and sports memorabilia auction business, the Company's primary
competitors are Lelands, Mastro Auctions, Sotheby's, Collector's Universe and
eBay. With respect to the Company's coin operations, the Company's primary
competitors are Heritage, Stacks, Collector's Universe, Bower's and Merena, and
Superior. With respect to the Company's Hollywood Rock `n Roll Memorabilia
business, the Company's primary competitors are Butterfield & Butterfield,
Sotheby's and Christies. With respect to the Company's Comic Book business, the
Company's primary competitor is Sotheby's. With respect to the Company's Movie
Poster business, the Company's primary competitors are Howard Lowery, Skinners,
Butterfield & Butterfield, Sotheby's and Vintage Poster Auctions.
Employees
The Company presently has 75 full-time employees, including its
President, Chief Executive Officer and Chairman of the Board, Greg Manning and
Chief Financial Officer, James A. Smith. The Company also employs David Graham
as a Senior Vice President and James Reiman as Executive Vice President of
e-Commerce Strategic Development. The Company also hires persons on a temporary
basis to assist in organizing its auctions and for other specialized purposes.
Item 2. DESCRIPTION OF PROPERTY
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. The Company also leases approximately 7,300 square feet
of office space for it's Teletrade subsidiary in Kingston, New York at an annual
rental of approximately $85,500.
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
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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 and ADP Proxy Services, the holders of record of the Company's Common
Stock totaled 90 and beneficial owners of record totaled 2,953 at July 26, 1999.
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, 1998 and 1999 are shown in the
following schedule:
For the years ended June 30,
--------------------------------------------
1998 1999
---------------- --------------------
(Quarter) High Low High Low
--------- ---- --- ---- ---
First $ 2.438 $ 1.844 $ 2.406 $ 1.500
Second $ 2.313 $ 1.188 $ 21.750 $ 1.625
Third $ 1.844 $ 1.125 $ 14.500 $ 7.500
Fourth $ 2.125 $ 1.188 $ 22.000 $ 9.250
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, 1998 and 1999, and
shows the comparisons for the respective years subdivided by source and market:
<TABLE>
<CAPTION>
For the years ended June 30, Percentages
------------------------------------
1998 1999 1998 1999
-------------- -------------- ------ -----
<S> <C> <C> <C> <C>
Aggregate Sales $ 22,487,908 $ 39,602,859 100% 100%
============ ============== ==== ====
By source:
A. Auction $ 16,343,918 $ 29,736,965 73% 75%
B. Sales of inventory 6,143,990 9,865,894 27% 25%
------------- -------------- ----- -----
By market:
A. Philatelics $ 21,685,478 $ 18,500,985 96% 47%
B. Sports Collectibles 588,148 7,247,777 3% 18%
C. Numismatics 11,393,167 29%
D. Diamond 422,041 1%
E. Art 1,358,898 3%
F. Other collectibles 214,282 679,991 1% 2%
</TABLE>
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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, 1999 compared with Year ended June 30, 1998
Revenues: For the year ended June 30, 1999, operating revenues
increased $6,108,954 (70%) to $14,799,375 compared with $8,690,421 for the year
ended June 30, 1998. This increase is largely attributable to an increase in
sales of Company-owned inventory of $3,721,904 and an increase in commissions
earned of $2,387,050. The primary reason for these increases was an increase in
private treaty sales of stamps ($1,443,900) and art ($1,361,199) and the
inclusion of eight months of Teletrade activity which was not included in the
prior year.
The variation in any year in the composition of total revenues (as
between revenues resulting from inventory sales and commissions resulting from
consignment sales) is largely a function of availability, market demand and
conditions rather than any deliberate attempt by the Company to emphasize one
area over the other. Sellers/consignors of property to the Company generally
make their own determinations as to whether the property should be sold to the
Company for the specified price offered by the Company or offered for sale at
auction at a price that cannot be predicted in advance. Such determination is
based on the potential risks and rewards involved, and includes an evaluation of
the marketability of the property and the potential pool of buyers. The Company
engages in a similar analysis in determining whether to acquire inventory for
its own account and the price it is willing to pay for such inventory.
Gross margins on the sales of Company-owned inventory increased by 78%,
from $1,575,000 for the year ended June 30,1998 to $2,797,000 for the year ended
June 30, 1998. This increase of $ 1,222,000 was mainly attributable to an
increase in non-auction philatelic sales which increased gross margins by
$347,000, and non-auction art sales which increased gross margins by $978,000 in
the year ended June 30, 1999 over the previous year.
Operating Expenses: The Company's aggregate operating expenses,
exclusive of cost of merchandise sold, for the year ended June 30, 1999 totaled
$8,342,000 compared with $4,847,000 for the year ended June 30, 1998,
representing an increase of $3,495,000 (or 72%). Of this increase, $1,852,000
(53%) was attributable to the inclusion of Teletrade, which was not included
last year. The primary changes in the operating expenses for the year ended June
30, 1999 from the prior year were increases in marketing costs of $971,000
(166%), depreciation and amortization of $871,000 (277%) and salaries and wages
of $1,151,000 (69%). The increase in overall costs in combination with the
revenue increases had the effect of keeping operating costs as a percent of
operating revenue at 56% during the years ended June 30, 1998 and 1999.
