SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ________ to ________
Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Exact name of Small Business Issuer as specified in its Charter)
NEW YORK 22-2365834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 882-0004
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days. Yes X No _____
As of January 19, 1998, Issuer had 6,152,247 shares of its Common Stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes ______ No X.
<PAGE>
GREG MANNING AUCTIONS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Table of Contents Page Number
Consolidated Balance Sheet - December 31, 1998 (Unaudited) 3
Consolidated Statements of Operations and Retained Earnings 4
for the Three and Six months ended December 31, 1997 and
1998 (Unaudited)
Consolidated Statement of Stockholders' Equity for the six month 5
period ending December 13, 1998 (Unaudited)
Consolidated Statements of Cash Flows for the six 6
months ended December 31, 1997 and 1998 (Unaudited)
Consolidated Statement of Comprehensive Income 7
Six months ended December 31, 1997 and 1998 (Unaudited)
Notes to Consolidated Financial Statements 8
as of December 31, 1998
Item 2. Management's Discussion and Analysis 15
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
December 31, 1998
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $132,123
Accounts receivable
Auctions receivable 7,619,563
Advances to consignors 2,273,654
Inventory 3,979,066
Income taxes receivable 207,951
Deferred tax asset 207,673
Prepaid expenses and deposits 284,750
------------------
Total current assets 14,704,781
Property and equipment, net 687,190
Goodwill 4,522,176
Customer Lists 390,000
Trademarks 2,975,000
Marketable securities 227,977
Other non-current assets
Inventory 2,252,702
Advances to consignors 665,901
Other receivables 224,053
Other 393,461
==================
Total assets $27,043,241
==================
Liabilities and Stockholder's Equity Current liabilities:
Demand notes payable $4,677,000
Notes payable 1,090,898
Payable to third party consignors 4,021,633
Accounts payable 1,327,522
Accrued expenses 1,839,817
------------------
Total current liabilities 12,956,869
Notes payable - long term 1,802,798
------------------
Total liabilities 14,759,667
------------------
Stockholder's Equity:
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued. 0
Common stock, $.01 par value. Authorized
20,000,000 shares; 5,912,497 issued
and outstanding. 59,125
Additional paid in capital 11,128,782
Accumulated other comprehensive income:
Unrealized loss on marketable securities (23,525)
Retained earnings 1,119,192
------------------
Total stockholders' equity 12,283,574
------------------
Total liabilities and stockholders' equity $27,043,241
==================
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
Three months ended Six months ended
December 31, December 31,
------------------------------ -------------------------------
1997 1998 1997 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating Revenues
Sales of merchandise $743,840 $3,454,335 $2,604,196 $4,450,964
Commissions earned 374,439 1,214,406 903,945 1,815,855
------------- -------------- -------------- --------------
1,118,279 4,668,741 3,508,141 6,266,819
------------- -------------- -------------- --------------
Operating expenses
Cost of merchandise sold 644,388 2,415,765 2,199,898 3,137,931
General and administrative 1,186,940 1,567,440 2,307,949 2,427,211
Marketing 165,683 302,693 322,423 434,911
------------- -------------- -------------- --------------
1,997,011 4,285,898 4,830,270 6,000,053
------------- -------------- -------------- --------------
Operating profit (loss) (878,732) 382,843 (1,322,129) 266,766
Other income (expense)
Gain on sale of marketable securities 0 102,635 0 659,452
Interest and other income 91,133 105,807 188,984 202,449
Interest expense (180,294) (178,976) (353,447) (281,666)
------------- -------------- -------------- --------------
Income (loss) before income taxes (967,893) 412,309 (1,486,592) 847,001
Provision for (benefit from) income taxes (352,975) 156,058 (578,609) 381,129
------------- -------------- -------------- --------------
Net income (loss) (614,918) 256,251 (907,983) 465,872
Retained earnings, beginning of period 591,807 862,941 884,872 653,320
============= ============== ============== ==============
Retained earnings, end of period ($23,111) $1,119,192 ($23,111) $1,119,192
============= ============== ============== ==============
Basic Earnings (loss) per share
Weighted average shares outstanding 4,419,997 5,404,399 4,419,997 4,912,198
============= ============== ============== ==============
Basic earnings (loss) per share ($0.14) $0.05 ($0.21) $0.09
============= ============== ============== ==============
Diluted Earnings (loss) per share
Weighted average shares outstanding 4,419,997 6,042,267 4,419,997 5,307,226
