SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Name of Small Business Issuer in Its Charter)
New York 22-2365834
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
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(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (973) 882-0004
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
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Common Stock, $.01 par value The Nasdaq National Market
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 $ 62,379,184.
The aggregate market value of the Common Stock held by non-affiliates
(excludes Greg Manning, Greg Roberts and Afinsa Bienes Tangibles S.A.) of the
Issuer as of September 19, 2000 (based on closing sale price of $9.125 per share
as reported on NASDAQ), was $60,095,206.
As of September 19, 2000, Issuer had 10,044,576 shares of its Common
Stock outstanding.
Portions of the Registrant's definitive proxy statement, which will be
filed within 120 days of June 30, 2000, are incorporated by reference into Part
III.
Transitional Small Business Disclosure Format (Check One): Yes X No
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THE REMAINDER OF THIS PAGE WAS PURPOSELY LEFT BLANK
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PART I.
Item 1 - Description of Business
OVERVIEW
Greg Manning Auctions, Inc. (the "Company" or "GMAI") is a multi-category
business-to-business and business-to-consumer collectibles auctioneer & merchant
in the Americas, Asia and Europe. The Company combines traditional and
electronic (Internet, interactive telephone, and live with simulcast Internet)
capabilities to sell coins, stamps, sports trading cards & memorabilia, comic
books & comic art, Hollywood & Rock `n Roll memorabilia, movie posters ,
affordable fine art, and un-mounted diamonds. Vertically integrated, the
Company's offerings and distribution channels span the entire price range from
low end to ultra-high end, its businesses include wholesale, retail and direct
response sales, and it possesses a branded presence in all major sales channels
both in the traditional and eCommerce worlds. On the Internet, GMAI offers
products through two owned web sites and on GMAI branded pages on Amazon.com, a
minority shareholder. GMAI generates income through the resale of goods
purchased directly by the Company, and through auction from sellers and buyers.
The Company believes that significant trends in the collectibles marketplace
exist which will positively affect the Company's business. These trends include:
1) growth in the number of collectors and amount spent on collecting, both in
the United States and globally; 2) increased interest in collecting, resulting
in part from the advent of the Internet as a communications vehicle and
marketplace opportunity, and; 3) increased use and acceptance of third party
grading and certification, which facilitates "sight-unseen" sales, more
standardized descriptions, and price "legitimization."
The Company seeks to provide the highest quality service and personal attention
to its clients. Its 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. These relations, coupled with the
Company's quality reputation and extensive auction and marketing experience,
have permitted it to expand beyond its core philatelic roots into other areas of
the collectibles business, and to make opportunistic investments in, or
acquisitions of, other collectibles companies, both domestically and in Europe
and Asia.
For purposes of competitive analysis and market positioning, the Company
organizes its business into four units: collectibles auctions (both traditional
and electronic); collectibles merchant/dealer; coin wholesaler; and direct
response merchant. Each unit is described separately below.
COLLECTIBLES AUCTIONEER
General
The Company conducts both traditional auctions featuring full electronic
capabilities and Internet-only auctions. Its traditional auctions and
Internet-only auctions are targeted to both collectors and dealers, and feature
offerings spanning the modest to ultra-high end price spectrum. Based on its
knowledge of the collectibles markets, the Company believes that it is one of
the world's largest (measured by aggregate sales) auctioneers of stamps, and a
leading auctioneer of rare coins and currency, comic books & comic art, and
sports trading cards & memorabilia. Additionally, the Company believes that it
possesses a significant market share as an auctioneer of other high-end
collectibles.
Traditional Auctions
"Traditional auctions" are live, in-person auctions conducted by a licensed
auctioneer. The Company holds several traditional auctions each year in a
variety of venues, including strategically located hotels, and at major trade
conferences and conventions. All traditional auctions are augmented by
electronic catalogs and most are augmented by one or more forms of electronic
bidding. Commissions are typically charged from the seller of 5% to 15% and from
the buyer of 10% to 15%.
The Company's traditional auctions are based on a "Full Service" auction model,
where the Company takes physical possession of all items offered for sale in its
auctions, inspects and describes all offerings, receives all sums due, remits
sale proceeds to the seller, and professionally packs/ships items sold to the
buyer. Additionally, the Company generally guarantees the genuineness of all
items sold (subject to the terms of sale) and that each lot is "as described" in
the auction catalog.
In the Company's traditional auctions, prospective buyers place bids on each lot
as presented in the order shown in the catalog at the time and date of the
auction. Before the auction, prospective buyers may bid by lot as shown in the
catalog and communicate such bids to the Company by mail, fax, telephone, or the
Internet. At the auction, the auctioneer typically opens bidding at levels based
on bids received prior to auction or a percentage of previously established
reserve prices. The item offered 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 all applicable
sales taxes. Additionally, buyers pay a shipping and handling fee if they do not
accept delivery of the items at the place of the auction.
The auctioneer regulates the bidding and reserves the right to refuse any bid
believed by him/her not to be made in good faith.
Costs involved in conducting a traditional auction include, among other things,
the cost of inspecting, describing and storing the items to be offered for sale,
catalog creation, printing and mailing, insurance, transportation, auction
advertising, auction venue site rental fees, security, temporary personnel and
expenses of certain additional auction-related accounting and shipping
functions.
Internet Auctions
In October 1998, the Company acquired Teletrade, Inc. and entered the online
auction market. Since that time, the Company has expanded its online offerings
and presence, improved its technologies, and created new proprietary Internet
auction technologies. Currently, the Company's only owned online auction web
site is www.teletrade.com. Internet auction capability is being added to the
Company's www.gregmanning.com web site, and the Company offers via auction
Company owned collectibles and collectibles consigned to it by others on
Amazon.com at www.gregmanning.amazon.com pursuant to an agreement with
Amazon.com Auctions LLC, a wholly owned subsidiary of Amazon.com, Inc.
Consistent with the Company's Full Service traditional auction business model
and its commitment to customer service, the Company's Internet auctions feature
many of the same Full Service amenities as its traditional auctions.
Specifically, unless otherwise noted in a particular sale's terms and
conditions, the Company guarantees the genuineness of all items offered in its
Internet auctions, describes the items, collects all sums due, remits the sale
proceeds to the seller, and professionally packs/ships the items sold to the
buyer. Additionally, because the buyer in an Internet auction has not had an
opportunity to personally view the item offered, the Company also offers buyers
a 100% Satisfaction Guaranty.
The Company's Internet auction business model is distinct from the more common
consumer-to-consumer model employed by Internet auctioneers such as eBay(R) and
Yahoo(R) wherein the auctioneer creates and manages the bidding facility and the
buyer and seller must work-out themselves the procedures for completing the
transaction. The Company believes that its business-to-consumer, Full Service
model provides it competitive advantages, distinguishes the Company from other
Internet auctioneers, and permits the Company to sell mid-range to high-end,
high value collectibles over the Internet.
The Company charges sellers a commission for its Internet auction services of 5%
to 15%. Buyers in its Internet auctions on the teletrade.com site are charged a
commission of 10% to 15%; no commissions are charged winning bidders at the
www.gregmanning.amazon.com site.
Costs involved in conducting the Company's Internet auctions include, among
other things, the cost of inspecting, describing, imaging and storing the items
to be offered for sale. Other costs include technology development and
maintenance, computer and Internet hardware procurement and maintenance,
advertising, and expenses of certain additional auction-related accounting and
shipping functions.
Auction Venues/Brands
Traditional Auctions
The Company conducts traditional auctions under two distinct brands: Greg
Manning Auctions ("GMA") and Ivy & Mader Philatelic Auctions ("Ivy & Mader").
The GMA brand was created in 1966 and has historically been used primarily for
auctions of stamp collections and accumulations targeted to philatelic dealers.
Commencing in 1998, the GMA brand was expanded and used for high-end
business-to-business and business-to-consumer auctions of comic books & comic
art, Hollywood & Rock 'n Roll memorabilia, movie posters, and sports trading
cards & memorabilia.
The Company created the Ivy & Mader brand in 1993 when it acquired the
predecessor to Ivy & Mader Philatelic Auctions, Inc. Since that time, the Ivy &
Mader brand has been used for high-end philatelic auctions of rare single stamps
and collections targeted to individual collectors as well as dealers.
During fiscal year 2000, 8 auctions were conducted under the GMA brand, and 3
auctions were conducted under the Ivy & Mader brand.
The Company's traditional auctions are held in locations appropriate for the
particular auction and all catalogs are available online.
Internet Auctions
Currently, the Company's only owned Internet auction venue is www.teletrade.com.
Internet auction functionality is being added to the Company's
www.gregmanning.com web site. Additionally, the Company offers via auction both
Company-owned collectibles and fine items consigned to it by others on
Amazon.com at www.gregmanning.amazon.com pursuant to an agreement with
Amazon.com Auctions LLC, a wholly owned subsidiary of Amazon.com, Inc.
The Company offers coins, sports trading cards and un-mounted diamonds on
teletrade.com. Amazon.com, a minority shareholder of the Company, classifies the
Company as a "Luminary Partner," and provides the Company branding on multiple
Amazon.com Auctions(TM) pages, a special co-branded gregmanning.amazon.com web
page, and other benefits. The Company offers art, coins, comic books & art,
un-mounted diamonds, Hollywood & Rock `n Roll memorabilia, jewelry, movie
posters, sports trading cards & memorabilia, and stamps in Amazon.com
Auctions(TM).
For its Amazon.com Auctions(TM), the Company created the brand Greg Manning
Collectibles. All items offered by the Company on Amazon.com are listed under a
Greg Manning Collectibles banner, and are further distinguished by: 1) a
comprehensive description of the offering, detailing third party grading if
applicable; 2) an estimated value; and 3) a high-quality image of the lot.
Proprietary Auction Technology
TouchBid(TM)
"TouchBid(TM) " is a new, Company co-owned and developed, proprietary auction
technology. Intended to bring live auctions to bidders all over the world, the
TouchBid(TM) technology broadcasts through the telephone a live audio feed from
the auction floor, and permits bidders to place bids using their telephones. The
Company believes that "TouchBid" will offer material advantages over current
technologies. Patents for the technology are being applied for, and intellectual
property rights to the name "TouchBid" are being sought.
MaxBid(TM)
"MaxBid(TM) " is a Company owned and developed proprietary technology that
enables absentee participants in an electronic auction to enter the highest
amount they are willing to bid for a particular lot. The computer records the
amount bid on each lot and during the auction, bids on behalf of the absentee
bidder, entering bids up to the maximum amount authorized. Intellectual property
rights to the name "MaxBid" are being sought.
Interphonic(TM)
"Interphonic(TM)" is a Company owned and developed telephone/Internet auction
technology. Interphonic(TM)is the technology operating the Company's
Internet/telephone auctions conducted on the Company's www.teletrade.com web
site. The technology permits bidders to participate in electronic auctions
either by touch-tone telephone or via the Internet. The Company has filed an
application to register the name "Interphonic" with the United States Patent and
Trademark office. The Company's application is pending.
Auction Offerings
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Traditional Auction Offerings
Philately
Philately, often referred to as stamp collecting, has grown in the United States
and globally during the twentieth century. The hobby is increasing in
popularity, due in part to the increased offerings from the United States Postal
Service of popular interest issues. The Company believes, based on its knowledge
of the market, that the combination of GMA with Ivy & Mader creates one of the
world's largest combined philatelic auction houses, although there is limited
publicly available data with respect to stamp auction sales, and provides a
competitive advantage to the Company through the complementary nature of the two
brands' targeted customer bases. In fiscal year 2000, the Company offered over
12,000 philatelic lots in its traditional auctions yielding over $14 million in
aggregate sales.
Comic Books
Comic book and comic art collecting have recently experienced dramatic growth in
popularity, stimulated in part by the introduction of third party grading and
certification of comic books. Recognizing this trend, the Company aggressively
pursued the comic book/art category during fiscal year 2000 and conducted two
major traditional auctions of comic books/art. The Company believes it has
established itself as the largest (measured by aggregate sales) rare comic book
auctioneer and dealer in the world, although there is limited publicly available
data with respect to comic book/art auctions.
Hollywood & Rock `n Roll Memorabilia, Movie Posters
and Sports Trading Cards & Memorabilia
During fiscal year 1999, the Company commenced expanding its collectibles
product lines, adding Hollywood & Rock 'n Roll memorabilia, original movie
posters & lobby cards, and sports trading cards & memorabilia to its offerings.