Interest income and expense: Interest expense increased $111,000 (18%)
to $721,000 for the year ended June 30, 1999 as compared to that of the previous
year. This increase was attributable to higher average borrowings caused
primarily by the financing of the Teletrade acquisition, an increased level of
advances to consignors and increased borrowings for inventory purchases during
the most recent year. Interest income decreased during the year ended June 30,
1999 by approximately $12,000. This was caused by an overall reduction in
interest rates charged to advances to consignors in return for a larger
commission on the sale of their consignments.
Provision for Income Taxes: For the year ended June 30, 1999, the
Company recorded an income provision of $456,000 compared to a tax benefit of
$55,000 for the preceding year.
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<PAGE>
Net Income : The Company recorded net income for the year ended June 30,
1999 of $581,000 compared to a net loss of $ 232,000 for the year ended June 30,
1998, reflecting an increase of $813,000 during this period. The increase in
operating income of $114,000 during the year ended June 30, 1999, coupled with
an increase in the gain on sale of marketable securities of $1,351,000 and an
increase in the provision for income taxes of $511,000 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"), which was 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.
European Monetary Union
The European Monetary Unit (the "euro") was introduced on January 1,
1999 as a wholesale currency. The eleven participating European Monetary Union
member countries established fixed conversion rates between their existing
currencies and the euro. The existing currencies will continue to be used as
legal tender through January 1, 2002; thereafter, on July 1, 2002, the existing
currencies will be cancelled and euro bills and coins will be used for cash
transactions in the participating countries.
The Company believes that its European financial and cash management
operations affected by the euro conversion have adequately been prepared for its
introduction. For the transition period and the period after January 1, 2002,
the Company has established an internal group of management to analyze the
potential business implications of converting to a common currency. The Company
is able to determine the ultimate financial impact, if any, of the euro
conversion on its operations, given that the impact will be dependent upon the
competitive situations that exist in the various regional markets in which the
Company participates.
Future Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is required to be adopted for fiscal
quarters of fiscal years beginning after June 15, 2000. The Company expects to
adopt SFAS No. 133 effective July 1, 2000. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is currently evaluating the impact that the adoption of this statement will have
on its financial position and results of operations.
Liquidity and Capital Resources
The Company experienced a negative cash flow from operating activities
of $ 3,482,000 for the year ended June 30, 1999 as compared to a positive cash
flow of $ 2,168,000 for fiscal 1998, a decrease of $ 5,650,000. This decrease in
cash flow for the year ended June 30, 1999 was primarily attributable to an
increase in inventory and advances to consignors of approximately $ 4,947,000
and a decrease in payables to third party consignors of $ 3,136,136 which was
partly offset by decreases in accounts payable and accrued expenses of
approximately $ 1,965,000.
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<PAGE>
The Company had a negative cash flow from investing activities of $
1,718,000 for the year ended June 30, 1999 as compared to a positive cash flow
of $ 657,000 for the previous year, a decrease of $ 2,375,000. The negative cash
flow for the year ended June 30, 1999 was primarily attributable to the
acquisition of Teletrade and the investment in GMAI-Asia.com which was partly
offset by the sale of PICK stock.
During the year ended June 30, 1999, the Company borrowed an additional
$ 1,500,000 from Brown Brothers Harriman & Co. ("Brown Brothers") in the form of
a term loan, payable in quarterly installments of $150,000 beginning June 30,
2000 and ending on September 30, 2002, the proceeds of which were used to
purchase the stock of Teletrade. During this same period, the Company increased
its borrowings under its revolving credit facility by $ 237,000, paid other
demand notes in the amount of $ 738,000, and paid down on its term loans by $
75,000. These amounts were offset by the exercise of employee stock options and
the sale of the Company's Common Stock totaling $4,392,000. This provided for a
net increase in cash provided by financing activities of approximately $
5,010,000.
The revolving credit agreement with Brown Brothers was entered into in
May 1995, as subsequently amended in February 1998 and June 1999, and provides
for a credit facility for working capital purposes in an aggregate amount of
$6,750,000. 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, 1999, borrowings under this facility aggregated
$3,702,000 and are payable on demand. On June 29, 1995, the Company entered into
a five year term agreement for $375,000 ($ 87,500 balance at June 30, 1999) 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, 1999, the Company was in compliance with
all guidelines.
A buyer of auctioned property may be permitted to take possession of the
property before payment is made. Most accounts receivable are collected within
30 to 60 days, which is consistent with business practice in the collectible
markets. For the years ended June 30, 1998 and 1999, the Company's expense
relating to bad debt was approximately $240,000 and $86,000 respectively. Over
the past ten years the Company's history of bad debts has been less than 2% of
aggregate sales. For the years ended June 30, 1998 and 1999 these amounted to
1.07% and 0.22% 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
15
<PAGE>
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.
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.
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:
(9) 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
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<PAGE>
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.
(9) 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.
The unavailability of Mr. Manning, for any reason, would have a
material adverse effect upon the business, operations and
prospects of the Company if a suitable replacement is not
engaged.
