SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
------------------
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 February 4, 2000, Issuer had 7,855,546 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
Consolidated Balance Sheet - December 31, 1999 (Unaudited) 3
Consolidated Statements of Operations - 4
Three and six months ended December 31, 1998 and 1999 (Unaudited)
Consolidated Statement of Stockholders' Equity - 5
Six months ended December 31, 1999 (Unaudited)
Consolidated Statements of Cash Flows - 6
Six months ended December 31, 1998 and 1999 (Unaudited)
Consolidated Statement of Comprehensive Income 7
Six months ended December 31, 1998 and 1999 (Unaudited)
Notes to Consolidated Financial Statements 8
as of December 31, 1999
Item 2. Management's Discussion and Analysis 13
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 688,275
Accounts receivable
Auctions receivable 6,300,865
Advances to consignors 3,663,331
Inventory 10,749,043
Deferred tax asset 339,510
Prepaid expenses and deposits 339,308
-------------------
Total Current Assets 22,080,332
Property and equipment, net 894,745
Goodwill 4,397,200
Customer Lists 311,667
Trademarks 2,825,000
Investment in Joint Venture 467,283
Other non-current assets
Deferred Tax Asset 1,939,024
Inventory 900,000
Advances to consignors 726,954
Other 557,353
-------------------
Total assets $35,099,558
===================
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $4,752,000
Notes payable 2,281,722
Payable to third party consignors 3,595,303
Accounts payable 1,469,744
Accrued expenses 3,852,309
-------------------
Total current liabilities 15,951,078
Notes payable - long term 1,242,721
-------------------
Total liabilities 17,193,799
-------------------
Preferred stock, $.01 par value. Authorized
10,000,000 shares; none issued. 0
Common stock, $.01 par value. Authorized
20,000,000 shares; 6,876,620 issued and outstanding 68,767
Additional paid in capital 18,260,701
Retained earnings (deficit) (423,709)
-------------------
Total stockholders' equity 17,905,759
-------------------
Total liabilities and stockholders' equity $35,099,558
===================
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Greg Manning Auctions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended December 31, Six months ended December 31,
----------------------------------- ---------------------------------
1998 1999 1998 1999
<S> <C> <C> <C> <C>
----------------- ---------------- --------------- ---------------
Operating Revenues
Sales of merchandise $ 3,454,335 $2,330,381 $ 4,450,964 $ 4,708,770
Commissions earned 1,214,406 1,264,263 1,815,855 2,528,369
----------------- ---------------- --------------- ---------------
4,668,741 3,594,644 6,266,819 7,237,139
Operating Expenses
Cost of merchandise sold 2,415,765 1,956,575 3,137,931 3,814,774
General and administrative 1,567,440 2,907,954 2,427,211 5,061,748
Marketing 302,693 469,740 434,911 993,668
----------------- ---------------- --------------- ---------------
Operating income (loss) 382,843 (1,739,625) 266,766 (2,633,051)
Other income (expense)
Gain on sale of marketable securities 102,635 0 659,452 14,494
Interest income 105,807 102,086 202,449 326,372
Interest expense (178,976) (235,992) (281,666) (406,824)
Loss from operations of joint venture (15,385) (74,698)
----------------- ---------------- --------------- ---------------
Income (loss) before income 412,309 (1,888,916) 847,001 (2,773,707)
taxes 412,309
Provision for (benefit from) income taxes 156,058 (708,238) 381,129 (1,116,024)
----------------- ---------------- --------------- ---------------
Net Income (loss) $ 256,251 $ (1,180,678) $ 465,872 $ (1,657,683)
================= ================ =============== ===============
Basic Earnings (loss) per share
Weighted average shares outstanding 5,404,399 6,858,620 4,912,198 6,820,071
================= ================ =============== ===============
Basic Earnings (loss) per share $ 0.05 $ (0.17) $ 0.09 $ (0.24)
================= ================ =============== ===============
Diluted Earnings (loss) per share
Weighted average shares outstanding 6,042,267 6,858,620 5,307,226 6,820,071
================= ================ =============== ===============