In fiscal year 2000 the Company conducted 2 auctions of these collectibles,
comprising over 900 lots each.
Internet Auctions
teletrade.com
The Company currently offers rare coins, sports trading cards, and un-mounted
diamonds in its teletrade.com auctions. During fiscal year 2000, the Company
held 145 coin auctions comprising approximately 1,000 lots each; 119 sports
trading card auctions, comprising approximately 1,400 lots per week, and; one
diamond auction each week comprising approximately 100 lots each.
gregmanning.amazon.com
The Company offers art, coins, comic books & art, un-mounted diamonds, Hollywood
& Rock `n Roll memorabilia, movie posters, sports trading cards & memorabilia,
stamps and other collectibles in Amazon.com Auctions, promoted on the
www.gregmanning.amazon.com web page. At fiscal year end, the Company was listing
an average of 3,400 unique lots of consigned and owned collectibles on
Amazon.com Auctions each month.
Collectibles Auction Competition
The auction market, both traditional and Internet, for the collectibles offered
by the Company is highly competitive and dynamic. With the exception of the
low-end and consumer-to-consumer segments of the Internet auction market wherein
eBay, Inc. has secured a dominant market position, no clear market leader
exists.
Traditional Auction Competitors
Among the Company's primary competitors in the domestic and worldwide philatelic
auction business are Matthew Bennett, Inc., Charles Shreve Galleries, Inc., H.R.
Harmer, and Robert A. Siegel Auction Galleries, Inc. In the sports trading card
auction business, the Company's primary competitors are Mastro Fine Sports
Auctions, Superior Galleries, Inc., Sports Trading Cards Plus, LLC, Collectors
Universe, Inc. and Sales OnLine Direct, Inc. (d/b/a Rotman Auctions). The
Company's principal coin auction competitors are Heritage Rare Coin Galleries,
Inc., Stacks Rare Coins, Collectors Universe Inc.'s Bower's and Merena, and
Superior. With respect to the Company's Hollywood Rock `n Roll memorabilia
business, the Company's primary competitors are Butterfields & Butterfields
Auctioneers, Inc., Sotheby's Holdings, Inc. and Christie's Inc. With respect to
the Company's comic book business, the Company's primary competitor is Sotheby's
Holdings, Inc. With respect to the Company's movie poster business, the
Company's primary competitors are Ron Moore, Skinner, Inc., Butterfields &
Butterfields Auctioneers, Inc., Sotheby's Holdings, Inc. and Christie's, Inc.
Internet Auction Competitors
A number of companies offer business-to-business and business-to-consumer
auctions of collectibles, including eBay, Inc., Yahoo!, Inc., Amazon.com, Inc.,
Interactive Collector, Inc. (d/b/a iCollector.com), Collectors Universe, Inc.,
and Sothebys.com, Inc. Additionally, several companies host consumer-to-consumer
auctions of collectibles. While the Company is not in the consumer-to-consumer
auction business, these companies' services provide collectors the option
to sell or buy their collectibles themselves; hence they may be deemed
competitors since consumer-to-consumer auctions draw potential consignments
from the Company's auctions. Consumer-to-consumer auction sites selling
collectibles include: eBay, Inc., Yahoo!, Inc., Amazon.com, Inc., FairMarket
Network, Inc., The boxLot Company, eDeal Auction Network, and eHammer, LLC,
among others.
MERCHANT/DEALER
General
In order to complement and enhance the Company's auction business, the Company
buys collectibles in its own name and resells them as a merchant/dealer.
For a variety of reasons, some collectors require the immediate liquidation of
their collections and cannot wait for an appropriate auction. Other collectors
do not wish to sell by auction and prefer a negotiated, fixed price sale. In
these instances, the Company uses its knowledge of the markets and product to
make what the Company calls "opportunistic purchases." In most instances,
collectibles purchased in this manner are resold within 180 days either in one
of the Company's auctions or in a private treaty transaction. In other
instances, either because the markets are not yet ripe or because the collection
purchased is so large, it is most profitably sold over a period of time, the
collectibles purchased are held in the Company's inventory and resold after 180
days.
In addition to these "opportunistic buys," the Company continually searches the
collectibles markets for favorable buying opportunities and buys individual
pieces and collections to re-sell to a particular collector pursuant to a
specific purchase request, to fill a need for one of its auctions to make that
auction more attractive to the targeted audience, or to take advantage of what
the Company believes is a favorable price and buying opportunity. In these
circumstances, items purchased are generally resold in less than 180 days.
The Company earns a profit or incurs a loss on the sale of owned inventory to
the extent the sale price exceeds or is less than the purchase price paid by the
Company. The Company intends to sell its owned inventory as quickly and
efficiently as possible, thereby promoting a high level of inventory turnover
and maintaining maximum liquidity.
Merchant/Dealer Sales Venues
The Company conducts its merchant/dealer business through four primary
distribution channels: auctions, private sales, print advertisements (usually in
collector specific publications), and Internet fixed-price sales on the
gregmanning.com web site and in Amazon.com's zShops(TM) web site.
Private Sales
In a private sale, the Company contacts known collectors and sells specific,
usually high or ultra-high end items, to such collectors at a privately
negotiated price. When such sales are conducted of Company-owned items, the
Company earns a profit based upon the sale price paid by the private buyer. The
Company also conducts private sales of consigned items. In such instances, the
Company earns a fee for its services. Generally, the fee is a percentage of the
sale price however in some circumstances the Company will be paid a fixed,
negotiated fee.
Private treaty sales are typically settled more promptly than auction sales,
with the buyer paying all or substantially all of the purchase price at the time
of sale. In some circumstances, however, the buyer may receive extended payment
terms. When this occurs, 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 a portion or all of the Company's fee 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 rather than by bidders as is the case at public auction. Often, a
private treaty sale can be consummated more quickly than a 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
expenses associated with such sales.
Internet Retail Sales
The Company sells its owned inventory on two eCommerce web sites that offer the
retail sale of items from each of the Company's collectibles categories. Those
web sites are www.gregmanning.com and www.gregmanning.amazon.com.
gregmanning.com
The Company is developing the gregmanning.com web site as a comprehensive
resource for collectors' needs. The site will feature a retail sales gallery
offering a selection of fine collectibles in each of the Company's principal
collectibles categories. Prices range from $25 to over $100,000. Currently the
site offers fixed priced collectibles from the Company's own inventory. In the
future, the site will offer collectibles from all categories sold by the Company
and collectibles consigned to the Company for retail sale by third parties.
Items are offered with a stated sale price, and are purchased by "clicking" a
buy button and proceeding to the Company's eCommerce sales facility where the
name, address, ship to and other information necessary to complete the sale is
gathered. The Company offers customers the option of paying by major credit
card, check, or wire transfer. If by credit card, the Company's electronic
systems process the transaction. If by check or wire transfer, the Company's
Customer Service department assists in facilitating the transaction. In all
circumstances, the merchandise is only shipped after the Company is paid in full
or appropriate credit arrangements have been made.
gregmanning.amazon.com
Pursuant to an agreement with Amazon.com Auction LLC, a wholly owned subsidiary
of Amazon.com, Inc., the Company lists agreed quantities of coins, stamps,
sports trading cards, sports memorabilia, comic books, movie posters, Hollywood
and Rock 'n Roll memorabilia, un-mounted diamonds, and other collectibles in
Amazon.com's fixed price eCommerce selling venue, zShops(TM).
Amazon.com, a minority shareholder of the Company, classifies the Company as a
"Luminary Partner" and provides the Company branding on multiple Amazon.com
zShops(TM) pages, a special co-branded www.gregmanning.amazon.com web page, and
other benefits. All items offered by the Company in Amazon.com's zShops(TM) are
listed under a Greg Manning Collectibles banner, and are further distinguished
by: 1) a comprehensive description of the offering, with third party grading if
applicable; 2) an estimated value; and 3) a high-quality image of the lot.
The Company offers 1,850 unique lots each month of owned and consigned
collectibles in Amazon.com's zShops(TM). Customers are given the option of
paying for the items bought either by using Amazon.com's "1-Click"(R) payment
system or the Company's electronic payment system. Additionally, for higher
priced items, the Company offers purchasers the option of paying by check or
wire transfer.
Merchant/Dealer Competition
Competition among dealers and merchants of the collectibles sold by the Company
is intense. The market is comprised of thousands of merchant/dealers, as well as
individual collectors buying and selling directly through consumer-to-consumer
Internet trading platforms and at collectibles shows and conventions. Most of
these competitors, however, are small, privately owned companies, and no large
dominant competitor exists. Additionally, most competitors are focused on a
single collectible category and do not have a multi-category presence similar to
the Company's.
Among the Company's primary competitors in the domestic and worldwide philatelic
merchant/dealer business are Mystic Stamp Company, Superior Galleries, and
Regency Stamps, Ltd. The Company's principal coin competitors are Heritage Rare
Coin Galleries, Inc. and Stack's Rare Coins. In the sports trading card &
memorabilia business, the Company's primary competitors are Sports Cards Plus,
Piedmont Cards and Goodwin & Company. With respect to the Company's Hollywood
Rock `n Roll memorabilia business, the Company's primary competitors are Stars
and Starifacts. The Company's principal comic book and comic art competitors are
Metropolis, Pacific Comics Exchange, and Comic Heaven. With respect to the
Company's movie poster business, the Company's primary competitors are Last
Moving Picture Company and Cinema Icons.
WHOLESALE COIN SALES
In February 2000, the Company acquired Spectrum Numismatics International, Inc.
("Spectrum"), one of the leading coin wholesalers in the United States. The
Spectrum business complements the Company's auction and merchant/dealer
businesses by providing a supply of favorably priced coin offerings for its
auctions and fixed price sales venues.
The majority of Spectrum's revenue is generated from wholesale sales of coins
and from sales of coins to retailers and auction houses. Additionally, Spectrum
sells directly to a limited number of select private collectors.
Based on its knowledge of the market, Spectrum believes that it is one of the
largest wholesalers of rare coins in the United States (although there is no
publicly available data to confirm this belief). Spectrum currently buys and
sells, in the aggregate, over $8 million worth of coins monthly.
DIRECT RESPONSE SALES
Effective January 2000, the Company entered into agreements with Tristar
Products, Inc. to create and mass-market high interest collectibles targeted to
the beginning collector. Under the agreements, the Company created a subsidiary,
Greg Manning Direct, Inc. ("GMD"), and is pursuing its direct response business
through that entity.
GMD will utilize television commercials and infomercials, print media, TV
shopping channels, major retail chains and the Internet to sell and distribute
its offerings. Sales operations commenced with the 50 State US Quarter Map and
coin set. Future products will likely include other State Quarter offerings, as
well stamp offerings with mass market appeal (such as Disney(R) character
stamps), and sports memorabilia offerings.
AUCTION POLICY & PROCEDURES
Unless otherwise stated in the terms and conditions of a particular sale, each
lot is sold as genuine and as described by the Company in the catalog or item
description. 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, if the item is consigned to the
Company, the Company will return the item to the consignor before a settlement
payment has been made to such consignor. To date, returns have not been
material. Large collections are generally sold on an "as is" basis.
After an auction, purchasers must make arrangements to take possession of the
items bought. 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 no 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.
Extending credit to creditworthy buyers at auction is an important marketing
tool for the Company because it allows buyers who may not have immediately
available funds at time of 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.
CLIENT SERVICES AND METHODS OF SALE FOR COLLECTIBLES OWNERS
The Company's business depends, in part, 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. Generally, 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: 1) continue for another period
under a private treaty arrangement at the existing or at new price parameters;
2) consign the property for sale at the next auction; 3) sell the property
outright to the Company at a price determined by the Company's experts; or 4)
have the property returned.
The Company's range of client services for owners of items to be auctioned
includes making 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.
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
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.
COMPUTERIZATION AND SECURITY
The Company maintains computerized tracking systems that are used to catalog 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, which
in the case of property to be sold at auction is generally 21 days before
auction.
Tracking the consigned property aids in the prompt and efficient production of
catalogs for auctions. Such catalogs are an important marketing tool for the
Company to solicit business with both potential consignors and bidders. For
potential consignors, the Company utilizes the catalogs from prior auction sales
to demonstrate its expertise in presenting property to the bidders. For bidders,
the Company utilizes the catalog 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 other auction
houses 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 installed
security system 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 that management believes
provides adequate coverage for damage or loss while the property is stored at
the Company's offices. The policy also provides what management believes is
adequate coverage for damage or loss during the transportation of property from
the customer to the Company's offices and from the Company's offices to an
auction location. The Company maintains the flexibility to obtain higher limits
for coverage as circumstances may require.
