SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 Small Business Issuer as specified in its Charter)
NEW YORK 22-2365834
- --------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
- -------------------------------- -------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 882-0004
--------------
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days.
Yes X No _____
----------
As of May 8, 2000, Issuer had 9,855,059 shares of its Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___X___
No .
- - -----------
<PAGE>
GREG MANNING AUCTIONS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------
Table of Contents Page Number
Condensed Consolidated Balance Sheet -
March 31, 2000 (Unaudited) 3
Condensed Consolidated Statements of Operations
Three and nine months ended March 31, 1999
and 2000 (Unaudited) 4
Condensed Consolidated Statement of Stockholders' Equity - 5
July 1, 1998 to March 31, 2000 (Unaudited)
Condensed Consolidated Statements of Cash Flows - Nine
months ended March 31, 1999 and 2000 (Unaudited) 6
Condensed Consolidated Statement of Comprehensive Income
Nine months ended March 31, 1999 and 2000 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements
as of March 31, 2000 8
Item 2. Management's Discussion and Analysis 14
<PAGE>
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Balance Sheet
March 31, 1999
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $2,002,584
Accounts receivable
Accounts and auctions receivable 17,575,371
Advances to consignors 2,402,824
Inventory 20,321,516
Deferred tax asset 339,510
Prepaid expenses and deposits 288,720
--------------------
Total current assets 42,930,525
Property and equipment, net 927,528
Goodwill 4,362,439
Customer Lists 291,667
Trademarks 2,787,500
Marketable securities
138,166
Investments in Joint Venture and other 6,537,827
Other non-current assets
Deferred Tax Asset 2,032,936
Inventory 900,000
Advances to consignors 740,150
Other 331,478
--------------------
Total assets $61,980,216
====================
Liabilities and Stockholder's Equity
Current liabilities:
Demand notes payable $7,070,000
Notes payable 134,273
Payable to third party consignors 3,096,906
Accounts payable 11,354,990
Accrued expenses 1,472,645
--------------------
Total current liabilities 23,128,814
Minority interest 4,255
Notes payable - long term 161,013
--------------------
Total liabilities 23,294,082
--------------------
Preferred stock, $.01 par value. Authorized
20,000,000 shares; none issued. 0
Common stock, $.01 par value. Authorized
40,000,000 shares; 9,853,684 issued
And outstanding 98,537
Additional paid in capital 38,747,701
Retained earnings (deficit) (160,104)
--------------------
Total stockholders' equity 38,686,134
--------------------
Total liabilities and stockholders' equity $61,980,216
====================
See accompanying notes to condensed financial statements
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Condensed Consolidated Statements of Operations (1)
(Unaudited)
Three months ended March 31, Nine months ended March 31,
------------------------------------- --------------------------------------
1999 2000 1999 2000
--------------- ------------------ ---------------- -------------------
Operating Revenues
<S> <C> <C> <C> <C>
Sales of merchandise $ 21,787,731 $ 15,341,754 $ 56,697,714 $41,002,333
Commissions earned 1,526,234 2,708,212 3,342,088 5,236,581
--------------- ------------------ ---------------- -------------------
23,313,965 18,049,966 60,039,802 46,238,914
Operating Expenses
Cost of merchandise sold 19,844,457 13,334,990 51,180,308 37,116,154
General and administrative 2,414,140 2,897,559 7,213,662 8,881,003
Marketing 582,368 623,747 1,258,555 1,761,141
--------------- ------------------ ---------------- -------------------