============= ============== ============== ==============
Diluted earnings (loss) per share ($0.14) $0.04 ($0.21) $0.09
============= ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Statement of Stockholders' Equity
For the Six Month period ending December 31, 1998
Unrealized
Additional Gain (Loss) Total
Common Stock Paid-In on Marketable Retained Stockholders'
---------------------
Shares $ Capital Securities Earnings Equity
----------- --------- ------------- ------------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 4,419,997 $44,200 $6,819,690 $18,496 $653,320 $7,535,706
Options Exercised 142,500 1,425 194,513 195,938
Income tax benefit from
exercise of options 478,079 478,079
Options issued relating to 200,000 200,000
loan
Options issued relating to
acquisition of subsidiary 75,000 75,000
Unrealized gains on
353,650 353.650
marketable securities
Relcassification adjustment
for gains included in net
income (395,671) (395,671)
Shares Sold 600,000 6,000 1,494,000 1,500,000
Shares Issued 750,000 7,500 1,867,500 1,875,000
Net Income, December 31,
1998 465,872 465,872
=========== ========= ============= =================== ============ ===============
Balance, December 31, 1998 5,912,497 $59,125 $11,128,782 ($23,525) $1,119,192 $12,283,574
=========== ========= ============= =================== ============ ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
December 31,
--------------------------------
1997 1998
--------------- --------------
Cash flows from operating activities :
Net Income (loss) ($907,983) $465,872
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 184,489 258,362
Provision for bad debts 95,000 (158,632)
Gain on sale of marketable securities (659,452)
(Increase) decrease in assets:
Auctions receivable 6,980,271 773,248
Advances to consignors 4,533,178 (50,069)
Notes receivable 161,688
Inventory (80,323) (2,079,929)
Due from affiliate (CRM) (12,201)
Income taxes receivable/payable (759,169) 381,129
Prepaid expenses and deposits (436,549) (50,764)
Other assets 0 681,633
Increase (decrease) in liabilities:
Payable to third-party consignors (6,394,484) (2,396,166)
Accounts payable (1,245,598) 660,295
Accrued expenses and other liabilities 497,599 1,070,586
---------- -----------
2,615,918 (1,103,887)
--------------- --------------
Cash flows from investing activities:
Capital expenditures for property and
equipment (54,058) (68,228)
Additional goodwill (46,328) (18,295)
Acquisition of Subsidiary - Teletrade (3,270,040)
Acquisition of Business Assets-Executive Collectibles (100,000)
Proceeds from sale of marketable securities 726,186
--------------- --------------
(100,386) (2,730,377)
--------------- --------------
Cash flows from financing activities:
Repayment of (proceeds from) demand notes
payable (2,730,000) 474,000
Repayment of loans and loans payable (281,999) (307,181)
Proceeds from notes payable 1,500,000
Proceeds from exercise of options 195,938
Proceeds from sale of common stock 1,500,000
------------ --------------
(3,011,999) 3,362,757
--------------- --------------
Net change in cash and cash equivalents (496,467) (471,507)
Cash and cash equivalents at beginning of period 635,221 603,630
=============== ==============
Cash and cash equivalents at end of period $138,754 $132,123
=============== ==============
See accompanying notes to financial statements.
<PAGE>
GREG MANNING AUCTIONS, INC.
Statement of Comprehensive Income
(Unaudited)
Six months ended December 31,
1997 1998
--------------------------------------
Net Income (loss) $(907,983) $465,872
Other comprehensive income (loss)
Unrealized gains on marketable
securities 176,950 353,650
Less:
reclassification
adjustment for gains included (395,671)
in net income
======================================
Comprehensive income (loss) $(731,033) $423,851
======================================
See accompanying notes to financial statements
<PAGE>
(1) Organization, Business and Basis of Presentation
Greg Manning Auctions, Inc., together with its wholly owned subsidiaries Ivy &
Mader Philatelic Auctions, Inc., Greg Manning Galleries, Inc. and Teletrade,
Inc. (collectively, the "Company"), is a public and internet auctioneer of
collectibles, including rare stamps, stamp collections and stocks. The Company
regularly conducts rare stamp auctions bringing together purchasers and sellers
located throughout the world. The Company accepts property for sale at auctions
from sellers on a consignment basis, and earns a commission on the sale. In
addition to stamps, the other collectibles auctioned by the Company include
coins, trading cards, sports memorabilia, diamonds and other collectibles such
as autographs, art and rare documents. The Company also sells collectibles by
private treaty for a commission, and sells its own inventory at auction, over
the internet, at wholesale and retail.