RECENT EXPANSION
Spectrum Numismatics, International
Effective February 18, 2000, the Company acquired Spectrum Numismatics
International ("Spectrum"). Founded in 1991, Spectrum has grown into one of the
leading coin suppliers to coin retailers, coin dealers, coin auction houses, and
eCommerce companies selling coins over the Internet. Spectrum's customers range
from small dealers to very large, high-end clients, including both collectors
and dealers.
The Company believes that, with this acquisition, its sales will rank it in the
top three in the collectibles categories of coins (although there is limited
publicly available data with respect to sales).
Greg Manning Direct
Effective January 26, 2000, the Company formed Greg Manning Direct, Inc. ("GMD")
to produce and market collectibles for the mass merchandising market. In
connection with this transaction, the Company signed a management agreement with
Tristar Products, Inc.("Tristar"), a privately owned Pennsylvania company with
its principal offices in Parsippany, NJ. Under the agreement, Tristar manages
the operations of GMD and bears all costs and expenses with respect to product
creation, inventory and advertising. The Company is responsible for product
sourcing, as well as new product development with a variety of collectibles,
including art, coins, comic books & art, diamonds, Hollywood & Rock `n Roll
memorabilia, movie posters, sports trading cards & memorabilia, and stamps.
Effective May 2000, GMD purchased certain assets of Tristar for an amount not to
exceed $12,000,000 payable in the Company's common stock over a specified period
of time.
GMAI-Asia.com, Inc.
GMAI-Asia.com, Inc., a 48% owned investment of the Company, beneficially owns
and operates iAtoZ.com, a Chinese language cybermall, auction web site and
vertical portal in cellular telephones, electronics and collectibles. The
iAtoZ.com cybermall, as of June 30, 2000, comprised 5,000+ merchant partners
offering 100,000+ products and 300,000+ registered club members.
Additionally, GMAI-Asia.com owns 65% of China Everbright Telecom-Land Network
Limited, which owns 95% of Everbright Telecom-Land Ltd. ("EBT"), a retail cell
phone distribution network with 180 retail stores and kiosks strategically
located in China's 10 major urban centers. GMAI-Asia.com, Inc. exclusively
manages EBT. China Everbright Technology Limited, a Hong Kong listed public
company (SEHK: 256), majority owned by the China Everbright Group, owns the
remaining 35% of China Everbright Telecom-Land Network Limited. GMAI-Asia.com is
converting the EBT stores into dual-purpose facilities: cell phone stores and
Internet service centers where customers may pay for goods purchased online and
receive delivery of electronically purchased items. Additionally, certain of the
EBT stores will have publicly accessible computer terminals linked to the
iAtoZ.com cybermall which customers may use to browse and shop on-line in the
iAtoZ.com cybermall.
In September, 2000, the Bureau of Internal Trade of the Peoples Republic of
China appointed iAtoZ.com to build and manage a B2B trading platform and
destination website for China's new and used automobile and auto parts
distribution industry. Additionally, the Bureau designated the project a "Key
Electronic Business Project of the China Bureau of Internal Trade."
GMAI-Europe.com, Inc.
GMAI-Europe.com, Inc., a 50% owned investment of the Company, is a joint venture
between the Company and Afinsa Bienes Tangibles S.A., of Spain. GMAI-Europe.com,
Inc. is targeting the European and Latin American collectibles markets through
is Internet auction portal www.gmai-europe.com. This venture, still in its early
development stage, intends to offer collectors and vendors a site to carry out
business-to-business, business-to-consumer and consumer-to-consumer
transactions, and is intended to be the largest search engine/operator of
collectibles in Europe and Latin-America. As of June, 30, 2000, Afinsa owned 19%
of GMAI-Asia.com and approximately 12% of GMAI.
FUTURE PLANNED EXPANSION
The Company continues to evaluate potential acquisition candidates in the
collectibles industry and believes that acquisitions are potentially the most
effective means to grow market share in its existing collectibles categories and
to expand into certain new collectibles areas.
REGULATORY MATTERS
Regulation of the auction business varies from jurisdiction to jurisdiction, 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.
EMPLOYEES
The Company presently has 76 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 James Reiman as Executive Vice
President of 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 January 31, 2005 (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 $137,000. 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. The Company also leases approximately 3,000
square feet of office space in Santa Ana, California for it's Spectrum
subsidiary at an annual rental of approximately $80,000.
Item 3 LEGAL PROCEEDINGS
The Company is not a party to any litigation material to the Company's
financial position or results of operations nor, to the knowledge of the
Company, is any litigation of a material nature threatened.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
PART II.
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on Nasdaq National Market
("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 93 and beneficial owners of record totaled 2,709 at September 8,
2000.
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, 1999 and 2000 are shown in the
following schedule:
For the years ended June 30,
------------------------------------------------------------
1999 2000
---------------------------- ----------------------------
(Quarter) High Low High Low
--------- -- ----- -- ---- -- ----- -- ----
First $ 2.406 $ 1.500 $28.500 $10.875
Second $ 21.750 $ 1.625 $17.500 $9.313
Third $ 14.500 $ 7.500 $27.813 $12.875
Fourth $ 22.000 $ 9.250 $21.500 $9.531
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
Overview
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding the
Company's expectations, beliefs, intentions or future strategies that are
signified by the words "expects", "anticipates", "intends", "believes", or
similar language. All forward-looking statements included in this document are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
Actual results could differ materially from those projected in the
forward-looking statements. In evaluating the Company's business, prospective
investors should carefully consider the information set forth below, and in the
Company's Form 10-KSB, and in its Proxy Statement, filed with the Securities and
Exchange Commission on January 13, 2000 and Form S-3 filed with the Securities
and Exchange Commission on February 10, 2000, in addition to the other
information set forth herein. The Company cautions investors that its business
and financial performance are subject to substantial risks and uncertainties.
Effective February 18, 2000, the Company's acquisition of Spectrum
Numismatics International, Inc. ("Spectrum") was consummated. The acquisition
has been accounted for using the pooling of interests method of accounting. In
accordance with Generally Accepted Accounting Principles, the historical
financial statement information presented below for the prior fiscal year has
been restated to include the balances from Spectrum's financial statements as
if the acquisition had been made as of July 1, 1998.
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, 1999 and 2000, and
shows the comparisons for the respective years subdivided by source and market:
<TABLE>
<CAPTION>
For the Years Ended
June 30, Percentages
------------------------------------ --------------------------------
1999 2000 1999 2000
----------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 102,287,776 $ 114,122,110 100% 100%
======================================== ================================
By source:
A. Auction $ 24,803,485 $ 58,459,208 24% 51%
B. Sales of inventory 77,484,291 55,662,902 76% 49%
---------------------------------------- --------------------------------
By market:
A. Philatelics $ 18,500,985 $ 14,124,873 18% 12%
B. Sports Collectibles 7,247,777 8,077,727 7% 8%
C. Numismatics 74,078,083 87,034,608 72% 76%
D. Diamond 422,041 484,202 0% 0%
E. Art 1,358,899 74,673 2% 0%
F Other 679,991 4,326,027 1% 4%
</TABLE>
Aggregate sales consist of the aggregate proceeds realized from the sale
of property, which include the Company's commissions when applicable. Property
sold by the Company is either consigned to it by the owner of the property, or
is owned by the Company directly. Aggregate sales of the Company's inventory are
classified as such without regard as to whether the inventory was sold at
auction or directly to a customer. Aggregate sales by auction and by private
treaty represent the sale of property consigned by third parties.
The Company's revenues are represented by the sum of (a) the proceeds
from the sale of the Company's inventory, and (b) the portion of sale proceeds
from auction or private treaty that the Company is entitled to retain after
remitting the sellers' share, consisting primarily of commissions paid by
sellers and buyers. Generally, the Company earns a commission from the seller of
5% to 15% (although the commission may be slightly lower on high value
properties) and a commission of 10% to 15% from the buyers.
Year ended June 30, 2000 compared with Year ended June 30, 1999
Revenues: For the year ended June 30, 2000, operating revenues
decreased approximately $ 15,105,000 (19%) to approximately $ 62,379,000
compared with approximately $ 77,484,000 for the year ended June 30, 1999. This
decrease is largely attributable to a decrease in sales of owned inventory of
approximately $ 16,888,000. This decrease was primarily the result of lower
sales by Spectrum of approximately $ 20,419,000, and the deferral of an Ivy &
Mader auction, ordinarily held during the fourth quarter, which was deferred
until July, 2000 so that it could be held during the World Stamp Expo 2000,
which was sponsored by the United States Postal Service, for which Ivy & Mader
was appointed the official exclusive auctioneer.
These decreases were partially offset by an increase in
commission revenue of approximately $ 1,783,000, which was primarily the result
of commissions earned from Greg Manning Direct,Inc.of approximately $ 2,027,000.
The Company believes the reduced Spectrum sales resulted primarily from
non-recurring Y2K influenced sales of generic gold coins and bullion during the
year ended June 30, 1999. At that time, Spectrum experienced these types of
sales in significantly greater than historical amounts due, the Company
believes, to fears over Y2K and Spectrum's customers building their inventories
of gold to meet perceived market demands for hard currency. Additionally,
Spectrum's sales during the current year were negatively affected by Spectrum's
customers' reduced cash availability resulting from their inventories of unsold
or repurchased generic gold coins and bullion.
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 profit increased by 1%, from approximately $ 11,743,000 for the
year ended June 30, 1999 to approximately $11,820,000 for the year ended June
30, 2000. This represents an increase of aproximately $77,000.
Operating Expenses: The Company's aggregate operating expenses,
exclusive of cost of merchandise sold, for the year ended June 30, 2000 totaled
approximately $15,223,000 compared with approximately $11,908,000 for the year
ended June 30, 1999, representing an increase of approximately $3,315,000 (or
28%). Of this increase, approximately $1,578,000 (48%) was attributable to the
inclusion of a full year of operating expenses by Teletrade, of which only eight
months were included last year. The primary changes in the operating expenses
for the year ended June 30, 2000 from the prior year were increases in marketing
costs of approximately $409,000 (20%), depreciation and amortization of
approximately $270,000 (37%) and salaries and wages of approximately $486,000
(11%). Also included are approximately $926,000 in acquisition costs,
approximately $534,000 in non-cash Bad Debt expense, approximately $280,000 in
non-cash inventory reserves, approximatelly $227,000 in other non-recurring
costs and approximately $655,000 in costs incurred to build the infrastructure
of the Company. These increases in overall costs, in combination with the
revenue decreases had the effect of increasing operating costs as a percent of
operating revenue from 15% during the year ended June 30, 1999 to 24% in the
year ended June 30, 2000.
The Company recorded expenses relating to bad debts of $534,000 at the
end of fiscal 2000, compared to $86,000 in fiscal 1999. While the fiscal 2000
amount represents a significant increase over the prior year, it is consistent
with prior years as a percentage of aggregate sales. The fiscal 2000 bad debt
charge represents .5% of aggregate sales. Over the past five years, the average
ratio of bad debt expense to aggregate sales was less than 1%.
Interest income and expense: Interest expense decreased approximately
$101,000 (6%) to approximately $1,543,000 for the year ended June 30, 2000 as
compared to that of the previous year. This decrease was attributable to lower
average borrowings caused primarily by the repayment of loans outstanding with
the proceeds of the sale of common stock during the third quarter of fiscal
2000. Interest income increased during the year ended June 30, 2000 by
approximately $5,000 (1%). This was caused by an overall increase in advances to
consignors.
Provision for Income Taxes: For the year ended June 30, 2000, the
Company recorded a tax benefit of $1,661,000 compared to an income tax expense
provision of $461,000 for the preceding year. The current benefit primarily
relates to net operating loss carryforwards net of valuation allowance.
Net Income (Loss): The Company recorded a net loss for the year ended
June 30, 2000 of approximately $3,669,000 compared to net income of
approximately $ 823,000 for the year ended June 30, 1999, reflecting a decrease
of approximately $4,492,000 during this period. The decrease in operating income
of approximately $3,238,000 during the year ended June 30, 2000, coupled with a
decrease in the gain on sale of marketable securities and investments of
approximately $2,540,000, and the increase in losses from operations of
investees of approximately $851,000 and a decrease in the provision for income
taxes of approximately $2,122,000 compared to the previous year were the
main contributors to the change in earnings.