Operating income (loss) 473,000 1,193,670 387,277 (1,519,384)
Other income (expense)
Gain on sale of marketable securities 628,503 0 1,717,670 14,494
Interest income 96,539 3,818 389,908 393,399
Interest expense (492,702) (386,452) (1,254,262) (1,219,296)
Minority interest 787 (835) (1,007) (396)
Loss from operations of joint venture (103,283) (97,894)
--------------- ------------------ ---------------- -------------------
Income (loss) before income taxes 749,127 706,918 1,239,586 (2,429,077)
Provision for (benefit from) income taxes 250,044 204,906 631,173 (911,118)
--------------- ------------------ ---------------- -------------------
Net Income (loss) $ 499,083 $ 502,120 $ 608,413 $ (1,517,959)
=============== ================== ================ ===================
Basic Earnings (loss) per share
Weighted average shares outstanding 7,931,659 9,758,488 7,082,120 9,656,955
=============== ================== ================ ===================
Basic Earnings (loss) per share $ 0.06 $ 0.05 $ 0.09 $ (0.16)
=============== ================== ================ ===================
Diluted Earnings (loss) per share
Weighted average shares outstanding 8,437,328 10,351,075 7,514,028 9,656,955
=============== ================== ================ ===================
Diluted Earnings (loss) per share $ 0.06 $ 0 .05 $ 0.08 $ (0.16)
=============== ================== ================ ===================
See accompanying notes to condensed financial statements
(1) All 1999 amounts have been restated to reflect the acquisition of Spectrum
Numismatics, Inc. All 2000 amounts include the activity of Spectrum as
if it had been acquired at July 1, 1999. See note 1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Condensed Consolidated Statement of Stockholder's Equity
July 1, 1998 to March 31, 2000
(Unaudited)
Unrealized
Additional Gain (Loss) Total
Common Stock Paid-In on Marketable Retained
Stockholders'
Shares $ Capital Securities Earnings Equity
---------------- ---------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <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 528,316 470,418 998,734
Consolidated Balance ---------------- ---------- ------------ -------------- ----------- ---------------
June 30, 1998 6,174,031 61,740 7,330,466 18,496 1,123,738 8,534,440
Options Exercised 535,375 5,353 887,037 892,390
Income Tax Benefit from
exercise of stock options 1,374,078 1,374,078
Options issued relating to loan 200,000 200,000
Options issued relating to
acquisition of subsidiary 75,000 75,000
Options issued relating to
professional services 150,000 150,000
Unrealized gains from
sale of marketable securities (18,496) (18,496)
Common shares sold for cash 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 (812,118) (812,118)
Net income - June 30, 1999 1,306,643 1,306,643
-------------- ---------- ------------ -------------- ----------- ------------
Balance June 30, 1999 8,535,029 85,350 18,373,324 - 1,618,263 20,076,937
Options Exercised 115,000 1,150 211,738 212,888
Income Tax Benefit from
exercise of stock
options 298,818 298,818
Common shares sold for
cash net of expenses 1,035,551 10,356 16,212,644 16,223,000
Common shares issued relating
to acquisition of
Everbright 168,104 1,681 3,612,555 3,614,236
Shareholder Distributions-Spectrum (260,408) (260,408)
Spectrum shareholder purchase
of additional shares for cash 38,622 38,622
Net loss - March 31, 2000 (1,517,959) (1,517,959)
---------------- ---------- ------------ -------------- ----------- ------------
Balance March 31, 2000 9,853,684 $ 98,537 $ 38,747,701 $ - $ (160,104) $ 38,686,134
============ ========== ============ ============== =========== ============
See accompanying notes to condensed financial statements
</TABLE>
<PAGE>
GREG MANNING AUCTIONS, INC.
