SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ________ to ________
Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Exact name of Registrant as specified in its Charter)
NEW YORK 22-2365834
--------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
-------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 882-0004
--------------
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days.
Yes X No _____
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As of November 10, 2000, Issuer had 10,061,562 shares of its Common Stock
outstanding.
<PAGE>
GREG MANNING AUCTIONS, INC.
Table of Contents
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at
June 30, 2000 and September 30, 2000 3
Condensed Consolidated Statements of Operations for the
three months ended September 30, 1999 and 2000 4
Condensed Consolidated Statements of Stockholders' Equity for the
three months ended September 30, 2000 5
Condensed Consolidated Statements of Cash Flows for the
three months ended September 30, 1999 and 2000 6
Condensed Consolidated Statement of Comprehensive Income for the
three months ended September 30, 1999 and 2000 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
PART I. FINANCIAL INFORMATION
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Balance Sheet
June 30, September 30,
2000 2000
Assets (Audited) (Unaudited)
------- ---------------- ------------------
Current Assets
Cash and Cash Equivalents $ 1,092,311 $ 1,522,030
Accounts Receivable, net
Auctions Receivable 6,747,582 7,695,155
Auctions Receivable - Related Party 614,000 515,000
Advances to Consignors 2,852,294 2,895,010
Other 16,201 15,001
Inventory 20,601,338 19,489,419
Deferred Tax Asset 824,000 902,000
Prepaid Expenses 517,523 464,689
----------------- ------------------
Total Current Assets 33,265,249 33,498,304
Property and Equipment, Net 927,699 992,224
Goodwill, Net 6,600,686 6,549,409
Other Purchased Intangibles, Net 3,021,667 3,175,164
Marketable Securities 231,000 192,500
Investment in Equity Method Investees 5,936,826 5,667,669
Other Non-Current Assets
Deferred Tax Asset 1,920,000 2,278,100
Inventory 2,400,000 2,400,000
Advances to Consignors 753,347 766,689
Other 386,441 425,855
----------------- ------------------
Total Assets $ 55,442,915 $ 55,945,914
=============== =================
Liabilities and Stockholders' Equity
Current Liabilities
Demand Notes Payable $ 7,950,000 $ 11,170,000
Notes Payable 182,498 116,928
Payable to Third Party Consignors 1,468,154 2,456,444
Accounts Payable 3,492,776 2,407,121
Advance from Related Party 2,421,804 1,871,804
Accrued Expenses 1,849,858 1,320,854
----------------- ------------------
Total Current Liabilities 17,365,090 19,343,151
Notes Payable - Long Term 110,700 53,796
----------------- ------------------
Total Liabilities 17,475,790 19,396,947
Preferred Stock, $.01 par value. Authorized
10,000,000 shares; none issued - -
Common Stock, $.01 par value. Authorized
40,000,000 shares; 10,024,632 and
10,061,562 issued and outstanding at
June 30, 2000 and September 30, 2000,
respectively. 100,246 100,616
Additional paid in capital 41,251,790 41,469,597
Accumulated other comprehensive income:
Unrealized loss on marketable securities (92,400) (115,500)
Accumulated deficit (1,959,043) (2,859,088)
Treasury stock, 99,900 and 172,100 shares
at June 30, 2000 and September 30, 2000,
respectively, at cost. (1,333,468) (2,046,658)
----------------- ------------------
Total Stockholders' Equity 37,967,125 36,548,967
----------------- ------------------
Total Liabilities and Stockholders'
Equity $ 55,442,915 $ 55,945,914
================ =================
See accompanying notes to condensed consolidated financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Statements of Operations (1)
For the Three Months Ended September 30,
(Unaudited)
1999 2000
------------------ -----------------------
Operating Revenues
Sales of merchandise $ 13,943,494 $ 12,929,873
Commissions earned 1,264,106 1,477,141
------------------ -----------------------
Total Revenues 15,207,600 14,407,014
Cost of merchandise sold 12,863,062 11,944,851
------------------ -----------------------
Gross profit 2,344,538 2,462,163
Operating Expenses
General and Administrative 1,108,650 1,140,470
Salaries and Wages 1,104,106 1,215,636
Depreciation and Amortization 230,900 362,799
Acquisition and Merger Costs 15,239 -
Marketing 559,724 616,474
----------------- ----------------------
Total Operating Expenses 3,018,619 3,335,379