PRO-FORMA INFORMATION
The Company has spent a significant amount during the fiscal year ended
June 30, 2000 in infrastructure development and non-recurring charges. Most of
these relate to the growth of the Company, as evidenced by the dramatic increase
in aggregate sales. As previously reported by the Company in its 10-K filings
(not restated for pooling of interests except for 2000), the Company's aggregate
sales were $22 million in 1998, $40 million in 1999 and $114 million in 2000.
This represents an increase in aggregate sales of 408% from 1998 to 2000.
Pro forma information regarding our results, which excludes non-recurring
and non-cash items, is approximately as follows:
Loss before interest, depreciation
and amortization and taxes $ (3,230,000)
Loss from operations of
investees 851,000
Gain on sale of marketable securities (14,000)
Infrastructure Charges:
Additional Staff 325,000
Data Processing 330,000
Acquisition and Merger costs 926,000
Non-cash Bad Debt Expense 534,000
Non-cash Inventory Reserves 280,000
Other Non-Recurring Charges 227,000
------------------
Pro Forma Income $ 229,000
==================
The pro forma results are presented for informational purposes only and
are not prepared in accordance with generally accepted accounting principles.
Year 2000 Compliance
The Company's program relating to Year 2000 issue is ongoing, as the
Company monitors (1) the software and systems used in the Company's internal
business; and (2) third party vendors, manufacturers and suppliers. The Company
has not experienced any issues or problems with regard to Y2K.
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.
<PAGE>
Liquidity and Capital Resources
The Company experienced a negative cash flow from operating activities
of approximately $7,639,000 for the year ended June 30, 2000 as compared to a
negative cash flow of approximately $5,514,000 for fiscal 1999, a decrease of
approximately $2,125,000. This decrease in cash flow for the year ended June 30,
2000 was primarily attributable to a decrease in net income of approximately
$4,492,000, an increase in inventory and deferred tax benefit of approximately
$1,567,000 and a decrease in accounts payable and other assets of approximately
$3,643,000 which was partly offset by increases in accounts payable to third
party consignors, accrued expenses, bad debt reserves and depreciation and
amortization of approximately $3,474,000.
The Company had a negative cash flow from investing activities of
approximately $2,743,000 for the year ended June 30, 2000 as compared to a
negative cash flow of approximately $1,427,000 for the previous year, a decrease
of approximately $1,316,000. The negative cash flow for the year ended June 30,
2000 was primarily attributable additional cash investment in GMAI-Asia.com.
During the year ended June 30, 2000, the Company paid off two term loans
aggregating $1,587,500 from Brown Brothers Harriman & Co. ("Brown Brothers").
During this same period, the Company decreased its borrowings under its
revolving credit facility by $ 2,102,000. The Company also paid off $650,000 to
the Bank of America under its revolving credit facility and $2,000,000 to a
former shareholder of Spectrum. In addition, the Company paid $750,000 to former
shareholders of Teletrade as part of the purchase of Teletrade and approximately
$1,333,000 for the purchase of treasury stock. These amounts were offset by the
exercise of employee stock options, receipt of proceeds from stock subscriptions
receivable and the sale of the Company's Common Stock totaling approximately
$19,000,000. This provided for a net increase in cash provided by financing
activities of approximately $ 10,663,000.
The revolving credit agreement with Brown Brothers was entered into in
May 1995, and was amended in February 1998 and June 1999. The agreement provides
for a credit facility for working capital purposes in an aggregate amount of
$5,750,000. 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, 2000, borrowings under this facility aggregated
$1,600,000 and are payable on demand.
The loan agreement 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, 2000 the Company was not in compliance
with the guideline relating to the formula of earnings before interest,
depreciation and taxes to interest expense. As a result, Brown Brothers has the
right under the credit agreement to demand immediate repayment of all amounts
outstanding without the otherwise applicable 120 day notice period. As of
September 29, 2000, Brown Brothers had not demanded such repayment.
At June 30, 2000, Spectrum was a party to a secured revolving credit
facility with Bank of America. and provides for a credit facility for working
capital purposes in an aggregate amount of $10,000,000. Borrowings under this
facility are based on a formula of account receivables and 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 receivables and other assets as collateral. At June 30, 2000,
borrowings under this facility aggregated $6,350,000 and are payable on demand.
Greg Manning, Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, has personally guaranteed this line of credit.
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, 1999 and 2000, the Company's expense
relating to bad debt was approximately $86,000 and $534,000 respectively. For
the years ended June 30, 1999 and 2000 the Company's history of bad debts has
been to .08% and .47% respectively, of aggregate sales.
Because of the nature of the auction business of the Company, there is a
relationship between accounts receivable, advances to consignors, and payable to
consignors. Depending upon the relationship of the balance sheet date to a given
auction sale date and a settlement date for a given auction, these balances
could change substantially from one balance sheet date to another.
In the cycle of any single auction, the effect on the balance sheet and
on the Company's cash flows is significant when compared to the total assets of
the Company.
The cycle for a single auction begins with consignors contracting with
the Company to sell their property at auction. Typically these contracts are
signed from 8 to 16 weeks in advance of the auction sale date. No entry is made
on the balance sheet of the Company when the Company receives the property for
auction or when a contract for the consignment to the auction is signed. Since
the contract for the sale of the property is for services not yet rendered,
there is no financial statement impact.
At the time of the consignment, or any time thereafter until the auction
sale date, the consignor may request a cash advance which is a prepaid portion
of the prices to be realized of the property irrevocably committed to be sold in
the auction. The cash advance takes the form of a self-liquidating, secured loan
to the consignor, using the property consigned as collateral. Cash advances to
consignors are often used as a marketing tool in order to obtain property for a
sale. When the cash advance is made, there is an increase of the accounts of the
Company in cash advances to consignors, and simultaneously, there is a
corresponding decrease in cash.
Approximately 6 weeks after the auction date, often referred to as the
settlement date, the payables to consignors decrease to zero as all the
consignors are paid and the Company withholds a portion of the amounts due the
consignor for the sale of the property as an offset to repay the principal
amount and the accrued interest on, the cash advances to consignors (or loans to
consignors), and there is a decrease in cash, corresponding to the net amount
paid to the consignors.
The entire cycle for a single auction typically is about 14 to 22 weeks
in duration. Because of the high level of activity in the Company, single
auction cycles do not occur in series, with the next cycle beginning immediately
after the previous cycle ends. Rather, single auction cycles occur in parallel.
For example, when a certain cycle ends, a second cycle may be at the midpoint,
while yet a third cycle is just beginning. Depending upon the relative values of
the property consigned to each sale in the three cycles in this example, and
depending upon the demand for auction advances in each of the cycles, the
cumulative effect on the balance sheet, and particularly the current assets and
current liabilities and the Company's cash flows, is very significant.
The Company has developed both a customer and supplier base of major
stamp, numismatic, sports and other collectibles dealers and collectors
throughout the world that services the Company's operations. 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.
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:
o At times there may be a limited supply of collectibles available
for sale by the Company, and such supply varies from time to time.
While the Company generally has not experienced a lack of
collectibles that has prevented it from conducting appropriately
sized auctions on an acceptable schedule, no assurance can be
given that the Company will be able to obtain consignments of
suitable quantities of collectibles in order to conduct auctions
of the size, and at the times, the Company may desire in the
future. The Company's inability to do so would have a material
adverse effect on the Company.
o 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.
o 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.
o The business of selling stamps and other collectibles at auction
and in retail sales is highly competitive. The Company competes
with a number of auction houses and collectibles companies
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.
o 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.
o 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.
o 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.
o The Company's operations may be adversely affected by governmental
regulation and taxation of the Internet, which is subject to
change. A number of legislative and regulatory proposals under
consideration by federal, state, local and foreign governmental
organizations may result in there being enacted laws concerning
various aspects of the Internet, including online content, user
privacy, access charges, liability for third-party activities, and
jurisdictional issues. These laws could harm our business by
increasing the Company's cost of doing business or discouraging
use of the Internet.
o The Company's business will be adversely affected if use of the
Internet by consumers, particularly purchasers of collectibles,
does not continue to grow. A number of factors may inhibit
consumers from using the Internet.These include inadequate network
infrastructure, security concerns, inconsistent quality of service
and a lack of cost-effective high-speed service. Even if Internet
use grows,the Internet's infrastructure may not be able to support
the demands placed on it by this growth and its performance and
reliability may decline. In addition, many Web sites have
experienced service interruptions as a result of outages and other
delays occurring throughout the Internet infrastructure. If these
outages or delays occur frequently in the future, use of the
Internet, as well as use of the Company's Web sites, could grow
more slowly or decline.
o A number of legislative and regulatory proposals under
consideration by federal, state, local and foreign governmental
organizations may result in there being enacted laws concerning
various aspects of the Internet, including online content, user
privacy, access charges, liability for third-party activities, and
jurisdictional issues. These laws could harm the Company's
business by increasing its cost of doing business or discouraging
use of the Internet.
In addition, the tax treatment of the Internet and electronic
commerce is currently unsettled. A number of proposals have been
made that could result in Internet activities, including the sale
of goods and services, being taxed. The U.S. Congress recently
passed the Internet Tax Information Act, which places a three-year
moratorium on new state and local taxes on Internet commerce.
There may, however, be enacted in the future laws that change the
federal, state or local tax treatment of the Internet in a way
that is detrimental to our business.
Some local telephone carriers claim that the increasing
popularity of the Internet has burdened the existing
telecommunications infrastructure and that many areas with high
Internet use are experiencing interruptions in telephone service.
These carriers have petitioned the Federal Communications
Commission to impose access fees on Internet service providers. If
these access fees are imposed, the cost of communicating on the
Internet could increase, and this could decrease the demand for
the Company's services and increase its cost of doing business.
o The Company holds rights to various Web domain names. Governmental
agencies typically regulate domain names. These regulations are
subject to change. The Company may not be able to acquire or
maintain appropriate domain names in all countries in which it or
its affiliates do business. Furthermore, regulations governing
domain names may not protect the Company's trademarks and similar
proprietary rights. The Company may be unable to prevent third
parties from acquiring domain names that are similar to, infringe
upon or diminish the value of the Company's trademarks and other
proprietary rights.
o The Company cannot accurately forecast revenues of its business.
The Company may experience significant fluctuations in its
quarterly operating results. Future fluctutations in operating
results or revenue shortfalls could adversely affect the success
of the Company.
o The popularity of collectibles could decline.This could affect the
market value of inventory the Company currently holds or may hold
in the future.
o Our significant growth has placed substantial pressures on our
personnel and systems. In order to support this growth, we have
added a significant number of new operating procedures, facilities
and personnel. Although we believe this will be sufficient to
enable us to meet our growing operating needs, we cannot be
certain. In addition, acquisition transactions are accompanied by
a number of risks, including:
-the difficulty of assimilating the operations and personnel
of the acquired companies;
-the potential disruption of the Company's ongoing business
and distraction of management;
-the difficulty of incorporating acquired technology
or content and rights into the Company's products and
media properties and unanticipated expenses related
to such integration;
-the negative impact on reported earnings if any
transactions that are expected to qualify for pooling
of interest accounting treatment for financial
reporting purposes fail to so qualify;
-the impairment of relationships with employees and customers
as a result of any integration of new management personnel;
and
-the potential unknown liabilities associated with the
acquired businesses.
<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 . . . . . . . . . . . . . . . . 23
Report of Management.............................................. 24
Consolidated Balance Sheet - June 30, 2000 . . . . . . . . . . . 25
Consolidated Statements Of Operations - Years ended June 30, 1999 and
June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statement of Stockholders' Equity--Years ended June 30,
1999 and June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Cash Flows - Years ended June 30, 1999 and
June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Comprehensive Income--Years ended
June 30, 1999 and June 30, 2000...................................... 29
Notes to Consolidated Financial Statements . . . . . . . . . . . 30
<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, 2000, and the related
consolidated statements of operations, stockholders' equity, cash flows and
comprehensive income for the years ended June 30, 1999 and 2000. 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, 2000, and the results of
their operations and their cash flows for the years ended June 30, 1999 and 2000
in conformity with generally accepted accounting principles.
/s/ Amper, Politziner & Mattia P.A.
September 29, 2000
Edison, New Jersey
<PAGE>
Greg Manning Auctions, Inc.