Condensed Consolidated Statements of Cash Flows (1)
(Unaudited)
Nine months ended March 31,
1999 2000
------------------ ----------------
Cash flows from operating activities :
Net Income (loss) $ 608,413 $ (1,517,959)
Adjustments to reconcile net income to
net cash
from operating activities:
Depreciation and amortization 517,290 935,909
Provision for bad debt expense (recovery) (160,685) 218,376
Gain on sale of marketable securities (1,286,160) (14,494)
Equity in loss of joint venture and other - 218,523
Deferred tax expense (benefit) - (911,118)
(Increase) decrease in assets:
Accounts and auctions receivable 1,692 (7,707,987)
Advances to consignors 562,024 634,652
Inventory (1,597,864) (4,688,026)
Prepaid expenses and deposits (221,540) 600,001
Other assets 913,489 (93,476)
Increase (decrease) in liabilities:
Payable to third-party consignors (2,732,380) (787,551)
Accounts payable (1,647,366) 6,206,616
Accrued expenses and other liabilities 695,157 (399,255)
Income taxes payable 631,079
------------ -----------
(3,716,851) (7,305,789)
Cash flows from investing activities:
Capital expenditures for property and equipment (238,490) (533,376)
Additional goodwill (43,233) (41,865)
Purchase of Customer list (100,000)
Acquisition of Subsidiary (3,270,040)
Investment in joint venture (702,839) (2,014,419)
Proceeds from sale of marketable securities 1,592,026 23,149
------------ ----------
(2,762,576) (2,566,511)
Cash flows from financing activities:
Net proceeds from (repayment of) demand
notes payable 1,199,000 (3,632,000)
Repayment of loans and loans payable (308,062) (4,523,898)
Proceeds from notes payable 1,500,000
Repayment of notes receivable 229,742
Proceeds from exercise of options 813,695 212,887
Proceeds from sale of common stock
(net of expenses) 2,500,000 16,223,000
Investment by Spectrum partner 44,108
Dividend to Spectrum Shareholders (244,295) (260,408)
Proceeds from Stock Subscriptions Receivable - 3,000,000
------------ -----------
5,690,080 11,063,689
Net change in cash and cash equivalents (789,347) 1,191,388
Cash and cash equivalents at beginning of period 1,438,596 811,196
------------ -----------
Cash and cash equivalents at end of period $ 649,249 $ 2,002,584
============ ===========
(1) All 1999 amounts have been restated to reflect the acquisition of Spectrum
Numismatics, Inc. All 2000 amounts include the activity of Spectrum as
if it had been acquired at July 1, 1999. See note 1.
See accompanying notes to condensed financial statements
<PAGE>
Greg Manning Auctions, Inc.
Condensed Consolidated Statement of Comprehensive Income (1)
(Unaudited)
For the nine months
ended March 31,
1999 2000
------------------- --------------------
Net Income (loss) $ 608,413 $ (1,517,959)
Other comprehensive income (loss)
Unrealized gains on securities 771,450 -
Less: reclassification adjustment for
gains included in net income (771,696) -
------------------- --------------------
Comprehensive income (loss) $ 608,167 $ (1,517,959)
=================== ====================
(1) All 1999 amounts have been restated to reflect the acquisition of Spectrum
Numismatics, Inc. All 2000 amounts include the activity of Spectrum as
if it had been acquired at July 1, 1999. See note 1.
See accompanying notes to condensed financial statements
<PAGE>
GREG MANNING AUCTIONS, INC.
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months ended March 31, 1999 and 2000
(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.,
Spectrum Numismatics International, Inc., Greg Manning Direct Inc., and
Teletrade, Inc. (collectively, 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, art, Hollywood and
Rock and Roll memorabilia. The Company conducts both in-person event auctions
and electronic auctions via the Internet and touch-tone telephone, 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.
The accompanying consolidated balance sheet as of March 31, 2000 and
related consolidated statements of operations, cash flows and comprehensive
income for the three and nine month periods ended March 31, 1999 and 2000 and
statements of stockholders' equity for the period July 1, 1998 through March 31,
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-QSB and Item 310(b) of
Regulation SB. 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, 1999 filed with the Securities and Exchange Commission.
In July 1999, the Company and Afinsa Bienes Tangibles, S.A. ("Afinsa"),
a 11% shareholder of the Company, formed a joint venture known as
GMAI-Europe.com, Inc. to conduct Internet auction and retail sales in Europe
through a newly established Madrid, Spain office. A definitive agreement is
currently being finalized. The Company has a 50% investment in GMAI-Europe.com,
Inc. which will be accounted for under the equity method of accounting.
Effective on February 22, 2000, the Company purchased, through a
subsidiary merger, all of the stock of Spectrum Numismatics International, Inc.,
a leading wholesaler of rare coins based in Santa Ana, California. Under the
terms of the transaction, which was approved by the Company's shareholders, the
Company paid Spectrum shareholders $25 million in the Company's common stock
valued at $14.25 per share. The foregoing description of the merger is qualified
in its entirety by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on March 6, 2000. 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.
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
will offer collectibles for sale on the Amazon.com web site.