The accompanying consolidated balance sheet as of December 31, 1998 and related
consolidated statements of operations and retained earnings for the three and
six months ended December 31, 1997 and 1998 and consolidated statements of Cash
Flows for the six month periods then ended, have been prepared from the books
and records maintained by the Company, in accordance with the instructions to
Form 10-QSB and Item 310(b)of Regulation SB under the Securities Act of 1933,
as amended. Accordingly, they do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, which are of a normal
recurring nature, considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and disclosures thereto in the Company's Form 10-KSB for the year
ended June 30, 1998 filed with the Securities and Exchange Commission.
(2) Summary of Certain Significant Accounting Policies
Revenue Recognition
Revenue is recognized by the Company when the rare stamps and collectibles are
sold and is represented by a commission received from the buyer and seller.
Auction commissions represent a percentage of the hammer price at auction sales
as paid by the buyer and the seller.
In addition to auction sales, the Company also sells via private treaty. This
occurs when an owner of property arranges with the Company to sell such property
to a third party at a privately negotiated price. In such a transaction, the
owner may set selling price parameters for the Company, or the Company may
solicit selling prices for the owner, and the owner may reserve the right to
reject any selling price. The Company does not guarantee a fixed price to the
owner, which would be payable regardless of the actual sales price ultimately
received. The Company recognizes as private treaty revenue an amount equal to a
percentage of the sales price.
The Company also sells its own inventory at auction and over the internet, at
wholesale and retail. Revenue with respect to inventory at auction is recognized
when sold and for wholesale or retail sales, revenue is recognized when
delivered or released to the customer or to a common carrier for delivery.
The Company does not provide any guarantee with respect to the authenticity of
property offered for sale at auction. Each lot is sold as genuine and as
described by the Company in the catalog. When however, in the opinion of a
competent authority mutually acceptable to the Company and the purchaser, a lot
is declared otherwise, the purchase price will be refunded in full if the lot is
returned to the Company within a specified period. In such event, the Company
will return such lot to the consignor before a settlement payment has been made
to such consignor for such lot in question. To date, returns have not been
material. Large collections are generally sold on an "as is" basis.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of its
wholly owned subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Business Segment
The company operates in one segment, the auctioning or private treaty sale of
rare stamps and other collectibles. Set forth below is a table of aggregate
sales of the Company, subdivided by source and market:
<TABLE>
<CAPTION>
For the six months ended
December 31, Percentages
-------------------------------- -------------------------------
1997 1998 1997 1998
-------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Aggregate Sales $7,858,429 $15,250,467 100% 100%
================================ ===============================
By Source:
A. Auction $5,254,233 $10,799,503 67% 71%
B. Sales of inventory 2,604,196 4,450,964 33% 29%
-------------------------------- -------------------------------
By Market:
A. Philatelics $7,546,435 $10,077,027 96% 66%
B. Coins 311,994 2,910,685 4% 19%
C. Sports collectibles 0 1,651,750 0% 11%
D. Diamonds 0 131,730 0% 1%
E. Art 424,725 0% 3%
F. Other 54,550 0% 0%
For the three months ended
December 31, Percentages
-------------------------------- -------------------------------
1997 1998 1997 1998
-------------- --------------- --------------- ----------
Aggregate Sales $2,310,601 $10,768,259 100% 100%
================================ ===============================
By Source:
A. Auction 1,566,761 7,313,924 68% 68%
B. Sales of inventory 743,840 3,454,335 32% 32%
-------------------------------- -------------------------------
By Market:
A. Philatelics 2,163,944 5,787,091 94% 54%
B. Coins 2,910,685 0% 27%
C. Sports collectibles 146,607 1,459,478 6% 14%
D. Diamonds 131,730 0% 1%
E. Art 424,725 0% 4%
F. Other 54,550 0% 1%
-------------------------------- -------------------------------
</TABLE>
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 December 31, 1998 was $382,375. The recoverability of goodwill
is evaluated at each year end balance sheet date as events or circumstances
indicate a possible inability to recover its carrying amount. This evaluation is
based on historical and projected results of operations and gross cash flows for
the underlying businesses. Amortization expense charged to operations for the
six months ended December 31, 1998 was $71,109.