775 Passaic Avenue
West Caldwell, New Jersey 07006
September 29, 2000
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
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
June 30, 2000
Assets
Current Assets
Cash and cash equivalents $1,092,311
Accounts receivable
Auctions receivable 6,747,582
Auctions receivable - related party 614,000
Advances to consignors 2,852,294
Other 16,201
Inventory 20,601,338
Deferred tax asset 824,000
Prepaid expenses and deposits 517,523
-----------------------
Total current assets 33,265,249
Property and equipment, net 927,699
Goodwill, net 6,600,686
Other purchased intangibles, net 3,021,667
Marketable securities 231,000
Investment in equity method investees 5,936,826
Other non-current assets
Deferred tax asset 1,920,000
Inventory 2,400,000
Advances to consignors 753,347
Other 386,441
-----------------------
Total assets $55,442,915
=======================
Liabilities and Stockholder's Equity
Current liabilities:
Demand notes payable $7,950,000
Notes payable 182,498
Payable to third party consignors 1,468,154
Accounts payable 3,492,776
Advance from related party 2,421,804
Accrued expenses 1,849,858
-----------------------
Total current liabilities 17,365,090
Notes payable - long term 110,700
-----------------------
Total liabilities 17,475,790
-----------------------
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued. 0
Common stock, $.01 par value. Authorized
40,000,000 shares; 10,024,632 issued
and outstanding 100,246
Additional paid in capital 41,251,790
Accumulated Other Comprehensive Income:
Unrealized loss on marketable securities (92,400)
Retained earnings (deficit) (1,959,043)
Treasury Stock, 99,900 shares, at cost (1,333,468)
-----------------------
Total stockholders' equity 37,967,125
-----------------------
Total liabilities and stockholders' equity $55,442,915
=======================
See accompanying notes to consolidated financial statements
<PAGE>
Greg Manning Auctions, Inc.
Consolidated Statements of Operations (1)
For the Years Ended June 30,
1999 2000
------------- ---------------
Operating Revenues
Sales of merchandise $ 72,550,810 $55,662,902
Commissions earned 4,933,481 6,716,282
------------- ---------------
Total Revenues 77,484,291 62,379,184
Cost of merchandise sold 65,741,039 50,559,356
------------- ---------------
Gross Profit 11,743,252 11,819,828
Operating Expenses
General and administrative 4,801,166 6,023,500
Depreciation and amortization 739,406 1,009,896
Salaries and wages 4,335,093 4,821,088
Acquisition and merger - 926,479
Marketing 2,032,657 2,441,946
------------- ---------------
Operating loss (165,070) (3,403,081)
Other income (expense)
Gain on sale of marketable securities
and investments 2,555,040 14,494
Interest income 447,978 452,739
Interest expense (1,643,667) (1,542,622)
Minority Interest (5,210) -
Income (loss)from operations
of investees 95,272 (851,375)
------------- --------------
Income (loss) before income taxes 1,284,343 (5,329,845)
Provision for (benefit from) income taxes 461,434 (1,661,000)
------------- --------------
Net Income (loss) $ 822,909 $ (3,668,845)
============= ==============
Basic Earnings (loss) per share
Weighted average shares outstanding 7,355,285 9,710,036
============= ==============
Basic Earnings (loss) per share $ 0.11 $ (0.38)
============= ==============
Diluted Earnings (loss) per share
Weighted average shares outstanding 7,798,642 9,710,036
============= ==============
Diluted Earnings (loss) per share $ 0.11 $ (0.38)
============= ==============
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired at July 1, 1998.
See Note 2.
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Consolidated Statement of Stockholder's Equity (1)
July 1, 1998 to June 30, 2000
Common Stock Unrealized
Additional Gain (Loss) Retained Total
------------------------- Paid-In on Marketable Earnings Treasury Stockholders'
Shares $ Capital Securities (deficit) Stock Equity
------------- ---------- ------------ ------------- ------------------------------ --------------
<S> <C> <C> <C> <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
Spectrum Shares 1,754,034 17,540 (17,540) -
Spectrum Balance 528,316 622,293 1,150,609
------------- ---------- ------------ ------------- ---------- ---------------- --------------
Consolidated Balance
June 30, 1998 6,174,031 61,740 7,330,466 18,496 1,275,613 - 8,686,315
Options Exercised 535,375 5,353 887,037 892,390
Income Tax Benefit from exercise of stock
options, net of valuation allowance 1,374,078 1,374,078
valuation allowance
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
marketable securities (18,496) (18,496)
Common shares sold for
cash 1,075,623 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
Shareholder Distributions-Spectrum (229,057) (229,057)
Net income - June 30,1999 822,909 822,909
------------- ---------- ------------ ------------- ---------- ---------------- --------------
Balance June 30, 1999 8,535,029 85,350 18,373,324 - 1,869,465 - 20,328,139
Options Exercised 122,875 1,229 225,776 227,005
Income Tax Benefit from
exercise of stock options,
net of valuation reserve 284,000 284,000
Common shares sold for
cash, net of expenses 1,035,551 10,356 16,196,537 16,206,893
Options issued relating to
professional fees 245,000 245,000
Common shares issued relating to
GMAI-Asia acquisition of
Everbright 168,104 1,681 3,612,555 3,614,236
Common shares issued relating to
acquisition of GMD, net of
expenses 163,073 1,630 2,275,976 2,277,606
Common Shares repurchased
as Treasury Shares (1,333,468) (1,333,468)
Unrealized loss on marketable
securities, net of income tax
of approximately $62,000 (92,400) (92,400)
Shareholder Distributions-Spectrum (159,663) (159,663)
Spectrum shareholder purchase
of additional shares for cash
38,622 38,622
Net loss - June 30, 2000 (3,668,845) (3,668,845)
----------- ---------- ------------ ------------- ---------- ---------------- --------------
Balance June 30, 2000 10,024,632 $ 100,246 $41,251,790 $ (92,400) $(1,959,043) $(1,333,468) $ 37,967,125
=========== ========== ============ ============= ========== ================ ==============
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired at July 1, 1998.
See Note 2.
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows (1)
For the Years Ended June 30,
1999 2000
------------ --------------
Cash flows from operating activities :
Net Income (loss) $ 822,909 $ (3,668,845)
Adjustments to reconcile net income to
net cashfrom operating activities:
Depreciation and amortization 801,282 1,009,896
Amortization of prepaid and other - 351,057
Provision for bad debts (91,974) 523,912
Provision For inventory reserve - 289,975
Gain on sale of marketable securities
and investments (2,555,040) (14,494)
Equity in loss of equity method investee (95,272) 851,375
Deferred tax benefit (278,300) (1,236,000)
(Increase) decrease in assets:
Auctions receivable 1,883,395 2,061,266
Advances to consignors (813,891) 131,053
Inventory (5,495,363) (6,104,023)
Income taxes payable 111,000 -
Prepaid expenses and deposits (101,043) (103,764)
Other assets 2,046,207 (39,395)
Increase (decrease) in liabilities:
Payable to third-party consignors (3,136,415) (2,416,302)
Accounts payable (97,876) (1,655,596)
Accrued expenses and other liabilities 802,496 2,380,641
Income taxes payable 683,405 -
------------ --------------
(5,514,480) (7,639,244)
Cash flows from investing activities:
Capital expenditures for property
and equipment (280,274) (649,731)
Additional goodwill (65,883) (96,904)
Purchase of Customer list (100,000) -
Acquisition of Subsidiary (3,270,040) -
Investment in equity method investments (270,836) (2,060,168)
Distribution from investees - 40,634
Purchase of marketable securities (100,000) -
Proceeds from sale of marketable
securities and investments 2,659,726 23,149
------------ ---------------
(1,427,307) (2,743,020)
Cash flows from financing activities:
Net proceeds from (repayment of)
demand notes payable (501,000) (2,752,000)
Repayment of loans and loans payable (381,693) (4,525,986)
Proceeds from notes payable 2,800,000 -
Repayment of notes receivable 233,741 -
Proceeds from exercise of options 892,390 227,005
Proceeds from sale of common stock ,
net of expenses 3,500,000 16,168,874
Investment by Spectrum partner - 38,622
Dividend to Spectrum Shareholders (229,051) (159,668)
Payment for Treasury Stock - (1,333,468)
Proceeds from Stock Subscriptions
Receivable - 3,000,000
----------- ---------------
6,314,387 10,663,379
Net change in cash and cash equivalents (627,400) 281,115
Cash and cash equivalents
at beginning of period 1,438,596 811,196
------------ ---------------
Cash and cash equivalents
at end of period $ 811,196 $ 1,092,311
============ ===============
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired at July 1, 1998.
See Note 2.
See accompanying notes to consolidated financial statements
<PAGE>
Greg Manning Auctions, Inc.
Statements of Comprehensive Income (1)
For the years ended June 30,
1999 2000
------------------ ------------------
Net Income (loss) $ 822,909 $ (3,668,845)
Other comprehensive income (loss)
Unrealized gains (loss) on securities,
net of taxes of approximately $797,000
and $61,600 1,195,428 (92,400)
Less: reclassification adjustment for
gains included in net income, net of
taxes of approximately $809,000 (1,213,924) -
------------------ ------------------
Comprehensive income (loss) $ 804,413 $(3,761,245)
========== =============
See accompanying notes to consolidated financial statements
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired at July 1, 1998.
See Note 2.
<PAGE>
GREG MANNING AUCTIONS, INC.
Notes to Consolidated Financial Statements
June 30, 1999 and 2000
40
(1) Nature of Business and Summary of Significant Accounting Policies
Greg Manning Auctions, Inc. together with its wholly-owned
subsidiaries, Ivy and Mader Philatelic Auctions, Inc., Greg Manning Galleries,
Inc., Teletrade Inc., Spectrum Numismatics International, Inc., Kensington
Associates L.L.C. and Greg Manning Direct, Inc. (the "Company") is an eCommerce
and collectibles company as well as a public auctioneer of collectibles,
including rare stamps, stamp collections and stocks, sports trading cards and
memorabilia, movie posters, fine art, coins, diamonds and jewelry, comic books,
and Hollywood and Rock and Roll memorabilia. The Company conducts both in-
person event auctions and electronic auctions via the Internet and touch-tone
telephone.
In addition, the Company maintains a 48% investment in
GMAI-Asia.com, which conducts retail and auction sales over the Internet in
Asia, particularly in China.
Basis of Presentation
During February 2000, the Company acquired all of the
outstanding stock of Spectrum Numismatics International, Inc. ("Spectrum") in a
transaction accounted for under the pooling of interest method of accounting
(See Note 2). The consolidated financial statements have been restated for the
year ended June 30, 1999, to reflect the Company's results of operations and
financial position as if Spectrum was a wholly owned subsidiary of the Company
as of July 1, 1998.
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. Investments in equity-method
investees are accounted for under the equity method of accounting since the
Company can exercise significant influence, but less than majority owned and not
otherwise controlled by the Company.
Revenue Recognition
Revenue is recognized when the collectibles are sold at auction
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 sold at auction is recognized when
sold at auction, and for wholesale or retail sales, revenues are recognized
when delivered or released to the customer or to a common carrier for delivery.
Sales returns have not been material.
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.
Concentration of Credit Risk
The Company frequently extends trade credit in connection with
its auction sales, which are held throughout the United States. The Company
evaluates each customer's creditworthiness on a case-by-case basis; generally
the customers who receive trade credit are professional dealers who have
regularly purchased property at the Company's auctions or whose reputation
within the industry is known and respected by the Company.
In situations where trade credit is extended, the purchaser
generally takes possession of the property before payment is made by the
purchaser to the Company, and the Company is liable to the consignor for the net
sales proceeds (auction hammer price less commission to the Company). The
Company pays the consignor generally not later than the 45th day after the sale,
and when trade credit is extended, the Company assumes all risk of loss
associated with the trade credit, and the responsibility of collection of the
trade credit amount from the purchaser. Losses to date under these situations
have not been material.
Certain significant sales of inventory owned by the Company are
made with extended payment terms (up to twelve months). The Company evaluates
each customer's credit worthiness on a case-by-case basis; generally these
customers are professional dealers or other individuals who have purchased
property at the Company's auctions or whose reputation within the industry is
known and respected by the Company. These significant receivables are
collateralized by certain assets held by the Company.
Cash Equivalents and Concentration of Cash
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents. 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.