<PAGE>
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, together with
warrants to acquire 112,500 shares of the Company's common stock. The warrants
are immediately exercisable at a price of $18.85 per share.
On February 15, 2000, GMAI-Asia.com, Inc., a joint venture, 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. At March 31, 2000, the
Company had a 48% ownership interest in GMAI-Asia.com, Inc. GMAI-Asia.com, Inc.
is accounted for under the equity method of accounting.
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, 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. The Company will pay to Tristar a percentage of
the revenues generated from the sales of these collectibles for the fulfillment
of these sales.
(2) Summary of Certain Significant Accounting Policies
Revenue Recognition
Revenue is recognized by the Company when its offerings 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.
<PAGE>
The Company also sells its own inventory at auction, wholesale and
retail. Revenue with respect to owned inventory sold at auction is recognized
when sold and for wholesale or retail sales, revenue is recognized when
delivered or released to the customer or to a common carrier for delivery.
The Company does not provide any guarantee with respect to the
authenticity of property offered for sale at auction. However, each lot is sold
as genuine and as described by the Company in the catalog. When, in the opinion
of a competent authority mutually acceptable to the Company and the purchaser, a
lot is declared otherwise, the purchase price is 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.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Business Segment
The Company operates in one segment, comprising the auctioning, retail,
wholesale and private treaty sale of collectibles. Set forth below is a table of
aggregate sales of the Company, subdivided by source and market:
For the nine months ended
March 31, Percentages
-------------------------- ------------------------
1999 2000 1999 2000
------------ ------------ ---------- --------
Aggregate Sales $ 77,204,563 $ 86,054,221 100% 100%
=========================== =====================
By source:
A. Auction $ 20,506,849 $ 45,051,888 27% 52%
B. Sales of inventory 56,697,714 41,002,333 73% 48%
---------------------------- -----------------------
By market:
A. Philatelics $ 15,070,707 $ 11,701,340 20% 14%
B. Sports Collectibles* 4,481,711 6,048,978 6% 7%
C. Numismatics 55,952,900 65,793,538 72% 77%
D. Diamond 312,743 420,982 0% 0%
E. Art 1,327,662 68,618 2% 0%
F Other** 58,840 2,020,765 0% 2%
* includes trading cards and sports memorabilia
** includes comic books, Hollywood memorabilia, movie posters, rock `n roll
and other music memorabilia and other collectibles.
All 1999 amounts have been restated to reflect the acquisition of Spectrum
Numismatics, Inc. All 2000 amounts include the activity of Spectrum as if it
had been acquired at July 1, 1999. See note 1.
<PAGE>
Intangible Assets
Goodwill
Goodwill primarily includes the excess purchase price paid over the
fair value of the net assets acquired. Goodwill is being amortized on a
straight-line basis over twenty years. Total accumulated amortization at March
31, 1999 and 2000 was approximately $ 477,000 and $ 724,000, 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 nine months ended March 31, 1999 and 2000
was approximately $ 131,000 and $ 185,000 respectively.
Trademarks and Customer List
Trademarks are being amortized on a straight-line basis over a 20-year
period and a 5-year period for Customer List. Total accumulated amortization at
March 31, 1999 and 2000 was approximately $96,000 and $321,000, respectively.
Amortization expense charged to operations for the nine months ended March 31,
1999 and 2000 was approximately $ 96,000 and $ 173,000, 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.
Earnings (loss) per common and common equivalent share
The Company computes net income per share in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". In
accordance with SFAS 128, primary earnings per share have been replaced with
basic earnings per share, and fully diluted earnings per share have been
replaced with diluted earnings per share which includes potentially dilutive
securities such as outstanding options and convertible securities.
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of the outstanding
options would be reflected in diluted earnings per share by application of the
treasury stock method.
<PAGE>
Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of the Statement is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners
("Comprehensive income"). Comprehensive income is the total of net income and
all other nonowner changes in equity.