(9) 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.
(9) 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.
(9) 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.
(9) 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.
(9) 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.
-The Company's operations may be adversely affected by the passage of
laws or regulations affecting Internet commerce. (including sales tax
regulations)
17
<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 . . . . . . . . . . . . . . . . . . . 19
Report of Management. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheet - June 30, 1999 . . . . . . . . . . . . . . 21
Consolidated Statements Of Operations - Years ended June 30, 1998 and
June 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Stockholders' Equity--Years ended June 30,
1998 and June 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows - Years ended June 30, 1998 and
June 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 24
Consolidated Statements of Comprehensive Income--Years ended
June 30, 1998 and June 30, 1999 . . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 26
18
<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, 1999, and the related
consolidated statements of operations, stockholders' equity, cash flows and
comprehensive income for the years ended June 30, 1998 and 1999. 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, 1999, and the results of
their operations and their cash flows for the years ended June 30, 1998 and 1999
in conformity with generally accepted accounting principles.
/s/ Amper, Politziner & Mattia P.A.
September 23, 1999
Edison, New Jersey
19
<PAGE>
Greg Manning Auctions, Inc.
775 Passaic Avenue
West Caldwell, New Jersey 07006
September 23, 1999
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management.
Which is responsible for their integrity and objectivity. The financial
statements have been prepared in accordance with generally accepted accounting
principles and, as such, include amounts based on management's best estimates
and judgements.
Management is further responsible for maintaining a system of internal control
structure and related policies and procedures designed to provide reasonable
assurance that assets are adequately safeguarded and that the accounting records
reflect transactions executed in accordance with management's authorization.
/s/ Greg Manning /s/ James Smith
Chairman, President and Chief Financial Officer
Chief Executive Officer
20
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
June 30, 1999
Assets
Current Assets
Cash and cash equivalents $413,633
Accounts receivable
Auctions receivable 6,559,599
Auctions receivable - related party 850,000
Advances to consignors 3,037,476
Stock subscriptions receivable - related party 3,000,000
Inventory 6,176,128
Deferred tax asset 339,000
Prepaid expenses and deposits 442,071
--------------
Total current assets 20,817,907
Property and equipment, net 691,885
Goodwill (net) 4,505,106
Customer Lists (net) 351,667
Trademarks (net) 2,900,000
Investment in joint venture 520,194
Other non-current assets
Deferred tax asset 823,000
Inventory 900,000
Advances to consignors 699,218
Other 376,936
--------------
Total assets $ 32,585,913
==============
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $3,702,000
Notes payable 1,213,859
Payable to third party consignors 3,281,384
Accounts payable 1,835,516
Accrued expenses 1,783,497
-------------
Total current liabilities 11,816,256
Notes payable - long term 1,605,325
-------------
Total liabilities 13,421,581
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued. 0
Common stock, $.01 par value. Authorized
20,000,000 shares; 6,495,622 issued and outstanding 67,810
Additional paid in capital 17,862,548
Retained earnings 1,233,974
-------------
Total stockholders' equity 19,164,332
-------------
Total liabilities and stockholders' equity $32,585,913
=============
See accompanying notes to financial statements
21
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations
Years ended June 30,
--------------------------------
1998 1999
---------------- ---------------
Operating Revenues
<S> <C> <C>
Sales of merchandise $ 6,143,990 $ 9,865,894
Commissions earned 2,546,431 4,933,481
------------- -----------
8,690,421 14,799,375
Operating Expenses
Cost of merchandise sold 4,568,670 7,069,174
General and administrative 4,266,507 6,785,720
Marketing 580,999 1,556,206
------------- -----------
Operating loss (725,755) (611,725)
Other income (expense)
Gain on sale of marketable securities 672,452 2,023,206
Interest income 376,932 365,315
Interest expense (610,181) (720,712)
Loss from operations of joint venture (19,430)
------------- -----------
Income (loss) before income taxes (286,552) 1,036,654
Provision for (benefit from) income taxes (55,000) 456,000
------------- ------------
Net Income (loss) $ (231,552) $ 580,654
============= ============
Basic Earnings (loss) per share
Weighted average shares outstanding 4,419,997 5,601,251
============= ==========
Basic earnings (loss) per share $0.05 $0.10
===== =====
Diluted Earnings (loss) per share
Weighted average shares outstanding 4,419,997 6,044,608
========= =========
Diluted earnings (loss) per share $0.05 $0.10
===== =====
See accompanying notes to financial statements
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statement of Stockholders' Equity
Years ended June 30, 1998 and 1999
Accumulated
Common Stock Additional Other Total
Number of Par Paid-in Comprehensive Retained Stockholder'
Shares Value Capital Income Earnings Equity
------ ----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