Inventories
Inventories are stated at the lower of cost or market. In
instances where bulk purchases are made, the cost allocation is based on the
relative market values of the respective goods. The Company has agreements with
certain suppliers to share the net profits or losses attributable to the sale of
specific items of inventory. As of June 30, 2000 the amount of inventories
subject to these arrangements was approximately $4,500,000.
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. Inventory, which is not expected to be sold within
one year, is classified with other Non-Current Assets.
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.
Web Site Development Costs
Web site development costs include expenses incurred by the
Company to maintain, monitor and manage the Company's website. The Company
recognizes the development costs in accordance with Statement of Position ("
SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use". As such, the Company expenses all costs incurred that relate
to the planning and post implementation phases of development. Costs incurred in
the development phase are capitalized and amortized over its estimated useful
life of three years. Costs associated with repair or maintenance of the existing
site or the development of website content are included in general and
administrative expenses in the accompanying statement of operations.
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 periods ranging from five to twenty years.
Other Purchased Intangibles
Other purchased intangibles consisting of trademarks and
customer list, purchased as part of business acquisitions are presented net of
related accumulated amortization and are being amortized on a straight-line
basis over a 20-year period for trademarks and a 5-year period for customer
list.
The carrying value of intangible assets and other long-lived
assets, including equity method investments, are reviewed on a regular basis for
the existence of facts or circumstances, both internally and externally, that
may suggest impairment. To date no such impairment has been indicated. This
evaluation is based on historical and projected results of operations and gross
cash flow for the underlying business.
Investments in Marketable Securities
The Company accounts for marketable securities pursuant to the
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Under this Statement, the
Company's marketable securities with a readily determinable fair value have been
classified as available for sale and are carried at fair value with an
offsetting adjustment to Stockholders' Equity. Net unrealized gains and losses
on marketable securities are credited or charged to a separate component of
Stockholders' Equity.
Financial Instruments
The carrying amounts of financial instruments, including cash
and cash equivalents, accounts receivable and accounts payable approximated fair
value as of June 30, 2000 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, 2000 based upon
quoted market prices for the same or similar instruments.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation" ("SFAS 123") allows a company to adopt a fair
value based method of accounting for its stock-based compensation plans or
continue to follow the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," The Company accounts for stock-based compensation in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation.". Under
APB No. 25, 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.
Advertising Costs
Advertising and catalogue costs are included in marketing costs
and 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.
Income Taxes
The Company recognizes deferred tax assets and liabilities based
on differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Earnings (loss) per share
Basic earnings (loss) per share are computed by dividing
income (loss) available to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted earnings (loss) per share
is computed by dividing income (loss) 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 (loss) by application of the treasury stock method.
Comprehensive income
Comprehensive income as defined includes all changes in equity
(net assets) during a period from non-owner sources. Accumulated other
comprehensive income, as presented on the accompanying consolidated balance
sheet consist of the net unrealized gains (losses) on securities, net of tax.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101), which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. The Company believes their
revenue recognition policies do not significantly differ from SAB 101.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Instruments and Hedging Activities. As amended by SFAS 138, SFAS
No 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 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.
(2) Acquisitions and Mergers
On October 29, 1998, the Company completed the acquisition of
all of the common stock of Teletrade, Inc. The purchase price for the
acquisition was approximately $5,895,000 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 $270,000 in acquisition
related expenses. The acquisition was recorded using the purchase method of
accounting. Substantially all of the purchase price was allocated to goodwill
and other acquired intangibles which are being amortized over the estimated
useful lives. The results of operations of Teletrade are included from October
30, 1998.
Effective February 18, 2000, the Company acquired all of the capital
stock of Spectrum Numismatics International, Inc., a wholesaler of rare coins
based in Santa Ana, California, in exchange for $25 million in the Company's
common stock. The acquisition was recorded using the pooling of interests method
of accounting. Accordingly, all prior financial statement information has
been restated to include the historical balances of Spectrum.
Separate results of operations for periods prior to the merger with
Spectrum are as follows:
Company Spectrum Combined
Year ended June 30, 1999 ------------ ------------ -----------
Total Revenue $ 14,799,375 $ 62,684,916 $ 77,484,291
Net Income 580,654 242,255 822,909
Year ended June 30, 2000
Total Revenue $ 36,930,643 $ 25,448,541* $ 62,379,184
Net Loss (3,230,225) (438,620)* (3,668,845)
* historical results for the period July 1, 1999 through February 18, 2000, the
acquisition date.
During 2000, the Company formed Greg Manning Direct, Inc. ("GMD") to
produce and market collectibles for the mass merchandising market. In connection
with this transaction, the Company signed a management agreement with Tristar
Products, Inc.("Tristar"), a privately owned company, to manage the operations
of GMD. Terms of the agreement include the collaboration of the Company and
Tristar to develop and market collectibles for the mass merchandising market.
Effective May 2000, GMD purchased certain assets of Tristar for an amount not to
exceed $12,000,000 payable in the Company's common stock over a specified period
of time. At June 30, 2000 the value (net of expenses) of the common stock issued
was approximately $2,278,000. In conjunction with the acquisition, Tristar was
issued warrants to purchase 49% of GMD, exercisable for nominal cash
consideration plus certain remaining collectibles-related assets of Tristar,
including computers and rights under employment agreements and other matters as
specified in the agreement. The acquisition has been accounted for under the
purchase method of accounting and accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values. The
excess of cost over the estimated fair value of net assets acquired was
allocated to goodwill, which will be amortized over a five year period. At June
30, 2000 the amount of goodwill is approximately $2,246,000.
Acquisition and merger costs of approximately $926,000 were incurred and charged
to expense during the year ended June 30, 2000 for services rendered to
facilitate the completion of these transactions.
(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 note.
As of June 30, 2000, the allowance for doubtful accounts
included in auction receivables was approximately $826,000.
(4) Marketable Securities
Investments in available for sale marketable securities as of June
30, 2000 is as follows:
Cost Market Value Unrealized
Gain (Loss)
--------- -------------- ---------------
Common Stock $ 385,000 $ 231,000 $ (154,000)
========= ============== ===============
The unrealized loss is classified as a separate component of stockholder's
equity, net of tax, in the amount of $92,400. In connection with its ownership
of this common stock, the Company was granted stock options for 21,000 shares of
common stock under the terms of a nonqualified stock option agreement. The
options are exercisable on April 1, 2006 at $5 per share.
During the year ended June 30, 1999, the Company sold 2,312,289 shares of a
stock for approximately $2,162,000, resulting in a pretax gain on the sale of
marketable securities of approximately $ 2,028,000.
(5) Inventories
Current Non-current Total
--------------- -------------- ---------------
Stamps $ 3,609,682 $ 500,000 $ 4,109,682
Sports Cards and Memorabilia 4,003,742 4,003,742
Coins 8,881,741 1,000,000 9,881,741
Art 315,097 315,097
Other(Comics, Antiquities
and other) 3,791,076 900,000 4,691,076
--------------- -------------- ---------------
$ 20,601,338 $ 2,400,000 $ 23,001,338
=============== ============== ===============
The non-current inventory represents an estimate of total inventory, which is
not expected to be sold within one year. The Company has provided an inventory
reserve of approximately $514,000.
<PAGE>
(6) Property and Equipment, net
Estimated
Useful Lives
----------------------
Equipment $2,029,385 3-5 years
Furniture and fixtures 306,850 3-5 years
Vehicles 67,000 3-5 years
Property under capital leases 186,143 3-5 years
(computers and office equipment)
Leasehold improvements 491,503 5 years
-----------------------
3,080,881
Less accumulated depreciation
and amortization 2,153,182
-----------------------
Net property and equipment $ 927,699
=======================
Depreciation and amortization expense for the years ended June
30, 1999 and 2000 was approximately $397,000 and $464,000, respectively. These
amounts include amortization of assets under capitalized leases of approximately
$11,000 and $17,000 for the years ended June 30, 1999 and 2000, respectively.
(6) Goodwill and Other Purchased Intangibles, net
Accumulated
Intangible Asset Gross Amortization Net
--------------------------- --------------- ------------- ----------
Goodwill $ 7,457,493 $ 856,807 $ 6,600,686
Other intangible assets 3,400,000 378,333 3,021,667
Amortization expense for the years ended June 30, 1999 and 2000 was
approximately $342,000 and $548,000, respectively.
( 7 ) Investment in Equity-Method Investees
The Company maintains a 48% interest in GMAI Asia.com. On February 15,
2000, GMAI-Asia.com, Inc., closed a series of related transactions which
permitted GMAI-Asia.com, Inc. to launch a "clicks and mortar" strategy in China
while the Internet infrastructure in that country develops. At the closing,
GMAI-Asia.com acquired from China Everbright Technology Limited a 65% interest
in China Everbright Telecom-Land Network Limited (a British Virgin Islands
company) for consideration of 30,000,000 Chinese Renmimbi (approximately
US$3,624,000, using a conversion rate of RMB 8.2788 to US$1.00), payable in the
Company's common stock, and GMAI-Asia.com, Inc.'s guarantee of 40,000,000
Chinese Renmimbi (approximately US $4,832,000) of indebtedness of China
Everbright Telecom-Land's Shanghai subsidiary; entered into a shareholders'
agreement governing the management of China Everbright Telecom-Land and its
Shanghai subsidiary and provided GMAI-Asia.com, Inc. certain rights to acquire
the remaining 35% interest in China Everbright Telecom-Land; entered into a
management agreement with China Everbright Telecommunication Products Limited (a
Chinese company wholly owned by affiliates of China Everbright Technology); and
received an option to acquire a 65% interest in China Everbright
Telecommunication Products for nominal consideration and certain rights to
acquire the remaining 35% interest in China Everbright Telecommunication
Products. In addition, the Company has guaranteed performance by GMAI-Asia.com,
Inc. of its obligations in these various transactions, and registered the shares
of the Company's stock that were issued to China Everbright Technology Limited.
China Everbright Telecom-Land and its Shanghai subsidiary are currently engaged
in the wholesale and retail distribution of consumer telecommunication and
electronic products in China. These entities sell their products through China
Everbright Telecommunication Products' distribution network of retail locations.
GMAI-Asia.com pledged its interest in China Everbright Telecom-Land and its
rights under the management agreement and the option referred to above to China
Everbright Group, Inc., an affiliate of China Everbright Technology Limited. At
June 30, 2000, the investment in this investee is approximately $5,329,000.
The Company maintains a 20% ownership interest in a coin company through
its 100% ownership of Kensington Associates, L.L.C. (a holding company). During
the year ended June 30, 1999, Kensington Associates sold an investment in a coin
company in exchange for $300,000 in cash and 57,000 shares of common stock of
another corporation valued at $285,000 which resulted in a gain of approximately
$532,000.
During the year ended June 30, 2000, the Company and Afinsa formed an
entity known as GMAI-Europe.Com, Afinsa. to conduct Internet auction and retail
sales in Europe through an office in Madrid, Spain. A definitive agreement is
currently being finalized.
Summarized balance sheet information as of June 30, 2000 of the
Company's equity method investees is approximately as follows:
(unaudited)
------------
Current Assets $ 29,111,000
Non Current Assets 1,975,000
Current Liabilities 13,081,000
Non Current Liabilities 5,188,000
Summarized statements of operations information of the Company's
equity-method investees, calculated for the periods during which the Company had
investments in such investees, is as approximately follows:
(unaudited)
For the years ended June 30,
-----------------------------
1999 2000
------------ ------------
Net Sales $ 25,132,000 $ 24,648,000
Gross Profit 4,221,000 5,167,000
Net profit (loss) 538,000 (1,314,000)
(8) Income Taxes
Deferred tax attributes resulting from differences between
financial accounting amounts and tax basis of assets and liabilities at June 30,
2000 are as follows:
Current assets and liabilities
Allowance for doubtful accounts $ 328,000
Inventory uniform capitalization 357,000
Inventory valuation reserve 206,000
----------------
Sub-total 891,000
Valuation allowance, provision for income taxes (67,000)
----------------
Net current deferred tax asset $824,000
========
<PAGE>
Noncurrent assets and liabilities
Goodwill $ (42,000)
Depreciation 179,000
Organizational costs 42,000
Net federal and state operating loss carryforward 1,813,000
Investments in equity-method investees 354,000
Investments in marketable securities 62,000
Other 20,000
--------------
Sub-total 2,428,000
Valuation allowance, provision for income taxes (469,000)
Valuation allowance, equity (39,000)
----------------
Net noncurrent deferred tax asset $1,920,000
==========
Based on management's estimates, the Company has provided a valuation allowance
against certain deferred tax assets. The valuation allowance primarily consists
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. Realization of the above deferred tax
assets is dependent on generating sufficient taxable income in the future to
offset the deductability of temporary differences generating the deferred tax
assets. The amount of the deferred tax asset considered realizable, however,
could be reduced if the estimates of future taxable income are reduced.