(3) Inventories
Inventories as of March 31, 2000 consisted of the following:
Current Non-current Total
---------------- --------------- ---------------
Stamps $ 4,549,421 $ 4,549,421
Sports Cards and Memorabilia 3,936,521 3,936,521
Coins 8,957,904 8,957,904
Art 314,988 314,988
Other 2,562,682 $ 900,000 3,462,682
---------------- --------------- ---------------
$ 20,321,516 $ 900,000 $ 21,221,516
================ =============== ===============
(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"). 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 and nine months ended March 31, 2000, there were no such auction
or private treaty sales.
Scott Rosenblum, a director of the Company, is a partner of the law
firm Kramer, Levin, Naftalis & Frankel, which provides legal services to the
Company. Anthony L. Bongiovanni, Jr., also a director of the Company, is
president of Micro Strategies, Incorporated, which provides computer services to
the Company. Leon Liebman, who was a director of the Company until his
resignation on October 19, 1999, provided consulting services for the Company.
Total expenditures for services rendered by these firms for the nine months
ended March 31, 1999 and 2000 were approximately $ 241,000 and $ 304,000
respectively, in the case of Kramer, Levin, Naftalis & Frankel, approximately $
98,000 and $ 262,000 respectively, in the case of Micro Strategies,
Incorporated, and $ 21,000 and $ 38,000 respectively in the case of Mr. Liebman.
In the normal course of business, the Company sold to Afinsa goods for
a total of $ 1,000,000. As of March 31, 2000, Afinsa owes a balance of $500,000
on this transaction, which is included in Accounts and auctions receivable.
<PAGE>
(5) Debt
The Company is party to a secured revolving credit loan facility with
Brown Brothers Harriman & Co. ("BBH&Co."). At March 31, 2000, borrowing under
this facility totaled $ 1,070,000 . Absent a material adverse change or event of
default as determined by BBH&Co,, BBH&Co. has agreed to provide the Company with
a 120-day notification period prior to issuing a demand for repayment, so long
as the Company is in compliance with certain financial and operating guidelines.
For the nine months ended March 31, 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, BBH & Co. has the right under the
credit agreement to demand immediate repayment of all amounts outstanding
without the otherwise applicable 120 day notice period. BBH & Co. has not
demanded such repayment.
At March 31, 2000, Spectrum was a party to a secured revolving credit
facility with Bank of America. At March 31, 2000, the borrowing under this
facility totaled $ 6,000,000. Mr. Greg Manning, Chairman of the Board of
Directors, President and Chief Executive Officer of the Company, has personally
guaranteed this line of credit.
(6) Stock subscriptions receivable
On February 10, 1999, the Company entered into a stock
purchase agreement whereby Afinsa agreed to purchase 475,624 shares of the
Company's Common Stock for an aggregate purchase price of $5 million (at $10.51
per share, which was the closing price of the Company's common stock as reported
by NASDAQ at the close of business on the date the agreement was signed). During
the year ended June 30, 1999, the Company received $2 million from Afinsa and
issued 172,251 shares of common stock.
As of June 30, 1999, the Company had recorded a stock
subscription receivable for the remaining 285,373 shares with an aggregate
purchase price of $3 million. This amount was received from Afinsa on July 9,
1999.
(7) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Nine Months Ended
March 31,
-------------------------------------
1999 2000
--------------- ---------------
Interest paid $ 1,018,904 $ 1,191,671
Income taxes paid 1,314 1,222
Summary of significant non-cash transactions:
Income tax effect from the
exercise of options $ 916,681 $ 298,818
Issuance of stock options relating
to the acquisition Of Teletrade 75,000 -
Issuance of 200,000 options relating
to the financing Of the acquisition
of Teletrade 200,000
Issuance of notes payable to former
shareholders Of Teletrade as part
of the acquisition 675,000
Issuance of 750,000 shares to Leon
Liebman as part Of the acquisition
of Teletrade 1,875,000
Issuance of shares related to GMAI-Asia
purchase of Everbrite Technologies 3,614,236
Issuance of shares related to acquisition
of Spectrum Numismatics International, Inc 25,000,000
<PAGE>
(8) Acquisition of Subsidiary
On October 29, 1998, the Company completed the acquisition
(the "Acquisition") of all of the common stock of Teletrade, Inc. from Leon
Liebman, Richard Makely and Bernard Rome. The purchase price for the Acquisition
was $5,895,040 consisting of $1,875,000 in securities of the Company, $3,000,000
in cash, $675,000 in promissory notes, $75,000 in options to purchase the
Company's common stock and $270,040 in acquisition related expenses. The
acquisition was recorded using the purchase method of accounting. The amount of
consideration paid was determined by arm's length negotiations among the Company
and Messrs. Liebman, Makely and Rome. The cash used for the Acquisition was
available from (i) a private placement of 200,000 shares of the Company's Common
Stock to each of Leon Liebman, Greg Manning and Afinsa and (ii) a term loan, as
described below. Reference is made to the Company's report on Form 8-K/A1, which
was filed by the Company on January 12, 1999. The results of operations of
Teletrade are included from October 30, 1998.