----------------- ----------------------
Operating Loss (674,081) (873,216)
Other Income (expense)
Gain on sale of marketable securities
and investments 14,494 -
Interest Income 227,788 142,385
Interest Expense (404,678) (315,536)
Minority Interest 56 -
Loss from operations of investees (59,313) (276,678)
------------- -------------------
Loss before income taxes (895,734) (1,323,045)
Benefit from income taxes (407,788) (423,000)
------------- -------------------
Net Loss $ (487,946) $ (900,045)
============= ===================
Basic Loss per Share
Weighted average shares outstanding 8,539,135 10,044,763
============= ===================
Basic loss per share $ (0.06) $ (0.09)
============= ===================
Diluted Loss per Share
Weighted average shares outstanding 8,539,135 10,044,763
============= ===================
Diluted Loss per Share $ (0.06) $ (0.09)
========== ===================
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired July 1, 1999.
See accompanying notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Statement of Stockholders' Equity (1)
July 1, 2000 to September 30, 2000
(Unaudited)
Unrealized
Gain (Loss)
Common Stock Additional on Total
-------------------------- Paid-In Marketable Accumulated Treasury Stockholders'
Shares $ Capital Securities Deficit Stock Equity
------------- ----------- ------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 2000 10,024,632 $ 100,246 $ 41,251,790 $ (92,400) $ (1,959,043) $ (1,333,468) $ 37,967,125
Options exercised 27,250 273 43,400 43,673
Income tax benefit from
exercise of stock options,
net of valuation allowance 58,188 58,188
Common shares issued relating to
acquisition of GMD, net of
expenses 9,680 97 116,219 116,316
Unrealized loss from marketable
Securities, net of tax
of $15,400 (23,100) (23,100)
Common shares repurchased as
Treasury Shares (713,190) (713,190)
Net loss, September 30, 2000 (900,045) (900,045)
------------- ----------- ------------ ------------- ------------ ------------- ----------------
Balance, September 30, 2000 10,061,562 $ 100,616 $ 41,469,597 $(115,500) $ (2,859,088) $ (2,046,658) $ 36,548,967
============= =========== ============ ============= ============ ============= ================
</TABLE>
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired July 1, 1999.
See accompanying notes to condensed consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Statements of Cash Flows (1)
For the Three Months Ended September 30,
(Unaudited)
1999 2000
-------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (487,946) $ (900,045)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 304,742 352,710
Provision for bad debts - (14,546)
Provision for inventory reserve - 178,902
Gain on sale of marketable securities and
investments (14,494) -
Equity in loss of equity method investees 59,313 276,678
Deferred tax benefit (407,788) (362,512)
(Increase) decrease in assets:
Auctions receivable (153,785) (834,027)
Advances to consignors (389,757) (42,716)
Inventory (52,004) 933,017
Prepaid expenses and deposits 95,918 52,834
Other assets (40,493) (57,636)
Increase (decrease) in liabilities:
Payable to third-party consignors (437,921) 988,290
Accounts payable (1,553,188) (1,085,655)
Accrued expenses and other liabilities 51,609 (529,004)
Advance from Related Party - (550,000)
Income taxes payable 12,400 -
-------------------- -----------------
(3,013,394) (1,593,710)
Cash flows from investing activities
Capital expenditures for property and (195,657) (159,792)
equipment
Additional goodwill - (17,267)
Purchase of Other Intangibles - (220,000)
Investment in equity method investee (19,360) (7,521)
Proceeds from sale of marketable securities
and investments 15,649 -
-------------------- -----------------
(199,368) (404,580)
Cash flows from financing activities:
Net proceeds from (repayment of) demand notes
payable 885,000 3,220,000
Repayment of loans and loans payable (233,819) (122,474)
Proceeds from exercise of options 86,897 43,673
Payment for Treasury Stock - (713,190)
Proceeds from Stock Subscriptions Receivable 3,000,000 -
-------------------- -----------------
3,738,078 2,428,009
Net change in cash and cash equivalents 525,316 429,719
Cash and cash equivalents:
Beginning of period 811,196 1,092,311
-------------------- -----------------
End of period $ 1,336,512 $ 1,522,030
==================== =================
</TABLE>
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired July 1, 1999.