The provision for (benefit from)income taxes for the years ending June 30
consist of the following:
Years
ended
June 30,
----------------------------------------
1999 2000
---------------- --------------------
Current tax expense (benefit) $ 764,434 $ (425,000)
Deferred tax benefit (278,000) (983,000)
Net Change in valuation allowance (25,000) (253,000)
--------------- ------------------
$ 461,434 $(1,661,000)
========= ===========
The current tax expense for the year ended June 30, 1999 has been reduced by
approximately $25,000 due to the utilization of state net operating losses.
Prior to February 18, 2000, Spectrum was taxed under the Subchapter S provisions
of the Internal Revenue Code ("IRC") whereby its profits and losses flowed
directly to its former shareholder for U.S. federal income tax purposes. Upon
acquisition of Spectrum by the Company, Spectrum no longer qualified under the
Subchapter S provisions of the IRC and became a taxable entity for federal and
state purposes. In connection with Spectrum's change in tax status , the Company
reduced its income tax benefit by approximately $59,000.
The actual current tax liability for the year ended June 30, 1999 has been
reduced by approximately $759,000 and is in Additional Paid-In Capital.
The effective tax rate varied from the statutory rate as follows:
Years ended June 30,
-------------------------------------
1999 2000
--------------- ----------------
Statutory Federal income tax rate 34% (34%)
State income taxes, net of federal benefit 6% (6%)
Certain non-deductible expenses 7% 2%
Non deductible acquisition costs 8%
Change in valuation allowance 5%
Other (3%) (6%)
--------------- ----------------
44% (31%)
=== =====
The Company has a federal net operating loss carryforward of approximately
$4,100,000 which expire beginning in fiscal year 2019 through fiscal year ended
2020. The utilization of these net operating loss carryforwards may be
significantly limited in under the Internal Revenue Code as a result of
ownership changes due to the Company's stock and other equity offerings.
The Company has net operating loss carryforwards for state tax purposes of
approximately $7,100,000 expiring at various times from fiscal years ending 2002
through 2007.
<PAGE>
(9) 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 $5,750,000. 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 8.25 % at June 30, 2000,
and are payable on demand.
$ 1,600,000
Spectrum Numismatics has a revolving credit agreement with Bank of America
pursuant to which Bank of America agreed to provide Spectrum with a credit
facility of up to $10,000,000 subject to adjustments as defined in the
agreement. The loan agreement allows for borrowings based on the lesser of
$10,000,000 or a percentage of eligible inventories and accounts receivable or
50% of the market value of GMAI stock pledged as collateral. 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 Bank of
America base rate, which was 8.25 % at June 30, 2000. The credit facility
expires on March 1, 2001 and is personally guaranteed by Greg Manning who has
pledged 700,000 shares of the Company owned personally by Mr. Manning.
Additionally, the line is collateralized by all of the assets of Spectrum and is
guaranteed by GMAI. In connection with this agreement, the Company pays Mr.
Manning a guarantee debt fee which is based on 3% per annum of the average loan
balance outstanding each month.
6,350,000
-----------
Total Demand Notes Payable $ 7,950,000
Other borrowings:
Notes payable to current shareholder related to
Indebtedness of Teletrade prior to its acquisition $ 75,379
Notes payable to former shareholders of Teletrade
Related to indebtedness prior to its acquisition 87,594
Various capital lease obligations, various monthly
payments through 2005 130,225
-------------
293,198
Less current portion 182,498
--------------
Notes payable - long-term portion $110,700
==============
The aggregate amount of all maturities for the years ending June 30 are as
follows:
2001 $ 182,498
2002 45,090
2003 31,437
2004 30,759
2005 3,414
--------------
$ 293,198
The Company's obligations to Brown Brothers under the above
revolving credit loan facility is 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. Absent a material adverse change or event of default as determined by
Brown Brothers, Brown Brothers 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. For
the year ended June 30, 2000, the Company was not in compliance with the
guideline relating to the formula of earnings before interest, depreciation and
taxes to interest expense. As a result, Brown Brothers has the right under the
credit agreement to demand immediate repayment of all amounts outstanding
without the otherwise applicable 120-day notice period. At September 29, 2000,
Brown Brothers had not demanded such repayment.
(10) Leases
The Company conducts its business on premises leased in various
locations under leases that expire through the year 2005. The Company utilizes
property and equipment under both operating and capital leases. Future minimum
lease payments under noncancelable leases in effect at June 30, 2000 are set
forth below:
Operating Capital Total
--------------------------------------------------
2001 $324,000 $49,000 $373,000
2002 258,000 41,000 299,000
2003 209,000 41,000 250,000
2004 143,000 34,000 177,000
2005 82,000 3,000 85,000
--------------------------------------------------
Total future minimum lease payments $1,016,000 $ 168,000 $ 1,184,000
========== ========= = ============
Rent expense was approximately $206,000 and $339,000 for 1999
and 2000, respectively.
Interest expense associated with these capital leases was
approximately $17,000 and $24,000, for fiscal years 1999 and 2000, respectively.
(11) Related-party Transactions
The Company accepts rare stamps and other collectibles for sale
at auction on a consignment basis from Collectibles Realty Management, Inc.
("CRM"), which is owned by Greg Manning. 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, 1999 and 2000, such auction and
private treaty sales (net of commission) were not material.
Included in Accounts Receivable at June 30, 2000 is
approximately $31,000, 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. Richard Cohen, also a director of the Company, provided consulting
services for the Company. In relation to Kramer, Levin, Naftalis & Frankel,
amounts paid for services rendered were approximately $334,000 and $424,000
respectively of which, approximately $129,000 and $371,000, was charged to
operations in fiscal 1999 and 2000. In relation to Micro Strategies,
Incorporated, amounts paid for services rendered were approximately $154,000 and
$464,000 respectively, of which, approximately $113,000 and $310,000 was charged
to operations in fiscal 1999 and 2000. In relation to Rich Cohen, amounts paid
for services rendered were approximately $0 and $40,000 of which, approximately
$0 and $40,000 was charged to operations in fiscal 1999 and 2000.
For the years ended June 30, 1999 and 2000 sales of
approximately $18,900,000 (24% of revenues) and $5,995,000 (9% of revenues) were
made to an equity method investee of the Company, former stockholders of
Spectrum and/or entities in which they had an ownership interest, who are
current stockholders of the Company. Payments made to these entities
for commissions and purchases of products approximated $2,700,000 and $2,300,000
for the years ended June 30, 1999 and 2000.
Prior to the Spectrum acquisition, Spectrum was indebted to one
of their stockholders (a current stockholder of the Company) under the terms of
three secured notes which were due on demand and allowed for maximum borrowings
of approximately $5,000,000. These notes were paid in full during fiscal 2000.
Interest expense associated with these notes were approximately $498,000 and
$242,000 for the years ended June 30, 1999 and 2000. Additionally, Spectrum paid
this individual approximately $746,000 and $95,000 for consulting and debt
guarantee fees for the years ended June 30, 1999 and 2000.
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. In the
normal course of business, the Company sold to Afinsa consigned goods for a
total of $1,000,000. As of June 30, 2000, Afinsa has an outstanding accounts
receivable balance of approximately $614,000. During fiscal 2000, Afinsa
purchased other product totaling approximately $254,000.
The Company acts as an agent of Afinsa regarding their stock
subscription agreement with GMAI-Asia.com, Inc. Under this arrangement, the
Company receives funds from Afinsa and advances such funds to GMAI-Asia.com,Inc.
on an as-needed basis. There is no segregation of these funds. Such amount
liable to be paid to GMAI-Asia.com, Inc. is $2,421,804 at June 30, 2000 and is
included in Advance from related party.
During the year ended June 30, 2000, the Company paid Mr.Manning
approximately $68,000 of debt guarantee fees (see Note 9).
(12) Commitments and Contingencies
As part of the purchase of the Ivy & Mader Philatelic Auctions,
Inc. (Ivy") in 1993, the Company is required to pay additional amounts for a
period of time through 2009 based on the financial performance of Ivy. These
additional amounts totaled approximately $66,000 and $42,000 for the years ended
June 30, 1999 and 2000, respectively, and are accounted for as an increase to
goodwill and amortized over the goodwill's remaining life.
(13) Stockholders' Equity
Common Stock
On February 18, 2000, the Company's shareholders approved an amendment
to the Company's Restated Certificate of Incorporation to increase the number
of authorized shares of common stock from 20 million to 40 million.
Private Placement Equity Transactions
During the year ended June 30, 1999, the Company entered into a stock
purchase agreement with Afinsa whereby Afinsa agreed to purchase 475,624 shares
of the Company's Common Stock for an aggregate purchase price of $5 million.
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.
On January 31, 2000, the Company issued in a private placement to
Amazon.com, Inc. 285,551 shares of the Company's common stock, together with a
warrant to acquire 25,000 shares of the Company's common stock at an exercise
price per share of $20.19. The warrant is immediately exercisable. In connection
with this equity investment, GMAI and Amazon.com Auctions LLC, a subsidiary of
Amazon.com, entered into a marketing agreement pursuant to which the Company
offers collectibles for sale on the Amazon.com web site. The Company has
registered with the SEC the shares of the Company's common stock that were
issued to Amazon.com, Inc.
In late January and early February 2000, GMAI issued in a private
placement to certain investors an aggregate of 750,000 shares of the Company's
common stock for approximately $ 11,273,000, net of expenses, In connection with
this transaction, warrants to acquire 142,500 shares of the Company's common
stock were issued to these investors and their advisors. The warrants are
immediately exercisable at prices ranging from $18.85 to $24.52 per share.
Common Stock Repurchases
During April 2000, the Company's Board of Directors ("the Board")
authorized a plan to buy back in the open market up to 500,000 shares of common
stock based upon the Board's discretion. The shares will be purchased on the
open market and will pay an amount not to exceed the highest independent bid or
independent sales price on the Nasdaq National market, whichever is higher.
However, on any given day, the Company will not repurchase more than 25% of the
average daily trading volume for the Company's common stock the four weeks
preceding the week in which the purchase was made, excluding block trades.
During the year ended June 30, 2000 the Company repurchased 99,900 shares for
$1,333,468. The Company repurchased an additional 87,900 shares for
approximately $863,000 during the period July 1, 2000 to September 15, 2000. A
brokerage firm is holding the repurchased shares.
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 1,750,000 shares of
common stock has been reserved for issuance pursuant to the plans as amended by
the stockholders on February 18, 2000. In addition, the February 18, 2000
amendment increased from 100,000 to 200,000 the total number of shares that the
Company may issue to an individual in any given year. 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
generally, the exercise price of an option shall be not be less than the fair
market market value (as defined) of a share of common stock on the date of grant
Options granted have a maximum ten year term and vest over periods up to four
years. All options granted through June 30, 2000 have been granted with exercise
price equal to market value on the date of grant. During December 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.
The following table summarizes information about options outstanding and
exercisable as of June 30, 1999 and 2000:
<TABLE>
<CAPTION>
1999 2000
----------------------------- -------------------------------
Weighted- Weighted-
Average Average
Options Exercise Options Exercise
Price Price
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 601,500 1.43 658,125 5.08
Granted through stock option plan 277,000 4.28 684,500 14.16
Granted outside of stock option plan 175,000 8.82 167,500 20.07
Repurchased (60,000) 3.00 - -
Exercised (335,375) 1.42 (122,875) 1.92
Forfeited (46,625) 9.50
---------------- ------------------
Outstanding - end of year 658,125 5.08 1,340,625 11.68
Exercisable - end of year 280,000 5.24 481,625 10.77
The weighted average fair value of options granted during 1999 and 2000 was
$4.13 and $14.16.