On February 18, 2000, the Shareholders of the Company approved
the acquisition of all of the common stock of Spectrum Numismatics
International, Inc. The purchase price for the acquisition was $25 million (see
note 1).
(9) Subsequent Event
Effective April 18, 2000, the Company's Board of Directors approved a
plan to buy back a maximum of up to 500,000 shares of its common stock. As of
May 15, 2000, approximately 72,900 shares were repurchases for approximately $
1,006,000.
On May 15, 2000, the Company entered into an asset purchase agreement
with Tristar Products, Inc. whereby the Company agreed to purchase certain
assets of Tristar for up to a maximum of $12 million, payable in the Company's
common stock. Payments are to be made based upon the sales of GMD fulfilled by
Tristar reaching certain levels.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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.
On February 18, 2000, the Company's shareholders approved the
acquisition of Spectrum Numismatics International, Inc. ("Spectrum"). 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, 1998.
.
Greg Manning Auctions, Inc. is pursuing a strategy to establish the
Company as a dominant global eCommerce and Internet merchant in select vertical
markets by leveraging its core competencies in superior customer service,
eCommerce operations and auctions. The strategy includes expansion and further
development of its businesses in North America, including a strategic alliance
with Amazon.com Inc., and investments in market development and operations in
Asia, Europe and Latin America.
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 and nine months ended March 31, 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 and wholesale and retail sales of the Company's owned inventory.
<PAGE>
Three months ended March 31, 2000
Compared with the three months ended March 31, 1999
Net Revenues
The Company recorded a decrease in revenues of approximately $
5,264,000 (23%), from approximately $ 23,314,000 for the three months ended
March 31, 1999 to approximately $ 18,050,000 for the three months ended March
31, 2000. The primary reason for this decrease is lower sales by Spectrum of
approximately $ 7,758,000 (42%). The Company believes the reduced Spectrum sales
resulted primarily from non-recurring Y2K influenced sales of generic gold coins
and bullion during the three months ended March 31, 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 quarter were
negatively affected by Spectrum's customers' reduced cash availability resulting
from their inventories of unsold or repurchased generic gold coins and bullion.
The Company believes that market conditions will return to historical norms by
the end of the next quarter. The Company notes that, while Spectrum's gross
sales were lower for the current quarter, gross profits were not adversely
affected due to the low margins of the Y2K related gold coins and bullion.
Offsetting the reduced Spectrum revenues was new revenue of
approximately $ 1,536,000 generated from Greg Manning Direct which were not
included in the prior period, and new coin sales of approximately $ 1,073,000.
Cost of Revenues
Cost of revenues consist primarily of the cost of inventory sold,
including certain costs relating to the acquisition, handling and maintenance of
that inventory. Cost of revenues were approximately $13,335,000, or 86.9% of
sales of merchandise for the three months ended March 31, 2000 compared to
approximately $19,845,000, or 91.1% of sales of merchandise for the three months
ended March 31, 1999. The Company attributes the increase in profit margin %
primarily to Spectrum's increase in profit margins, from 5% during the quarter
ended March 31, 1999 to 11% for the just ended quarter. Significantly,
Spectrum's gross profit on sales of owned inventory increased 3.2%, from
approximately $1,943,000 to approximately $ 2,007,000, despite the decrease in
its net sales as described in the preceding paragraph. For additional
information regarding cost of revenues, please refer to the Cost of Revenues
section for the nine months ended March 31, 1999 and 2000 below.