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 June 30, 1998 (231,552) (231,552)
---------- -------- ----------- ---------- ---------- -----------
Balance June 30, 1998 4,419,997 44,200 6,819,690 18,496 653,320 7,535,706
Options Exercised 535,375 5,353 887,037 892,390
Income Tax Benefit from
exercise of stock options 1,374,078 1,374,078
Options issued relating to loan 200,000 200,000
Options issued relating to
Acquisition of subsidiary 75,000 75,000
Options issued relating to
professional services 150,000 150,000
Unrealized gains from sale of
marketable securities (18,496) (18,496)
Common Shares sold for cash 790,250 10,757 6,489,243 6,500,000
Common Shares issued relating to
Acquisition of subsidiary 750,000 7,500 1,867,500 1,875,000
Net income June 30, 1999 580,654 580,654
---------- -------- ------------ ---------- ----------- ------------
Balance June 30, 1999 6,495,622 $ 67,810 $ 17,862,548 $ - $1,233,974 $ 19,164,332
========== ======== ============ ========== =========== ============
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
Years ended
June 30,
--------------------------------
1998 1999
-------------- -------------
Cash flows from operating activities :
<S> <C> <C>
Net Income (loss) ($231,552) $580,654
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 370,334 771,714
Provision for bad debts 239,750 (91,974)
Gain on sale of marketable securities (672,452) (2,023,206)
Deferred tax expense (benefit) 56,000 (278,300)
(Increase) decrease in assets:
Auctions receivable 2,393,837 916,553
Advances to consignors 3,939,372 (813,891)
Inventory 317,224 (4,133,191)
Income taxes receivable (111,000) 111,000
Prepaid expenses and deposits 56,669 (99,747)
Other assets (294,580) 2,065,637
Increase (decrease) in liabilities:
Payable to third-party consignors (2,772,772) (3,136,415)
Accounts payable (1,240,069) 1,168,293
Accrued expenses and other liabilities 117,337 797,286
Income taxes payable 683,405
-------------- ---------------
2,168,098 (3,482,182)
-------------- ---------------
Cash flows from investing activities:
Capital expenditures for property and equipment (62,010) (280,274)
Additional goodwill (53,403) (65,883)
Purchase of Customer list (100,000)
Acquisition of Subsidiary (3,270,040)
Investment in joint venture (361,041)
Proceeds from sale of marketable securities 772,408 2,359,726
-------------- ---------------
656,995 (1,717,512)
-------------- ---------------
Cash flows from financing activities:
Net proceeds from (repayment of) demand notes payable (1,535,000) (501,000)
Repayment of loans payable (659,684) (381,693)
Proceeds from notes payable 738,000 1,500,000
Repayment of term notes payable (1,400,000)
Proceeds from exercise of options 892,390
Proceeds from sale of common stock 3,500,000
-------------- ---------------
(2,856,684) 5,009,697
-------------- ---------------
Net change in cash and cash equivalents (31,591) (189,997)
Cash and cash equivalents at beginning of period 635,221 603,630
============== ===============
Cash and cash equivalents at end of period $603,630 $413,633
============== ===============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Statements of Comprehensive Income
For the years ended
June 30, 1998 June 30, 1999
------------------ ----------------
<S> <C> <C>
Net Income (loss) $ (231,552) $ 580,654
Other comprehensive income (loss)
Unrealized gains on securities, net of
taxes of approximately $290,000 and
$797,000 435,367 1,195,428
Less: reclassification adjustment for
gains included in net income, net of
taxes of approximately $268,000 and
$809,000 (403,471) (1,213,924)
------------ ------------
Comprehensive income (loss) $ (199,656) $ 562,158
============ ============
</TABLE>
See accompanying notes to financial statements
25
<PAGE>
GREG MANNING AUCTIONS, INC.
Notes to Consolidated Financial Statements
June 30, 1998 and 1999
(9) Nature of Business and Summary of Significant Accounting Policies
Greg Manning Auctions, Inc. and its wholly-owned subsidiaries,
Ivy and Mader Philatelic Auctions, Inc., Greg Manning Galleries, Inc. and
Teletrade Inc. (the "Company") is in the business of conducting auctions and
private sales of collectibles, including stamps, stamp collections and stocks,
as well as other collectibles such as sports trading cards and sports
memorabilia, coins, diamonds, comic books, and Hollywood and Rock and Roll
memorabilia.
In addition, the Company maintains a joint venture,
GMAI-Asia.com with New On-Line Group, Inc., formed to conduct retail and auction
sales primarily over the Internet in Asia, particularly in China. The Company
has a 50% interest in GMAI-Asia.com. Subsequently, on March 31, 1999, the
GMAI-Asia.com entered into an agreement with Afinsa Bienes Tangibles, S.A.,
("Afinsa") a 16% shareholder of the Company, to purchase a 15% interest in the
joint venture which will reduce the Company's investment to 42.5% upon
finalization of the agreement. GMAI-Asia.com is being accounted for under the
Equity method of accounting.
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;
26
<PAGE>
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.
Intangible Assets
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 and 1999 was approximately $346,000 and $540,000,
respectively. Amortization of goodwill was approximately $92,000 and $194,000
for the years ended June 30, 1998 and 1999, 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.
Trademarks and Customer List
Part of the purchase price for Teletrade was allocated to
Trademarks and Customer List. These are being amortized on a straight-line basis
over a 20-year period for Trademarks and a 5-year period for Customer List.
Total accumulated amortization at June 30, 1999 was approximately $148,000.