</TABLE>
<PAGE>
Following is a summary of the status of stock options outstanding
at June 30, 2000:
<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>
1.38 137,750 3.5 1.38 136,500 1.38
1.97 66,375 8.1 1.97 7,500 1.97
2.50 107,500 8.3 2.50 36,250 2.50
5.19 48,500 8.4 5.19 11,375 5.19
9.38 20,000 8.8 9.38 5,000 9.38
11.44 42,500 10 11.44 - 11.44
11.63 15,000 8.5 11.63 15,000 11.63
12.19 100,000 8.8 12.19 100,000 12.19
13.94 75,000 9.5 13.94 - 13.94
14.19 10,000 8.4 14.19 2,500 14.19
14.25 530,500 9.5 14.25 - 14.25
18.44 20,000 9.7 18.44 - 18.44
18.85 112,500 4.6 18.85 112,500 18.85
20.19 25,000 4.6 20.19 25,000 20.19
24.52 30,000 2.6 24.52 30,000 24.52
--------------------- ------------------
1,340,625 481,625
========= =======
</TABLE>
Pro Forma Disclosure
The Company follows the intrinsic value method relating to its accounting
treatment for its stock options. Had compensation cost been recognized based on
the fair value at the date of grant for all options granted during 1999 and 2000
would have been as follows:
Proforma information regarding net income and earnings per share is required by
SFAS 123, and has been det
1999 2000
--------------- ---------------
Proforma net income (loss) $ 752,981 $ (4,222,730)
Proforma earnings (loss)per share
Basic .10 (.42)
Diluted .10 (.42)
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 1999 and 2000, respectively:, risk-free
interest rates of 5.1% and 5.7%; dividend yields of 0%; volatility factors of
the expected market price of the Company's common stock of 82% and 82%; and
weighted-average expected life of the option of five years.
There was no compensation expense recorded from stock options for
the years ended June 30, 1999 and 2000.
During the year ended June 30, 1999, the Company issued stock
options to vendors in exchange for services. These options were valued at the
fair market value in the amount of $150,000 which was amortized over the life of
the contracts, one year. Amortization expense related to these options for the
years ended June 30, 1999 and 2000 was approximately $42,000 and $108,000. As of
June 30, 2000, the Company granted stock options to consultants in exchange for
services. The value of these options is approximately $245,000 and are being
amortized over their respective vesting periods. Accordingly, no amortization
expense is being recorded as of June 30, 2000.
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.
(14) Significant Agreements
Employment Agreements
The Company has entered into an employment agreements with Mr.
Greg Manning, Chief Executive Officer of the Company. 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 $300,000 for the year
ended June 30, 2000 , plus a bonus based on income before income taxes of the
Company (subject to increase by the Board of Directors), together with a
non-accountable 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, 2002 and providing for a new base salary of $350,000 and an
annual bonus of no less than $50,000, with all other material terms and
conditions remaining the same.
The Company also maintains employment agreements with various
other key management personnel.
The Company currently maintains term life insurance policies on
the lives of certain key employees of the Company. These policies allow for
coverage of up to an aggregate amount of $7,000,000 with the benefits payable to
the Company.
The Company has entered into a management agreement with Tristar
to manage the operations of GMD. See note 2.
(15) Retirement 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 $6,100 and $9,500 for the
years ended June 30, 1999 and 2000.
<PAGE>
(16) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Year Ended
June 30,
----------------------------------
1999 2000
------------ -----------
Interest paid $ 1,644,799 $ 1,538,935
Income taxes paid 1,621 1,222
Summary of significant non-cash transactions:
Income tax effect of the exercise of options 1,374,078 284,000
Issuance of shares related to GMAI-Asia
purchase of Everbright Technologies - 3,614,236
Issuance of shares related to acquisition of
Subsidiaries 1,875,000 25,000,000
Issuance of shares related to acquisition
of GMD - 2,277,606
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 -
Common stock received from sale of investment 285,000 -
Issuance of options relating to professional
services 150,000 245,000
(17) "Year 2000"
The Company's program relating to Year 2000 issue is
ongoing, as the Company monitors (1) the software and systems used in the
Company's internal business; and (2) third party vendors, manufacturers and
suppliers. The Company has not experienced any material issues or problems with
regard to Y2K.
<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 54, 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.
James A. Smith, CPA, age 48, 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.
James A. Reiman, age 45, joined the Company in April 1999, as Executive Vice
President, Strategic Development. He also served as a consultant to the Company
prior to that time. He received his JD from Northwestern University School of
Law, and his BA from Columbia College, Columbia University.
Scott S. Rosenblum, age 51, 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 41, 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 69, 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 Catalog and Philatelic Publishers.
Richard Cohen, age 49, a director since December, 1999, has been the managing
principal of Richard M. Cohen Consultants since 1996. From 1992 to 1995, he
served as President of General Media, Inc., a public company with interests in
magazines, cable, licensing and the Internet. He holds a BS from the University
of Pennsylvania and an MBA from Stanford University. He is also a Certified
Public Accountant in the State of New York. Mr. Cohen is also a director of
National Auto Credit, Deyco Acquisition Corp., Symposium Telecom and Directrix,
Inc.
Greg Roberts, age 39, a director since February, 2000, has been the President of
Spectrum Numismatics since the early 1990s, following 9 years with Hannes
Tulving in Newport Beach, CA. He has spent the last 24 years honing his skills
to such an extent that he was able to successfully purchase such rare coins as
the King of Siam proof set, the 1861 Pacquet Liberty Gold Coins-$1MM, and the
Eliasberg-Stickney 1804 Silver Dollar-$1.8MM. He is also a lifetime member of
the Professional Numismatics Guild.
James M. Davin, age 54, a director since February, 2000, has since 1993 been
President of Davin Capital Corporation, a private investment company and Davin
Capital, L.P., a private investment partnership. Mr. Davin is also a trustee and
a member of the Finance Committee of Blair Academy, an independent school in
Blairstown, New Jersey and a former member of the Advisory Board of the
Georgetown University School of Business, from which he graduated in 1967. Mr.
Davin's investment career started in 1969 at First Boston, from which he
departed in 1988 as Managing Director to join Drexel Burnham Lambert Group, Inc.
in 1990. Mr. Davin left Drexel as Executive Vice President, Senior Trading
Official, a position mandated by the SEC under the company's agreement with
the US District Attorney's office, after which he joined Lehman Brothers.
Mr. Davin departed Lehman Brothers in 1993 as Managing Director to serve as Vice
Chairman of Craig Drill Capital, a private investment fund in New York. Mr.
Davin has been an active member of the National Association of Securities
Dealers, for which he was Chairman and Vice President of Governors in 1987 as
well as a board member from 1985 until 1988.
Mark B. Segall, age 38, a director since December, 1999, was a partner at Kramer
Levin Naftalis & Frankel, a New York law firm, from 1995 through 1999. In
October, 1999, he became a Senior Vice President and General Counsel for
Investec Ernst & 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. Messrs.
Bongiovanni and Rosenblum have been elected to serve until the 2000 annual
meeting of stockholders. Messrs. De Figueiredo and Manning have been elected,
and Mr. Davin has been appointed, to serve until the 2001 annual meeting of
stockholders. Messrs. Segall and Cohen have been elected, and Mr. Roberts has
been appointed, to serve until the 2002 annual meeting of stockholders. The
Certificate of Incorporation also provides that directors may be removed only
for cause and that any such removal must be approved by the affirmative vote of
at least a majority of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors. While the Company
believes that the foregoing provisions are in the best interests of the Company
and its stockholders, such requirements may have the effect of protecting
management against outside interests and in retaining its position.
Each of the directors and executive officers of the Company is delinquent in
filing the forms required by Section 16(a) of the Exchange Act. 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 62, 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 68, 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 81 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 74, 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.
(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 58, 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, 2000 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, 2000 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, 2000 and is incorporated by reference.
<PAGE>
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
Exhibit No. Description
----------------------------------------------------------------------------
(a) (1) All Financial Statements of the Company for the years
ended June 30, 1999 and 2000 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 March 6, 2000, relating to the
Company's acquisition of Spectrum Numismatics International,
Inc. and related matters (item 2), as amended by Form 8-K/A,
filed on May 5, 2000, setting forth financial statements as
required by item 7.
Report on Form 8-K filed on May 30, 2000, relating to certain
transactions between Tristar Products, Inc and Greg Manning
Direct, Inc., a wholly owned subsidiary of the Company.
(c) Exhibits
3.1 Restated Certificate of Incorporation of Registrant, as
amended. 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"); as amended by the
Certificate of Amendment filed with the Secretary of State of
New York on March 3, 2000.*
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 Third Amendment to Employment Agreement between Greg Manning
and Company, effective as of July 1, 1999.*
10.5 Fourth Amendment to Employment Agreement between Greg Manning
and Company, effective as of July 1, 2000.*
10.6 Employment Agreement between the Company, Spectrum Numismatics
International, Inc. and Gregory N. Roberts. Incorporated by
reference to the Company's Proxy Statement dated January 14,
2000.
10.7 Employment Agreement between James Reiman and Company dated as
of March 31, 1999. Incorporated by reference to Exhibit 10 to
Form 10-QSB of the Company for the period ended March 31,1999.
10.8 Demand Promissory Note,dated February 5, 1999, of Greg Manning
Auctions,Inc.(Maker) to Brown Brothers Harriman & Co.(Holder)*
10.9 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.
10.10 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.
10.11 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 1997 Stock Option Plan, as amended. Incorporated by reference to
Exhibit A to the Proxy Statement of the Company dated October 28, 1997
and to the Proxy Statement of the Company dated January 14, 2000.
10.13 Merger Agreement dated December 8, 1999, between the Company, Spectrum
Acquisition,Inc.,Spectrum Numismatics International,Inc., Warren Trepp,
as trustee, Gregory Roberts, Sharon Roberts and Elaine Dinges.
Incorporated by reference to Annex B of the Proxy Statement of the
Company dated January 14, 2000.
10.14 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum
Numismatics International, Inc.*
10.15 Continuing Guaranty dated February 18, 2000 between Bank of America, NA
and Greg Manning.*
10.16 Pledge Agreement dated February 18, 2000 between Bank of America, NA
and Greg Manning.*
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
*************************************************************************
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREG MANNING AUCTIONS, INC.
Date: October 3, 2000
/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: October 3, 2000
/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
/s/ Richard Cohen
Richard Cohen
Director
/s/ Greg Roberts
Greg Roberts
Director
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
-----------------------------------------------------------------------------
(a) (1) All Financial Statements of the Company for the years
ended June 30, 1999 and 2000 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 March 6, 2000, relating to the
Company's acquisition of Spectrum Numismatics International,
Inc. and related matters (item 2), as amended by Form 8-K/A,
filed on May 5, 2000, setting forth financial statements as
required by item 7.
Report on Form 8-K filed on May 30, 2000, relating to certain
transactions between Tristar Products, Inc and Greg Manning
Direct, Inc., a wholly owned subsidiary of the Company.
(c) Exhibits
3.1 Restated Certificate of Incorporation of Registrant, as
amended. 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"); as amended by the
Certificate of Amendment filed with the Secretary of State of
New York on March 3, 2000.*
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 Third Amendment to Employment Agreement between Greg Manning
and Company, effective as of July 1, 1999.*
10.5 Fourth Amendment to Employment Agreement between Greg Manning
and Company, effective as of July 1, 2000.*
10.6 Employment Agreement between the Company, Spectrum Numismatics
International, Inc. and Gregory N. Roberts. Incorporated by
reference to the Company's Proxy Statement dated January 14,
2000.
10.7 Employment Agreement between James Reiman and Company dated as
of March 31, 1999. Incorporated by reference to Exhibit 10 to
Form 10-QSB of the Company for the period ended March 31,
1999.
10.8 Demand Promissory Note,dated February 5, 1999, of Greg Manning
Auctions, Inc.(Maker) to Brown Brothers Harriman&Co. (Holder)*
10.9 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.
10.10 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.
10.11 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 1997 Stock Option Plan, as amended. Incorporated by reference
to Exhibit A to the Proxy Statement of the Company dated
October 28, 1997 and to the Proxy Statement of the Company
dated January 14, 2000.
10.13 Merger Agreement dated December 8, 1999, between the Company,
Spectrum Acquisition, Inc.,Spectrum Numismatics International,
Inc., Warren Trepp, as trustee, Gregory Roberts, Sharon
Roberts and Elaine Dinges. Incorporated by reference to Annex
B of the Proxy Statement of the Company dated January 14,2000.
10.14 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum Numismatics
International, Inc.*
10.15 Continuing Guaranty dated February 18, 2000 between Bank of
America, NA and Greg Manning.*
10.16 Pledge Agreement dated February 18, 2000 between Bank of America, NA
and Greg Manning.*
23.1 Consent of Independent Accountants.*
27 Financial Data Schedule*
* Filed herewith