Marketing and Operating Expenses
The Company's marketing and operating expenses increased by
approximately $ 525,000 (18%) in the three months ended March 31, 2000 compared
to the same period in the prior year. These costs resulted in operating costs of
20% of operating revenues for the three months ended March 31, 2000 compared to
13% for the comparable period in the prior year.
Of the $525,000 increase, approximately $153,000 (29%) was attributable
to legal and shareholder expenses, approximately $63,000 (12%) to acquisition
expenses related to acquiring Spectrum, and approximately $85,000 (16%) to
non-capitalizable MIS infrastructure improvements. The remaining increase is
attributable to increased marketing expenditures, salaries and other general and
administrative expenses related to expanding and improving the operational
infrastructure of the Company to meet anticipated demands from growth in the
eCommerce marketplace. Management believes that these cost increases are
consistent with its strategy to position the Company as a leading global
eCommerce and collectibles company.
The Company's operations for the quarter ending March 31, 2000,
resulted in an operating profit of approximately $1,194,000, an increase if
approximately $721,000 (152%) compared to the three month period ended March 31,
1999.
<PAGE>
Nine months ended March 31, 2000
Compared with the nine months ended March 31, 1999
Net Revenues
The Company had a decrease in net revenues for the nine months ended
March 31, 2000, as compared to the same period ending March 31, 1999, of
approximately $13,801,000 (23%). The primary reason for the decrease was lower
sales by Spectrum of approximately $17,266,000 (35%). The Company believes the
reduced Spectrum sales resulted primarily from non-recurring Y2K influenced
sales of generic gold coins and bullion. During the nine month period ending
March 31, 1999, Spectrum experienced sales of generic gold coins and bullion 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, the Spectrum's
sales during the period ending March 31, 2000, were negatively affected by
Spectrum's customers' reduced cash availability resulting from their inventories
of unsold or repurchased generic gold coins and bullion. The Company believes
that market conditions will return historical norms by the end of the next
quarter. The Company notes that while Spectrum's gross sales were down for the
period as stated, profits were not similarly affected due to the low margins of
the Y2K related gold coins and bullion.
Offsetting the decrease in revenue generated by Spectrum were increases
in sales by Teletrade of approximately $1,584,000 (68%) compared to the same
period during the prior year, and commission revenue generated by Greg Manning
Direct of approximately $1,536,000 which was not reflected in the prior year.
Commissions earned by the Company on sales of consigned goods during
the nine month period ending March 31, 2000, were approximately $358,000 (10.7%)
greater than commission revenue generated during the same period ending March
31, 1999. Sales of the Company's owned inventory decreased by approximately
$15,695,000 (27.7%) during the nine month period ending March 31, 2000, compared
to sales during the same period ending March 31, 1999.
Gross commission revenue from the Company's auction activities relating
to consigned goods was approximately 19%.
Cost of Revenues
Cost of revenues for the Company for the nine months ended March 31,
2000, was approximately $37,116,000, or 90.5% of sales of merchandise compared
to approximately $51,180,000, or 90.3% of sales of merchandise for the nine
months ended March 31, 1999. Gross profit margins remained relatively similar
during the comparable nine month periods.
Gross profit margins for Spectrum (a wholesale operation) differ
materially from gross profit margin for the remainder of the Company (a business
to consumer operation). Spectrum's gross profit margin for the nine months ended
March 31, 2000 was approximately 7%. Gross profit margin for Company owned
inventory (excluding Spectrum) for the same period was approximately 19%.
<PAGE>
Marketing and Operating Expenses
The Company recorded an increase in marketing and operating expenses of
approximately $2,170,000 (26%) for the nine months ended March 31, 2000 as
compared to the same period ending March 31, 1999. Of this increase, 23% is
attributable to increases in marketing and advertising expenses of approximately
$502,000 (an increase of 40% compared to the same period ending March 31, 1999).