Amortization expense charged to operations for the year ended June 30, 1999 was
approximately $ 148,000.
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
27
<PAGE>
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, 1999 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, 1999 based upon
quoted market prices for the same or similar instruments.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance
with 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. As allowed undsr SFAS 123, the Company accounts 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 Proforma effects on net income required by SFAS 123 are
diisclosed in Note 17.
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 approximately $241,000 and $1,556,000 for 1998
and 1999, respectively.
Earnings per common and common equivalent share
The Company computes net income per share in accordance with
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.
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.
Comprehensive income
Effective July 1, 1998, the Company adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 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
(2) Acquisition of Subsidiary
On October 29, 1998, the Company completed the acquisition
(the "Acquisition") of all of the common stock of Teletrade, Inc. from Leon
Liebman, Richard Makely and Bernard Rome. The purchase price for the Acquisition
was $5,895,040 consisting of $1,875,000 in securities of the Company, $3,000,000
in cash,
28
<PAGE>
$675,000 in promissory notes, $75,000 in options to purchase the Company's
common stock and $270,040 in acquisition related expenses. The acquisition was
recorded using the purchase method of accounting. The amount of consideration
paid was determined by arm's length negotiations among the Company and Messrs.
Liebman, Makely and Rome. The cash used for the Acquisition was available from
(i) a private placement of 200,000 shares of the Company's Common Stock to each
of Leon Liebman, Greg Manning and Afinsa and (ii) a term loan, as described
below. Reference is made to the Company's report on Form 8-K/A1, which was filed
by the Company on January 12, 1999. The results of operations of Teletrade are
included from October 30, 1998.
(3) Significant transactions
During the year ended June 30, 1999, three customers in three
separate transactions purchased certain inventory for an aggregate selling price
of $2,887,000, which includes $850,000 from a related party (see Note 12), which
increased operating profit by $1,394,000. Included in accounts receivable at
June 30, 1999, is $2,737,000 from these customers. One of these accounts, valued
at $1,620,000 is collateralized by certain assets.
(4) 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.
(5) 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.
As of June 30, 1999, the allowance for doubtful accounts
included in auction receivables was approximately $162,000.
(6) Stock subscriptions receivable
On February 10, 1999, the Company entered into a stock purchase
agreement with whereby Afinsa agreed to purchase 475,624 shares of the Company's
Common Stock for an aggregate purchase price of $5 million (at $10.51 per share,
which was the closing price of the Company's common stock as reported by NASDAQ
at the close of business on the date the agreement was signed). During the year
ended June 30, 1999, the Company received $2 million from Afinsa and issued
172,251 shares of common stock.
As of June 30, 1999, the Company had recorded a stock
subscription receivable for the remaining 285,373 shares with an aggregate
purchase price of $3 million. This amount was received from Afinsa on July 9,
1999.
(7) Inventories
Current Non-current Total
-------------- ------------ -----------
Stamps $ 3,014,679 $ - $ 3,014,679
Sports cards and
sports memorabilia 791,600
- 791,600
Coins 920,632
920,632
Art 323,994
323,994
Other collectibles 1,125,223 900,000 2,025,223
-------------- ------------- ------------
$ 6,176,128 $900,000 $ 7,076,128
============= ============= ============
The non-current inventory represents an estimate of total inventory which is not
expected to be sold within one year.
29
<PAGE>
(8) Property and Equipment, net
Estimated
Useful Lives
---------------------
Equipment $ 1,154,215 3-5 years
Furniture and fixtures 261,457 3-5 years
Vehicles 122,000 3-5 years
Property under capital leases 258,651 3-5 years
(computers and office equipment)
Leasehold improvements 428,234 5 years
------------
2,224,557
Less accumulated depreciation
and amortization 1,532,672
============
Net property and equipment $ 691,885
============
Depreciation and amortization expense for the years ended June
30, 1998 and 1999 was approximately $282,000 and $356,000, respectively. These
amounts include amortization of assets under capitalized leases of approximately
$34,000 and $11,000 for the years ended June 30, 1998 and 1999, respectively.
(9) Income Taxes
Deferred tax attributes resulting from differences between
financial accounting amounts and tax basis of assets and liabilities at June 30,
1999 are as follows:
Current assets and liabilities
Allowance for doubtful accounts $ 63,000
Inventory uniform capitalization 113,000
Inventory valuation reserve 151,000
Other 38,000
------
Sub-total 365,000
Valuation allowance, provision for
income taxes (26,000)
------------
Net current deferred tax asset $339,000
Noncurrent assets and liabilities
Goodwill $
(40,000)
Depreciation 138,000
Net federal and state operating loss carryforward 915,000
Sub-total 1,013,000
Valuation allowance, provision for income taxes (25,000)
Valuation allowance, equity
(165,000)
Net noncurrent deferred tax asset $823,000
The valuation allowances consist of net operating loss carryforwards. The
portion of the valuation allowance which will affect equity and which will not
be available to offset future provisions of income tax is stated as "Valuation
allowance, equity". The Company believes uncertainty exists regarding the
realizability of these items, and accordingly, has established a valuation
allowance.