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 December 31, 1998 was $35,000.Amortization expense
charged to operations for the six months ended December 31, 1998 was $35,000.
Investments
The Company accounts for marketable securities pursuant to the Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Under this statement, the Company's marketable
securities with a readily determinable fair value have been classified as
available for sale and are carried at fair value with an offsetting adjustment
to Stockholders' Equity. Net unrealized gains and losses for temporary changes
in fair value of marketable securities are credited or charged to a separate
component of Stockholders' Equity and is reflected in the Statement of
Comprehensive Income.
Earnings (loss) per common and common equivalent share
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share". In accordance with SFAS 128, primary
earnings per share have been replaced with basic earnings per share, and fully
diluted earnings per share have been replaced with diluted earnings per share
which includes potentially dilutive securities such as outstanding options and
convertible securities. Prior periods have been presented to conform with SFAS
128.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed by dividing income available
to common shareholders by the weighted-average number of common shares
outstanding during the period increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. The dilutive effect of the outstanding options would be
reflected in diluted earnings per share by application of the treasury stock
method. The following table sets forth the computation of basic and diluted
earnings per share.
<PAGE>
<TABLE>
<CAPTION>
For the three months ended For the six months ended
December 31, December 31,
--------------------------- ------------------------------
1997 1998 1997 1998
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ($614,918) $256,251 ($907,983) $465,872
Denominator:
Denominator for basic earnings (loss) per share:
Weighted average shares outstanding 4,419,997 5,404,399 4,419,997 4,912,198
Effect of Dilutive Securities:
Dilutive options outstanding 0 637,868 0 395,028
Denominator for diluted earnings per share-
============ ============ ============== ===========
Adjusted weighted average shares and
assumed conversions 4,419,997 6,042,267 4,419,997 5,307,226
============ ============ ============== ===========
Basic Earnings (loss) per share ($0.14) $0.05 ($0.21) $0.09
============ ============ ============== ===========
Diluted Earnings (loss) per share ($0.14) $0.04 ($0.21) $0.09
============ ============ ============== ===========
</TABLE>
Comprehensive Income
During the six months ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". Comprehensive income includes not only net earnings, but also revenues,
expenses, gains and losses that are excluded from net earnings under generally
accepted accounting principles. Examples include foreign currency translation
adjustments and unrealized gains and losses on investments. SFAS 130 requires
that all items required to be recognized as components of comprehensive income
be reported in a financial statement with equal prominence to the other
financial statements. Prior periods have been presented to conform with SFAS
130.
(3) 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 advance or
note, as the case may be.
Non-current advances to consignors represents monies due upon the sale of
specific items held as consigned goods which management does not expect to sell
currently. Such items have an appraised value in excess of $1,000,000.
<PAGE>
(4) Inventories
Inventories as of December 31, 1998 consisted of the following:
Current Non-Current Total
Stamps $1,896,720 $912,854 $2,809,574
Sports cards and sports memorabilia 782,057 226,208 1,008,265
Coins 58,472 58,472
Other collectibles 1,241,817 1,113,640 2,355,457
===========================================
$3,979,066 $2,252,702 $6,231,768
===========================================
The non-current inventory represents an estimate of total inventory which is not
expected to be sold currently.
(5) Acquisitions
On October 29, 1998, Greg Manning Auctions, Inc. (the "Company") completed the
acquisition (the "Acquisition") of all of the capital 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 , $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) the purchase by each of Leon Liebman, Greg
Manning and Afinsa Bienes Tangibles S.A.("Afinsa")of 200,000 shares of common
stock of the Company and (ii) a term loan, as described in note 8 below. Please
refer to Form 8-K/A1 which was filed by the Company on January 12, 1999.
In November 1998, the Company acquired the inventory and business assets,
including customer lists, of Executive Collectibles in order to expand into
additional collectible markets. The purchase price for the acquisition is not
considered material.
(6) Marketable Securities
As of December 31, 1998, the Company owned approximately 3.4% or 1,227,289
common shares of PICK Communications, which is primarily engaged in the business
of issuing prepaid telephone cards. During the six months ended December 31,
1998, the Company sold 1,155,000 shares for approximately $726,186 resulting in
a pre-tax gain on the sale of marketable securities of approximately $659,452.
The Company also owned at December 31, 1998, 100,000 shares of Pro Net Link
Corp., an internet service provider.