Other significant components of the increase are attributable to legal and
shareholder expenses (approximately $159,000, or 7%), acquisition expenses
related to acquiring Spectrum (approximately $635,000, or 29%),
non-capitalizable MIS infrastructure improvements ($85,000, or 4%), salary and
wages due primarily to increased staffing ($182,000, or 6%), and depreciation
and amortization ($692,000, or 32%). Management believes that these cost
increases are consistent with its strategy to position the Company as a leading
global eCommerce and collectibles company.
Also included are approximately $2,413,000 in Teletrade expenses
representing nine months through March 31, 2000, compared to approximately
$1,390,000 representing five months through March 31, 1999.
Interest Income and Expense
Interest expense decreased approximately $ 35,000 for the nine months
ended March 31, 2000 as compared to the comparable period ended March 31, 1999.
The decrease was primarily attributable to decreased outstanding borrowings
during the current nine month period.
The Company recorded a net loss of approximately $ 1,517,000 for the
nine months ended March 31, 2000 as compared to net income of approximately $
608,000 for the comparable period ended March 31, 1999. This change was
primarily due to those factors mentioned above as well as the gain on sale of
PICK stock of approximately $ 1,286,000 during the nine months ended March 31,
1999.
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.
Liquidity and Capital Resources
At March 31, 2000, the Company's working capital position was
approximately $ 19,802,000, compared to approximately $ 9,143,000 as of June 30,
1999. This increase of approximately $10,659,000 was primarily due to increases
in auctions and accounts receivable of approximately $ 7,708,000 and inventory
of approximately $ 4,688,000, and a decrease in demand and notes payable of
approximately $6,712,000 which was partly offset by a decrease in stock
subscriptions receivable of $ 3,000,000 and an increase in accounts payable of
approximately $ 6,207,000.
The Company experienced a decrease in cash flow from investing
activities for the nine months ended March 31, 2000 of approximately $
2,566,000. This was primarily attributable to the acquisition of property and
equipment and additional investments in joint ventures..
The Company experienced an increase in cash flow from financing
activities for the nine months ended March 31, 2000 of approximately $
11,063,000. This was primarily attributable to the exercise of employee stock
options, the proceeds from the sale of common stock and the proceeds from stock
subscriptions receivable.
<PAGE>
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), the Company will likely require additional working capital in the
future in order to further expand its collectibles 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 contemplated 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.
<PAGE>
GREG MANNING AUCTIONS, INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's held a Special Meeting of Shareholders on February 18, 2000 to
approve and ratify certain proposals.
Set forth below is information concerning the voting results of matters voted
upon at the Special Meeting:
1. To approve the issuance of up to 1,754,385 shares of the Company's
Common Stock to the shareholders of Spectrum Numismatics
International, Inc. ("Spectrum") in connection with the merger of
Spectrum Acquisition, Inc., ("Sub") a wholly-owned subsidiary of
GMAI, into Spectrum pursuant to a Merger Agreement dated December
8, 1999 between GMAI, Spectrum, Sub and the shareholders of
Spectrum.
For: 3,033,767
Against: 84,870
Abstain: 2,944
PROPOSAL APPROVED
2. To approve an amendment to GMAI's restated certificate of
incorporation to increase the number of authorized shares of GMAI
common stock from 20 million to 40 million.
For: 4,885,147
Against: 121,953
Abstain: 5,530
PROPOSAL APPROVED
<PAGE>
3. To approve the adoption of amendments to GMAI's 1997 Stock Incentive
Plan:
For: 2,692,039
Against: 416,172
Abstain: 13,170
PROPOSAL APPROVED
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 6, 2000, the Company filed a Report on Form
8-K dated as of February 18, 2000 reporting under
Item 2 that the Company acquired the capital stock of
Spectrum Numismatics International, Inc. On May 5,
2000, the Company filed an amendment to the Report on
Form 8-K which included the financial statements of
Spectrum and the related pro forma financial
information as required under Item 7.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
GREG MANNING AUCTIONS, INC.
Dated: May 15, 2000
_/s/________________
Greg Manning
Chairman and Chief
Executive Officer
__/s/______________
James Smith
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------------------------------------
27 Financial Data Schedule
<PAGE>
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