30
<PAGE>
The provision for (benefit from) income taxes for the years ending June 30
consist of the following:
Years ended June 30,
------------------------------------
1998 1999
---------------- ----------------
Current tax expense (benefit) $ (111,000) $ 759,000
Deferred tax benefit (278,000)
(20,000)
Net Change in valuation allowance (25,000)
76,000
------------
$ (55,000) $ 456,000
============= ==========
The current tax expense has been reduced by approximately $25,000 due to the
utilization of state net operating losses.
The actual current tax liability for the year ended June 30, 1999 has been
reduced by approximately $759,000 and is included in Additional Paid-In Capital.
The effective tax rate varied from the statutory rate as follows:
Years ended June 30,
-------------------------
1998 1999
--------- ---------
Statutory Federal income tax rate (34%) 34%
State income taxes, net of federal benefit 0% 6%
Certain non-deductible expenses 14% 7%
Other 1% (3%)
---------- ---------
19% 44%
========== =========
The Company has a federal net operating loss carryforward of approximately
$2,630,000 which expires in fiscal year ended 2019.
The Company has net operating loss carryforwards for state tax purposes of
approximately $3,875,000 expiring at various times from fiscal years ending 2002
through 2006.
(10) Marketable Securities
As of June 30, 1999, the Company owned 0.16% or 7,000 common shares
of PICK Communications (after taking into consideration a 1 for 10 reverse stock
split as of July 6, 1999), which approximates $11,000. PICK is primarily engaged
in the business of issuing prepaid telephone cards. During the year ended June
30, 1999, the Company sold 2,312,289 shares of PICK for approximately
$2,162,000, resulting in a pretax gain on the sale of marketable securities of
approximately $ 2,028,000.
(11) Leases
The Company conducts its business on premises leased in various
locations under leases that expire through the year 2004. The Company utilizes
property and equipment under both operating and capital leases. Future minimum
lease payments under noncancelable leases in effect at June 30, 1999 are set
forth below:
Operating Capital Total
--------------------------------------------------
2000 $ 289,000 $ 36,000 $ 325,000
2001 186,000 19,000 205,000
2002 56,000 15,000 71,000
2003 5,000 17,000 22,000
2004 0 13,000 13,000
--------------------------------------------------
Total future minimum
lease payments $ 536,000 $ 100,000 $ 636,000
========= ========= =========
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<PAGE>
Rent expense was approximately $340,000 and $171,000 for 1998
and 1999, respectively.
Interest expense associated with these capital leases was
approximately $19,000 and $17,000, for fiscal years 1998 and 1999, respectively.
(12) 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. 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, 1998 and 1999, 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. Mr.. Manning is
an executive officer of CRM and the Company. Mr. William Tully is an executive
officer of CRM and, until August, 1999, was an executive officer of 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,
1999, Mr. Manning owned approximately 23% of the shares of the Company's common
stock. At June 30, 1999, CRM owned none of the shares of the Company's common
stock.
In May, 1998, the Company purchased from CRM inventory for
approximately $263,000. Included in Accounts Receivable at June 30, 1999 is
approximately $40,000 which is due from CRM and will be collected 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. Leon Liebman, also a director of the Company, provided consulting
services for the Company. Amounts paid for services rendered by these related
parties for the year ended June 30, 1998 and 1999 were approximately $124,000
and $334,000 respectively (of which, $129,000 was charged to operations in
fiscal 1999), in the case of Kramer, Levin, Naftalis & Frankel, approximately
$76,000 and $ 154,000 respectively (of which, approximately $113,000 was charged
to operations in fiscal 1999), in the case of Micro Strategies, Incorporated and
approximately $0 and $ 29,000 in the case of Leon Liebman.
In the normal course of business, Afinsa consigned material to
the Company which was auctioned during the fiscal year ended June 30, 1999 for a
total hammer price of $316,600 and purchased artwork totaling $850,000. For
other related party transactions with Afinsa, refer to Notes 1,2,3,6,16 and 21.
32
<PAGE>
(13) Debt
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 $6,750,000. 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 8.75 % at
June 30, 1999,and are payable on demand. $ 3,702,000
-------------
Notes Payable
Additional borrowings are outlined below:
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. $ 87,500
Note payable to Brown Brothers, interest payable
Monthly at 9.75%, quarterly principal payments of
$150,000 commencing 6/30/2000. 1,500,000
Notes payable to sellers of Teletrade, payable
October 30, 1999. 725,000
Notes payable to current shareholder related to
Indebtedness of Teletrade prior to its acquisition 142,219
Notes payable to former shareholders of Teletrade
Related to indebtedness prior to its acquisition 264,034
Various capital lease obligations, various monthly
payments through October 2004 100,431
---------------
2,819,184
Less current portion 1,213,859
---------------
Notes payable - long-term portion $ 1,605,325
===============
The aggregate amount of all maturities for the years ending June 30 are as
follows:
2000 $ 1,213,859
2001 809,719
2002 614,897
2003 167,252
2004 13,457
--------------
$2,819,184
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, 1999, the Company was compliance with all
guidelines.