The fair value of PICK and Pro Net Link has been estimated by the Company's
management utilizing brokered transactions as well as arms-length private
transactions in the companies' common stock, as described in public filings
under the Securities Exchange Act of 1934, as amended. These securities are
classified as available for sale. The valuation assigned to this investment is
contingent upon the companies' ability to generate future cash flows and it is
reasonably possible, based upon a review of such public filings, that the
estimate could change substantially in the near term.
Cost Market Value Unrealized
Gain(Loss)
Pick Communications $ $ 149,227 $ 78,313
70,913
Pro Net Link 200,000 78,750 (121,250)
------- ------ ---------
Total $ 270,913 $ 227,977 $(42,937)
========= ========= =========
The unrealized loss is classified as a separate component of stockholders'
equity, net of tax, in the amount of $23,525.
(7) Related-party Transactions
The Company accepts rare stamps and other collectibles for sale at auction on a
consignment basis from Collectibles Realty Management, Inc., ("CRM"). Such
stamps and collectibles have been auctioned by the Company or sold at private
treaty under substantially the same terms as for third party customers and the
Company charges CRM a seller's commission for items valued at under $100,000 per
lot. In the case of auction, the hammer price of the sale, less any seller's
commission, is paid to CRM upon successful auction, and in the case of private
treaty, the net price after selling commissions is paid to CRM. For the six
months ended December 31, 1998, there were no such auction or private treaty
sales to CRM.
Scott Rosenblum, a director of the Company, is a partner of the law firm Kramer
Levin Naftalis & Frankel, L.L.P. ("Kramer Levin") 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. Total expenditures for services rendered by these firms for the six
months ended December 31, 1997 and 1998 were approximately $ 87,767and $165,874,
respectively, in the case of Kramer Levin and approximately $38,147 and $50,611,
respectively, in the case of Micro Strategies, Incorporated.
In the normal course of business, Afinsa , the beneficial owner of 642,000
shares of the Company's Common Stock, consigned material to the Company which
was auctioned during the quarter ended December 31, 1998 for a total hammer
price of $316,600.
(8) Debt
The Company is party to a secured revolving credit and term loan facility with
Brown Brothers Harriman & Co. ("BBH&Co."). At December 31, 1998, borrowing under
the revolving credit facility and term loan totaled $4,677,000 and $125,000
respectively. Absent a material adverse change or event of default as determined
by BBH&Co., with respect to the revolving credit loan, BBH&Co. has agreed to
provide the Company with a 120-day notification period prior to issuing a demand
for repayment, so long as the Company is in compliance with certain financial
and operating guidelines.
In addition, on October 27, 1998, the Company secured additional borrowing from
BBH&Co. under a term loan totaling $1,500,000 at an interest rate of Prime plus
2% in connection with the acquisition of Teletrade, Inc. The note is payable in
quarterly installments of $150,000 beginning on June 30, 2000 unless there is
any breach of specific Financial and Operating Guidelines or the default of the
secured promissory note or any material adverse change (as defined therein)
in the Company. Absent a material adverse change or event of default as
determined by BBH&Co., BBH&Co. has agreed to provide, with respect to the term
loan, the Company with a 366-day notification period prior to issuing a demand
for repayment, so long as the Company is in compliance with certain financial
and operating guidelines
<PAGE>
(9) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Six months ended
December 31,
--------------------------------
1997 1998
--------------- -------------
Interest paid $339,135 $281,999
Income taxes paid 176,901 1,314
Summary of significant non-cash transactions:
Issuance of stock options relating to the
acquisition of Teletrade - $ 75,000
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
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 - 478,079
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
General
The Company's revenues are represented by the sum of (a) the proceeds
from the sale of the Company's inventory, and (b) the portion of sale proceeds
from auction or private treaty that the Company is entitled to retain after
remitting the sellers' share, consisting primarily of commissions paid by
sellers and buyers. Generally, the Company earns a commission from the seller of
5% to 15% (although the commission may be slightly lower on special high value
properties). During the three and six month periods ended December 31, 1998, the
Company earned a commission of 10% to 15% from the buyers.
The Company's operating expenses consist of the cost of sales of the
Company's inventory and general and administrative expenses and marketing
expenses for the three and six months ended December 31, 1997 and 1998. General
and administrative expenses are incurred to pay employees and to provide support
and services to those employees, including the physical facilities and data
processing. Marketing expenses are incurred to promote the services of the
Company to sellers and buyers of collectibles through advertising and public
relations, producing and distributing its auction catalogs and conducting
auctions.