See accompanying notes to condensed consolidated financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Statements of Consolidated Comprehensive Income (1)
Three months ended September 30,
1999 2000
--------------------------------------
Net Loss $ (487,946) $ ( 900,045)
Other comprehensive income (loss)
Unrealized loss on securities,
net of tax of $15,400 - (23,100)
--------------------------------------
Comprehensive Loss $ (487,946) $ ( 923,145)
======================================
(1) All amounts have been restated to reflect the acquisition of Spectrum
Numismatics International, Inc. as if it had been acquired July 1, 1999.
See accompanying notes to condensed consolidated financial statements
<PAGE>
Notes to Condensed Consolidated Financial Statements
(1) Organization, Business and Basis of Presentation
Greg Manning Auctions, Inc., together with its wholly owned
subsidiaries Ivy & Mader Philatelic Auctions, Inc. Greg Manning Galleries, Inc.,
Teletrade, Inc., Greg Manning Direct, Inc. and Spectrum Numismatics
International, Inc.(collectively, the "Company") is a public auctioneer and
marketer of collectibles including rare stamps, stamp collections and stocks,
sports trading cards and memorabilia, movie posters, fine art, rare coins, comic
books, Hollywood and Rock and Roll memorabilia. The Company conducts both live
auctions and auctions via the Internet, bringing together purchasers and sellers
located throughout the world. The Company accepts property for sale at auctions
from sellers on a consignment basis, and earns a commission on the sale. The
Company also sells collectibles by private treaty for a commission, and sells
its own inventory at auction, wholesale and retail. In addition, the Company
maintains a 48% investment in GMAI-Asia.com, Inc., which conducts retail sales
and auction sales over the internet in Asia, particularly in China.
The accompanying condensed consolidated balance sheet as of June 30,
000 and September 30, 2000 and related condensed consolidated statements of
operations, stockholders' equity, cash flows and comprehensive income for the
three month periods ended September 30, 1999 and 2000 have been prepared from
the books and records maintained by the Company, in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, which are
of a normal recurring nature, considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and disclosures thereto in the Company's Form 10-KSB for the year
ended June 30, 2000 filed with the Securities and Exchange Commission. The
results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
(2) Summary of Certain Significant Accounting Policies
Revenue Recognition
Revenue is recognized by the Company when the rare stamps and
collectibles are sold and is represented by a commission received from the buyer
and seller. Auction commissions represent a percentage of the hammer price at
auction sales as paid by the buyer and the seller.
In addition to auction sales, the Company also sells via private
treaty. This occurs when an owner of property arranges with the Company to sell
such property to a third party at a privately negotiated price. In such a
transaction, the owner may set selling price parameters for the Company, or the
Company may solicit selling prices for the owner, and the owner may reserve the
right to reject any selling price. The Company does not guarantee a fixed price
to the owner, which would be payable regardless of the actual sales price
ultimately received. The Company recognizes as private treaty revenue an amount
equal to a percentage of the sales price.