Teletrade also has a revolving credit agreement with Key Bank with a
credit facility of up to $50,000 bearing an interest rate of 1% above Key Bank's
base rate, and is collateralized by all of Teletrade's assets. There were no
outstanding borrowings against this line of credit at June 30, 1999.
33
<PAGE>
(14) 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 approximately $53,000 and $66,000 for the years
ended June 30, 1998 and 1999, respectively, and are accounted for as an increase
to goodwill and amortized over the goodwill's remaining life.
(15) 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, 1998 and 1999, commissions earned on
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. James Reiman, Executive
Vice President E-Commerce Strategic Business Development. The agreement with Mr.
Manning, as amended, 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. The Company
has entered into an agreement with Mr. Manning extending the term of his
agreement through June 30, 2000 and providing for a new base salary of $300,000,
with all other terms and conditions remaining the same. The agreement with Mr.
Reiman provides for a salary of $140,000 per year plus reimbursement for certain
expenses.
During the fiscal year ended June 30, 1999, Mr. William Tully
resigned as Chief Operating Officer and as a director of the Company. Mr. Tully
will remain with the Company and will focus his attention on specific projects,
including sourcing new product for the Company's different sales venues.
The Company currently maintains a $1,000,000 term life insurance
policy on the life of Mr. Manning with benefits payable to the Company.
34
<PAGE>
<TABLE>
<CAPTION>
(16) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Years ended
June 30,
-------------------------------
1998 1999
-------------- -------------
<S> <C> <C>
Interest paid $625,100 $710,959
Income taxes paid 176,901 1,621
Summary of significant non-cash transactions:
Issuance of 200,000 options relating to the
financing of the acquisition of Teletrade - 200,000
Issuance of notes payable to former shareholders
of Teletrade as part of the acquisition - 675,000
Contribution to GMAI-Asia.com committed but not yet paid 159,153
Stock Subscription Receivable from Afinsa
for 285,373 shares of the Company's Common Stock 3,000,000
Issuance of options relating to professional services 150,000
Issuance of 750,000 shares to Leon Liebman
as part of the acquisition of Teletrade - 1,875,000
Income tax effect of the exercise of options - 1,374,078
</TABLE>
(17) 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.
35
<PAGE>
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, 1999 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>
1998 1999
------------------------------- ------------------------
Weighted-Average Weighted-Average
Options Exercise Options Exercise
Price Price
----------- ---------------- ------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 632,500 2.50 601,500 1.43
Granted through stock option plan 286,500 1.38 277,000 4.28
Granted outside of stock option plan 175,000 8.82
Repurchased (286,500) 3.22 (60,000) 3.00
Exercised - (335,375) 1.42
-
Forfeited (31,000) 2.99
------------ ------------
Outstanding - end of year 601,500 1.43 658,125 5.08
Exercisable - end of year 550,500 1.43 280,000 5.24
</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 1999
was $4.13.
Following is a summary of the status of stock options outstanding
at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ---------------------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Price Outstanding Life Price Exercisable Price
-------------- ---------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1.38 206,125 5.4 1.38 180,000 1.38
1.97 82,500 9.1 1.97 - -
2.50 155,000 9.3 2.50 - -
5.19 59,500 9.3 5.19 - -
9.38 20,000 9.8 9.38 - -
11.16 15,000 9.6 11.16 - -
12.19 100,000 9.8 12.19 100,000 12.19
14.19 10,000 9.4 14.19 - -
14.69 10,000 9.9 14.69 - -
</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 1998 and 1999, respectively:, risk-free interest rates of
36
<PAGE>
6.5% and 5.1%; dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of 47% and 82%; 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:
1998 1999
--------------- ---------------
Proforma net income (loss) $(265,157) $ 510,726
Proforma earnings (loss)per share
Basic (.06) .09
Diluted (.06) .08
There was no compensation expense recorded from stock options for
the years ended June 30, 1998 and 1999.
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.
During the year ended June 30, 1999, the Company issued stock
options to vendors in exchange for financial advisory and marketing services.
These options were valued at the fair market value of consideration received in
accordance with SFAS 123. The value of these options is $150,000 and is included
in prepaid expenses and is being amortized over the life of the contracts, which
is one year.
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.
(18) 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 $11,900 and $6,100 for the
years ended June 30, 1998 and 1999.
37
<PAGE>
(19) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which is required to be adopted
for fiscal quarters of fiscal years beginning after June 15, 2000. The Company
expects to adopt SFAS No. 133 effective July 1, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company is currently evaluating the impact that the adoption of this
statement will have on its financial position and results of operations.
(20) "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"), which was 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.
(21) Subsequent Events
On July 19, 1999, the Company announced the formation of
GMAI-EUROPE.COM, a joint venture with Afinsa. to conduct Internet auction and
retail sales in Europe through an office in Madrid, Spain. The joint venture,
which is 50% owned by the Company, will sell many of the collectible products
that the Company and Afinsa have previously sold, including stamps, coins, movie
posters, fine art and other collectibles. The related web site, which is
expected to launch before the end of calendar 1999, will be a multi-lingual
collector's destination site in English, Spanish, French and German, featuring
both a retail venue and auction site with plans for additional content such as
guest experts, chat rooms, exclusive collector articles and educational content.