Three months ended December 31, 1998
Compared with the three months ended December 31, 1997
The Company recorded an increase in revenues of $3,550,462 (317%), from
$1,118,279 for the three months ended December 31, 1997 to $4,668,741 for the
three months ended December 31, 1998. This increase was primarily attributable
to increases in revenues from the sale of the Company's inventories of
$2,710,495 (364%) for the three month period ended December 31, 1998 compared to
the prior year as a result of a more selective inventory purchase program in an
effort to improve the Company's gross profit margin. This program was successful
as shown by the Company's improved margins from 13% in the three months ended
December 31, 1997 to 30% in the comparable 1998 period (see below). Of the total
increase, $918,560 (30%) was attributable to the revenues of Teletrade which
were not included in the prior year.
Gross margins on the sales of the Company's inventory increased by $
939,118 (944%) in the three months ended December 31, 1998 compared to the three
months ended December 31, 1997. The overall gross margin increased to 30% on
inventory sales during the three months ended December 31, 1998 from 13% for the
comparable period in the prior year.
The Company's operating expenses increased by $517,210 (38%) in the
three months ended December 31, 1998 compared to the same period in the prior
year. These costs resulted in operating costs of 40% of operating revenues for
the three months ended December 31, 1998 compared to 121% for the comparable
period in the prior year. The primary cost increases were attributable to the
inclusion of the expenses of Teletrade which were not included in the prior
period.
Interest income increased by $14,674 substantially due to a higher
level of outstanding interest bearing advances to consignors during the quarter
ended December 31, 1998 as compared to the three months ended December 31, 1997.
Net Income: The Company's increase in operating profits of $1,380,202
during the three months ended December 31, 1998 as compared to the same period
of the prior year and the gain on sale of PICK stock of $102,635 were the
primary components of the net income of $256,251 for the three months ended
December 31, 1998 compared to the net loss of $614,918 during the three months
ended December 31, 1997.
Six months ended December 31, 1998
Compared with the six months ended December 31, 1997
The Company had an increase in revenue of $2,758,678 (79%) to
$6,266,819 for the six months ended December 31, 1998 as compared to the
comparable period ended December 31, 1997. This increase was attributable to the
increase in revenues from the sale of the Company's inventory by $1,896,768
(71%) and revenues from Teletrade which were not included in the comparable
period ended December 31, 1997.
Gross profits on the sales of the Company's inventory increased by
$908,735 for the six months ended December 31, 1998 as compared to the
comparable period ended December 31, 1997. The overall gross profit margins
increased to 30% on inventory sales for the six months ended December 31, 1998
from 16% for the comparable period in the prior year. The primary reason for the
increase was a more selective inventory purchase program in an effort to improve
our gross profit margin
The Company recorded an increase in operating expenses of $231.750 (9%)
for the six months ended December 31, 1998 as compared to the comparable period
ended December 31, 1997. The primary reasons for the cost increase were the
inclusion of the expenses of Teletrade which were not included in the prior
period.
Interest expense decreased approximately $79,653 in the six months
ended December 31, 1998 as compared to the comparable period ended December 31,
1997. The decrease was primarily attributable to lower interest rates on
outstanding borrowings during the current six month period. Interest income
increased approximately $6,760 for the six months ended December 31, 1998 as
compared to the comparable period ended December 31, 1997 .
The Company recorded a net income of $475,872 for the six months ended
December 31, 1998 as compared to a net loss of $907,983 for the six months ended
December 31, 1997. This change was primarily due to those factors mentioned
above as well as the gain on sale of PICK stock of $659,452.
Year 2000
The Company is aware of the Year 2000 issue and has commenced a program
to identify, remediate, test and develop contingency plans for the Year 2000
issue (the "Y2K Program"), to be substantially completed by the summer of 1999.
The Company has retained a consultant who will assist in the management of the
Y2K Program as it relates to (1) the software and systems used in the Company's
internal business; and (2) third party vendors, manufacturers and suppliers. We
have, to date, identified several internal software programs and hardware which
are in the process of being made Y2K compliant.