The Company also sells its own inventory at auction, wholesale and
retail. Revenue with respect to inventory at auction is recognized when sold and
for wholesale or retail sales, revenue is recognized when delivered or released
to the customer or to a common carrier for delivery. 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 catalog. When however, in the
opinion of a competent authority mutually acceptable to the Company and the
purchaser, a lot is declared otherwise, the purchase price will be refunded in
full if the lot is returned to the Company within a specified period. In such
event, the Company will return such lot to the consignor before a settlement
payment has been made to such consignor for such lot in question. To date,
returns have not been material. Large collections are generally sold on an "as
is" basis.
<PAGE>
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 .
The condensed consolidated financial statements have been restated for the three
months ended September 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, 1999.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Business Segment
The company operates in one segment, the auctioning or private treaty
sale of rare stamps and other collectibles. Set forth below is a table of
aggregate sales of the Company, subdivided by source and market:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, Percentages
----------------------------------- ---------------------------
1999 2000 1999 2000
----------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Aggregate Sales $ 21,632,989 $ 22,838,331 100% 100%
================ =============
By Source:
A. Auction 7,689,495 9,908,458 36% 43%
B. Sales of Inventory 13,943,494 12,929,873 64% 57%
By Market:
A. Philatelics 3,503,529 4,833,384 16% 21%
B. Numismatics 15,276,894 13,349,397 71% 59%
C. Sports Collectibles 2,213,660 2,701,664 10% 12%
D. Diamond 168,827 37,614 1% 0%
E. Art 20,564 1,610 0% 0%
F. Other Collectibles 449,515 1,914,662 2% 8%
</TABLE>
Aggregate sales consist of the aggregate proceeds realized from the sale
of property, which include the Company's commissions when applicable. Property
sold by the Company is either consigned to it by the owner of the property, or
is owned by the Company directly. Aggregate sales of the Company's inventory are
classified as such without regard as to whether the inventory was sold at
auction or directly to a customer. Aggregate sales by auction and by private
treaty represent the sale of property consigned by third parties.
Accounts Receivable
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 and September 30, 2000, the allowance for
doubtful accounts included in auction receivables was approximately $826,000 and
$811,000, respectively.
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. Total
accumulated amortization at June 30, 2000 and 2000 was approximately $ 857,000
and $1,042,000, respectively. The recoverability of goodwill is evaluated at
each year end balance sheet date as events or circumstances indicate a possible
inability to recover its carrying amount. This evaluation is based on historical
and projected results of operations and gross cash flows for the underlying
businesses. Amortization expense charged to operations for the three months
ended September 30, 1999 and 2000 was approximately $ 60,000 and $ 185,000
respectively.
Other Purchased Intangibles
Other Purchased Intangibles consisting of Trademarks, Customer Lists
and Supplier Agreements, purchased as part of business acquisitions or in the
ordinary course of business 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 Lists and Supplier
Agreements. Total accumulated amortization at June 30, 2000 and September
30, 2000 was approximately $378,000 and $ 445,000, respectively. Amortization
expense charged to operations for the three months ended September 30, 1999 and
2000 was approximately $ 58,000 and $ 67,000, respectively.
Investments
The Company accounts for marketable securities pursuant to the
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this statement, the Company's
marketable securities with a readily determinable fair value have been
classified as available for sale and are carried at fair value with an
offsetting adjustment to Stockholders' Equity. Net unrealized gains and losses
for temporary changes in fair value of marketable securities are credited or
charged to a separate component of Stockholders' Equity.
Marketable securities available for sale as of June 30, 2000 and
September 30, 2000 is as follows:
Cost Market Unrealized
Value Gain (Loss)
----- -------- ------------
June 30, 2000 Common Stock $ 385,000 $ 231,000 $ (154,000)
========= ========= ===========
September 30, 2000 Common Stock $ 385,000 $ 192,500 $ (192,500)
========= ========= ===========
Earnings (loss) per common and common equivalent share
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of the outstanding
options would be reflected in diluted earnings per share by application of the
treasury stock method. There is no dilutive effect to these options for the
three months ended September 30, 1999 and 2000.