38
<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 53, 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. David C. Graham, age 59, 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 47, 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 50, 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 LLP, 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 40, 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 68, 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.
Leon Liebman, age 51, was appointed as a director of the Company in November,
1998. Mr. Liebman previously served as director of Roger Starch Worldwide, Inc.,
a market research company and the Royal Blue Group, plc, a help desk and
financial systems software company. He founded Interactive Market Systems, Inc.,
a private investment company acquired by VNU in 1983. Mr. Liebman currently
resides in London. He is a graduate of the Wharton School of Finance and
Commerce and the MIT Sloan School of Management.
Effective August, 1999, Mr. William Tully resigned as Chief Operating Officer
and as a director of the Company. Mr. Tully's duties as Chief Operating Officer
have been assumed by Mr. Les Boisclair and Ms. Melissa Goldberg. Mr. Tully will
remain with the Company, focusing his attention on specific projects. The
Company does not believe that Mr. Tully's resignation will have a material
impact of the Company.
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. Liebman has
been appointed 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
39
<PAGE>
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 61, 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 67, 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.
Herbert LaTuchie, age 80 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 73, is president of Levy Venture Management, Inc., a real
estate development company specializing in automotive retailing real estate.
Prior to forming Levy Venture Management, Mr. Levy was President of Walton
Chrysler-Plymouth (from 1953 to 1960), the world's largest Chrysler dealership
during his tenure as president of the company, and Carol Buick (from 1961 to
1984), the world's largest Buick dealership during his tenure as president. Mr.
Levy currently serves on the board of directors of CDW Computer Centers, Inc.
40
<PAGE>
(NASDAQ: CDWC), and has served as a director of several banks, including NBD
Evanston. He currently sits on the boards of directors/trustees of the following
charitable and not for profit corporations: the Chicago Historical Society,
Culver Educational Foundation, Evanston Hospital, and the Levy Senior Centers.
Mr. Levy is a collector of stamps, coins, watches and other collectibles.
Hector D. Wiltshire, age 57, 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, 1999 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, 1999 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, 1999 and is incorporated by reference.
41
<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 November 13, 1998, relating to the
Company's acquisition of Teletrade, Inc. and related matters
(item 2), as amended by Form 8-K/A, filed on January 12, 1999,
setting forth financial statements as required by item 7.
Report on Form 8-K filed on February 25, 1999, setting forth
the Consent of Independent Accountants.
(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.
42
<PAGE>
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
10.11 Stock Purchase Agreement dated as of October 29, 1998 among
the Company, Leon Liebman, Richard Makely and Bernard Rome.
Incorporated by reference to Exhibit 10.01 to the Company's
report on Form 8-K, filed on November 13, 1998.
10.12 Consulting Agreement dated as of October 29, 1998 between the
Company and Leon Liebman. Incorporated by reference to Exhibit
10.02 to the Company's report on Form 8-K, filed on November
13, 1998.
10.13 Secured Promissory Note dated October 29, 1998 by the Company,
as maker, in favor of Brown Brothers Harriman & Co., as payee.
Incorporated by reference to Exhibit 10.03 to the Company's
report on Form 8-K, filed on November 13, 1998.
10.14 1997 Stock Option Plan. Incorporated by reference to Exhibit A
to the Proxy Statement of the Company dated October 28, 1997.
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
43
<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 28, 1999
/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 28, 1999
/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/ Anthony Bongiovanni
-----------------------
Anthony Bongiovanni
Director
/s/ Scott Rosenblum
-------------------
Scott Rosenblum
Director
44
<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. 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 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.
10.7 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.
10.8 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.
10.9 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.
45
<PAGE>
10.10 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.
10.11 Stock Purchase Agreement dated as of October 29, 1998 among the
Company, Leon Liebman, Richard Makely and Bernard Rome. Incorporated
by reference to Exhibit 10.01 to the Company's report on Form 8-K,
filed on November 13, 1998.
10.12 Consulting Agreement dated as of October 29, 1998 between the Company
and Leon Liebman. Incorporated by reference to Exhibit 10.02 to the
Company's report on Form 8-K, filed on November 13, 1998.
10.13 Secured Promissory Note dated October 29, 1998 by the Company, as
maker, in favor of Brown Brothers Harriman & Co., as payee.
Incorporated by reference to Exhibit 10.03 to the Company's report on
Form 8-K, filed on November 13, 1998.
10.14 1997 Stock Option Plan. Incorporated by reference to Exhibit A to the
Proxy Statement of the Company dated October 28, 1997.
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
46
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference to (a) the Registration
Statement on Form S-3 (No. 333-1040), as amended, and the Prospectus contained
therein, (b) the Registration Statement on Form S-3 (033-55792-NY),as amended,
and the Prospectus contained therein, and (c) the Registration Statement on Form
S-8 (333-01048), as amended, and the Prospectus contained therein, of our report
dated September23, 1999, appearing on Page 19 of Greg Manning Auctions, Inc.'s
Annual Report on Form 10-KSB for the years ended June 30, 1999 and 1998.
/s/ AMPER, POLITZINER & MATTIA P.A.
Edison, New Jersey
September 28, 1999
47
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