We have not yet identified the total cost which the Company expects to
incur with respect to the Y2K Program, however, 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 vendors or
suppliers fail to achieve Year 2000 compliance, the Company's business and
its results of operations could be adversely affected.In addition, the Company's
business is dependant on the continued successful operation of the Internet, and
any interruption or significant degradation of Internet operations, whether due
to Year 2000 problems or otherwise, could have a material adverse effect on the
Company's business, results of operations and financial position.
Liquidity and Capital Resources
At December 31, 1998, the Company's working capital position was
$1,747,912, compared to $1,455,028 as of June 30, 1998. This increase of $
292,887 was primarily due to increases in auctions receivable ($773,248), income
taxes receivable ($381,129), other assets ($681,633) and inventory ($2,079,929)
and decreases in payables to third-party consignors ($2,396,166) which was
partly offset by an increase in accounts payable and accrued expenses
($1,730,881). These items were the material cause of the negative cash flow from
operating activities of $1,103,887.
The Company experienced an decrease in cash flow from investing
activities for the six months ended December 31, 1998 of $2,730,377 which was
primarily attributable to the acquisition of Teletrade.
The Company experienced an increase in cash flow from financing
activities for the six months ended December 31, 1998 of $3,362,757. This was
attributable to the Company increasing its notes payable and term loans by
$1,666,819, the exercise of employee stock options of $195,938 and the sale of
the Company's Common Stock of $1,500,000.
The Company's need for liquidity and working capital is expected to
increase as a result of any proposed business expansion activities. In addition,
the need for such capital enhances the Company's ability to offer cash advances
to a larger number of potential consignors of property (which management
believes is an important aspect of the marketing of an auction business). In
addition, the Company will likely require additional working capital in the
future in order to further expand its sports trading card and sports memorabilia
auction business as well as to acquire collectibles for sale in the Company's
business.
The Company intends to continue evaluating potential acquisition candidates
which it believes will enhance or complement its existing business. However, the
Company has no understanding or agreement with respect to any future
acquisitions. In connection therewith, the Company may incur additional debt or
issue debt or additional equity securities depending on market conditions or
other factors.
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.
<PAGE>
GREG MANNING AUCTIONS, INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on December 9, 1998. At
the Annual Meeting, each of Greg Manning and Albertino de Figueiredo were
elected to hold office as directors of the Company until the third successive
Annual Meeting of Shareholders in 2001, and until their respective successors
have been elected and qualified. The term of office as a director of each of
Anthony L. Bongiovanni, Jr., Scott S. Rosenblum, William T. Tully, Jr. and Leon
Liebman continued after the meeting.
Set forth below is information concerning the voting results of matters voted
upon at the Annual Meeting.
1. Election of Directors:
Greg Manning
For: 4,073,622
Against: 122,300
Albertino de Figueiredo
For: 4,077,622
Against: 118,300
2. Ratification of the appointment of Amper, Politziner, & Mattia as
the Company's independent public accountants for the Company's
fiscal year ending June 30, 1999.
For: 4,185,022
Against: 6,900
Abstentions: 4,000
PROPOSAL APPROVED
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-k.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-k
On November 13, 1998, the Company filed a Report on
Form 8-K dated as of October 29, 1998 reporting under
Item 2 that the Company acquired the capital stock of
Teletrade, Inc. On January 12, 1999, the Company
filed an amendment to the Report on Form 8-K which
included the financial statements of Teletrade, Inc.
and the pro forma financial information as required
under Item 7.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
GREG MANNING AUCTIONS, INC.
Dated: January 28, 1999
/s/ Greg Manning
Greg Manning
Chairman and Chief Executive Officer
/s/ James Smith
. James Smith
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------------------------------------
27 Financial Data Schedule
<PAGE>
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<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 132123
<SECURITIES> 227977
<RECEIVABLES> 7619563
<ALLOWANCES> (95682)
<INVENTORY> 3979066
<CURRENT-ASSETS> 14704781
<PP&E> 2040313
<DEPRECIATION> (1353123)
<TOTAL-ASSETS> 27043241
<CURRENT-LIABILITIES> 12956869
<BONDS> 0
0
0
<COMMON> 59125
<OTHER-SE> 12224449
<TOTAL-LIABILITY-AND-EQUITY> 27043241
<SALES> 4450964
<TOTAL-REVENUES> 6266819
<CGS> 3137931
<TOTAL-COSTS> 2862122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281666
<INCOME-PRETAX> 847001
<INCOME-TAX> 381129
<INCOME-CONTINUING> 465872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 465872
<EPS-PRIMARY> 0.09
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