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.
(3) Inventories
Inventories as of June 30, 2000 consisted of the following:
Non-
Current Current Total
---------------- ------------- ---------------
Stamps $ 3,609,682 $ 500,000 $ 4,109,682
Sports Collectibles 4,003,742 4,003,742
Coins 8,881,741 1,000,000 9,881,741
Art 315,097 315,097
Other 3,791,076 900,000 4,691,076
---------------- ------------- ---------------
$ 20,601,338 $ 2,400,000 $ 23,001,338
Inventories as of September 30, 2000 consisted of the following:
Non-
Current Current Total
---------------- ------------- ---------------
Stamps $ 3,962,872 $ 500,000 $ 4,462,872
Sports Collectibles 3,993,175 - 3,993,175
Coins 6,677,097 1,000,000 7,677,097
Art 314,866 - 314,866
Other 4,541,409 900,000 5,441,409
---------------- ------------- ---------------
$ 19,489,419 $ 2,400,000 $ 21,899,419
================ ============= ===============
The Company has provided an inventory reserve of approximately
$514,000 and $693,000 at June 30, 2000 and September 30, 2000, respectively. The
non-current inventory represents an estimate of total inventory, which is not
expected to be sold within one year.
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.
(4) 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"), a company 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 and the Company charges CRM a seller's
commission for items valued at under $100,000 per lot. In the case of auction,
the hammer price of the sale, less any seller's commission, is paid to CRM upon
successful auction, and in the case of private treaty, the net price after
selling commissions is paid to CRM. For the three months ended September 30,
1999 and 2000, such auction and private treaty sales (net of commission) were
not material.
Included in Accounts Receivable at June 30, 2000 and September 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, who is also a director of the Company, provided
consulting services for the Company. Total expenditures for services rendered by
these firms for the three months ended September 30, 1999 and 2000 were
approximately $21,000 and $ 75,000 respectively, in the case of Kramer, Levin,
Naftalis & Frankel, approximately $46,000 and $199,000 respectively, in the case
of Micro Strategies, Incorporated, of which approximately $ 30,000 and
$42,000 was charged to operations in 1999 and 2000, respectively, and $0 and
$ 29,000 respectively in the case of Mr. Cohen.
Included in Auctions Receivable - Related Party is $ 515,000 for Afinsa
Bienes Tangibles, SA, ("Afinsa") which owns approximately 13% of the Company's
outstanding Common Stock.
For the three months ended September 30, 1999, sales of
approximately $891,000 (6% of sales) were made to an equity method investee of
the Company and a former stockholder of Spectrum, who is a current stockholder
of the Company. No such sales were made in the three months ended September 30,
2000. Purchases made from these entities approximated $287,000 and $358,000 for
the three months ended September 30, 1999 and 2000, respectively.
The Company acts as an agent of Afinsa regarding their stock
subscription agreement with GMAI-Asia.com, Inc. Under this agreement, 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 and $ 1,871,804 at June
30, 2000 and September 30, 2000, respectively and is included in Advance from
Related Party.
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 was approximately $ 124,000 for the
three months ended September 30, 1999. Additionally, Spectrum paid this
individual approximately $ 43,000 for consulting and debt guarantee fees for the
three months ended September 30, 1999.
During the three months ended September 30, 2000, the Company paid Mr.
Manning approximately $48,000 of debt guarantee
fees.
(5) Debt
The Company has a revolving credit agreement with Brown Brothers
Harriman & Co. ("Brown Brothers") pursuant to which Brown Brothers agreed to
provide the Company with a credit facility of up to $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
September 30, 2000, and are payable on demand. At June 30, 2000 and September
30, 2000, borrowing under this facility totaled $1,600,000 and $4,820,000,
repectively. Absent a material adverse change or event of default as determined
by Brown Brothers, with respect to the revolving credit loan, 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.
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 three months
ended September 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 November 10, 2000, Brown Brothers
had not demanded such repayment.
Spectrum 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 and 9.5% at September 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 that is based on 3% per annum of
the average loan balance outstanding each month. Total borrowing under this line
of credit totaled $6,350,000 at June 30, 2000 and September 30, 2000.
(6) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Three Months Ended
September 30,
------------------------------
1999 2000
----------- ------------
Interest paid $ 341,424 $ 300,034
Income taxes paid 1,222 3,872
Summary of significant non-cash transactions:
Income Tax effect of the $ 51,250 $ 58,188
exercise of options
Issuance of shares related
to the acquisition of GMD. - 116,316
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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 October 30, 2000 and Form S-3 filed with the Securities
and Exchange Commission on November 8, 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, both for the prior fiscal year
as well as the current 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, 1999.
Results of Operations
General
The Company's revenues are represented by the sum of (a) the proceeds
from the sale of the Company's inventory, and (b) the portion of sale proceeds
from auction or private treaty that the Company is entitled to retain after
remitting the sellers' share, consisting primarily of commissions paid by
sellers and buyers. Generally, the Company earns a commission from the seller of
5% to 15% (although the commission may be slightly lower on high value
properties) and a commission of 10% to 15% from the buyers.
The Company's operating expenses consist of the cost of sales of the
Company's inventory and general and administrative expenses and marketing
expenses for the three months ended September 30, 1999 and 2000. General and
administrative expenses are incurred to pay employees and to provide support and
services to those employees, including the physical facilities and data
processing. Marketing expenses are incurred to promote the services of the
Company to sellers and buyers of collectibles through advertising and public
relations, producing and distributing its auction catalogs and conducting
auctions.
Three months ended September 30, 2000
Compared with the three months ended September 30, 1999
The Company recorded a decrease in net revenues of approximately $
801,000 (5%) from approximately $ 15,208,000 for the three months ended
September 30, 1999 to approximately $14,407,000 for the three months ended
September 30, 2000.
Sales of owned inventory decreased during the current period by
approximately $ 1,014,000 (7%) and was partly offset by an increase in
commissions earned of approximately $ 213,000 (17%), reflecting an increase in
sales of consigned material. Most of the decrease in sales of owned inventory
was the result of decreased coin sales by Spectrum and Teletrade, reflecting a
general decrease in the market for collectible coins. It is management's belief
that the malaise in the collectible coin market is temporary and should recover
in the third quarter.
Gross profit increased approximately $ 118,000 (5%) from approximately
$ 2,345,000 for the three months ended September 30, 1999 to approximately $
2,462,000 for the three months ended September 30, 2000. Gross profit margins
increased from 15% to 17% for the three months ended September 30, 1999 and
2000, respectively.
The Company's operating expenses increased approximately $ 316,000
(11%) during the three months ended September 30, 2000 as compared to the same
period in the prior year. Marketing expenses increased approximately $ 56,000
(10%), depreciation and amortization increased approximately $132,000 (57%)
(primarily due to goodwill amortization relating to GMD), salaries and wages
increased approximately $ 112,000 (10%) and general and administrative expenses
increased approximately $31,000 (3%). These increases reflect the execution of
the Company's strategic plan to develop and implement: a marketing strategy to
increase sales and company awareness, and; the infrastructure of the Company to
react to the remarkable growth experienced by the Company during the past three
years.
These increased costs, in combination with revenue decreases, had the
effect of increasing operating costs as a percentage of operating revenue from
20% during the three months ended September 30, 1999 to 23% for the same period
ended September 30, 2000. However, as compared to aggregate sales, these costs
only marginally increased from 14.0% in September 1999 to 14.6% in 2000.
Interest expense (net of interest income) for the three months ended
September 30, 2000 decreased approximately $3,000 from approximately $ 177,000
to approximately $ 174,000.
The Company's effective tax rate for the three month periods ended
September 30, 1999 and 2000 were approximately 45% and 32%, respectively. The
difference primarily relates to a valuation allowance provided for net operating
loss carryforwards. This rate may change during the remainder of 2001 if
operating results or acquisition related costs differ significantly from current
projections.
The Company's increase in operating losses of approximately $ 199,000,
coupled with an increase in losses from operations of equity investees of
approximately $ 218,000, resulted in an increase in net losses before income
taxes of approximately $ 427,000 for the current three month period, from
approximately $ 896,000 to approximately $ 1,323,000 for the three months ended
September 30, 1999 and 2000, respectively.
Liquidity and Capital Resources
At September 30, 2000, the Company's working capital position was
approximately $14,155,000, compared to approximately $ 15,900,000 as of June 30,
2000. This decrease of approximately $1,745,000 was primarily due to decreases
in inventory of approximately $ 1,112,000, prepaid expenses of approximately $
53,000 and increases in demand notes payable of approximately $ 3,220,000 and
amounts payable to third party consignors of approximately $ 988,000. These were
partly offset by increases in accounts receivable of approximately $ 947,000 and
cash of approximately $ 430,000, and decreases in accounts payable and accrued
expenses of approximately $ 1,616,000 and advances from related party of
approximately $ 550,000.
The Company experienced a decrease in cash flow from investing
activities for the three months ended September 30, 2000 of approximately $
405,000. This was primarily attributable to the acquisition of property and
equipment and other purchased intangibles.
The Company experienced an increase in cash flow from financing
activities for the three months ended September 30, 2000 of approximately $
2,848,000. This was primarily attributable to the proceeds from demand notes
payable of approximately $ 3,220,000, which was partly offset by the purchase of
treasury stock of approximately $ 713,000.
The Company's need for liquidity and working capital is expected to
increase as a result of any proposed business expansion activities. In addition
to the need for such capital, and to enhance the Company's ability to offer cash
advances to a larger number of potential consignors of property (which
management believes is an important aspect of the marketing of an auction
business). In addition, the Company will likely require additional working
capital in the future in order to further expand its sports trading card and
sports memorabilia auction business as well as to acquire collectibles for sale
in the Company's business.
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 may consider exploring
financing alternatives including increasing its working capital credit
facilities or raising additional debt or equity capital.
The decision to expand, the desired rate of expansion, and the areas of
expansion will be determined by management and the Board of Directors only after
careful consideration of all relevant factors. This will include the Company's
financial resources and working capital needs, and the necessity of continuing
its growth and position in its core business area of stamp auctions.
Risk Factors
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's operations and future cash flows would be adversely affected
if it cannot maintain adequate lines of credit to fund its operations.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, investment risk, commodity price risk and other
relevant market rate or price risks.
The Company currently has no activities that would expose it to
interest rate or foreign currency exchange rate risks.
Investment Risk. The Company maintains investments in equity instruments of
public and privately held companies for business and strategic purposes. These
investments are included in marketable securities and other long-term assets and
are accounted for under the cost method when ownership is less than 20% and the
Company does not have the ability to exercise significant influence over
operations. For these investments, the Company's policy is to regularly review
the assumptions underlying the operating performance and cash flow forecasts in
assessing the carrying values. The Company identifies and records impairment
losses on long-lived assets when events and circumstances indicate that such
assets might be impaired.
Commodity Price Risk. The Company may, at times, be exposed to commodity price
risk on certain inventory products. The Company historically and currently has
not experienced any significant commodity price risks.
<PAGE>
GREG MANNING AUCTIONS, INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
GREG MANNING AUCTIONS, INC.
Dated: November 14, 2000
/s/ Greg Manning
-----------------------------
Greg Manning
Chairman and Chief Executive Officer
/s/ James Smith
------------------------------
James Smith
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
-------- ------------------------------------------
27 Financial Data Schedule