Basic Earnings (loss) per share $ 0.04 $ (0.17) $ 0.09 $ (0.24)
================= ================ =============== ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
Consolidated Statement of Stockholders' Equity
Six months ended December 31, 1999
(Unaudited)
Common Stock
---------------------------------- Additional Retained Total
Number of Par Paid-in Earnings Stockholders'
Shares Value Capital (Deficit) Equity
---------------- --------------- ------------------ -------------- ------------------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1999 6,495,622 $ 67,810 $ 17,862,548 $ 1,233,974 $19,164,332
Options Exercised 95,625 957 175,303 176,260
Income Tax Benefit from exercise of 222,850 222,850
options
Shares sold for cash * 285,373 -
Net loss December 31, 1999 (1,657,683) (1,657,683)
---------------- --------------- ------------------ -------------- ------------------
Balance December 31, 1999 6,876,620 $ 68,767 $ 18,260,701 $ (423,709) $17,905,759
================ =============== ================== ============== ==================
See accompanying notes to financial statements
* See Note 6
</TABLE>
<PAGE>
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended December 31,
1998 1999
---------------- ---------------
Cash flows from operating activities :
Net Income (loss) $ 465,872 $ (1,657,683)
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 258,362 593,004
Provision for bad debts (158,632) 214,779
Gain on sale of marketable securities (659,452) (14,494)
Deferred tax expense (benefit) - (1,116,024)
Equity in loss of joint venture - 74,698
(Increase) decrease in assets:
Auctions receivable 773,248 893,956
Advances to consignors (50,069) (625,855)
Inventory (2,079,929) (4,572,915)
Prepaid expenses and deposits (50,764) (33,210)
Other assets 681,633 (25,697)
Increase (decrease) in liabilities:
Payable to third-party consignors (2,396,166) 313,919
Accounts payable 660,295 (365,772)
Accrued expenses and other
liabilities 1,070,586 2,068,812
Income taxes payable 381,129
------------------ -------------------
(1,103,887) (4,252,482)
Cash flows from investing activities:
Capital expenditures for
property and equipment (68,228) (384,586)
Additional goodwill (18,295) (13,669)
Investment in Joint Venture - (21,787)
Purchase of Customer list (100,000)
Acquisition of Subsidiary (3,270,040)
Proceeds from sale of marketable
securities 726,186 15,649
------------------ -------------------
(2,730,377) (404,393)
Cash flows from financing activities:
Net proceeds from (repayment of)
demand notes payable 474,000 1,050,000
Repayment of loans and loans payable (307,181) 705,259
Proceeds from notes payable 1,500,000
Repayment of term notes payable -
Proceeds from exercise of options 195,938 176,258
Proceeds from sale of common stock 1,500,000
Proceeds from Stock Subscriptions
Receivable - 3,000,000
------------------ -------------------
3,362,757 4,931,517
Net change in cash and cash
equivalents (471,507) 274,642
Cash and cash equivalents at
beginning of period 603,628 413,633
------------------ -------------------
Cash and cash equivalents at
end of period $ 132,121 $ 688,275
=========== ===========
See accompanying notes to financial statements
<PAGE>
Greg Manning Auctions, Inc.
Consolidated Statement of Comprehensive Income
For the six months ended December 31,
1998 1999
-------------------- --------------------
Net Income (loss) $ 465,872 $ (1,657,683)
Other comprehensive income (loss)
Unrealized gains on securities 353,650
Less: reclassification adjustment for
gains included in net income (395,671)
-------------------- --------------------
Comprehensive income (loss) $ 423,851 $ (1,657,683)
==================== ====================
See accompanying notes to financial statements
<PAGE>
(1) Organization, Business and Basis of Presentation
Greg Manning Auctions, Inc., together with its wholly owned
subsidiaries Ivy & Mader Philatelic Auctions, Inc. Greg Manning Galleries, Inc.,
and Teletrade, Inc. (collectively, the "Company"), is a public auctioneer of
collectibles including rare stamps, stamp collections and stocks, sports trading
cards and memorabilia, movie posters, fine art, rare coins, diamonds, 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.
The accompanying consolidated balance sheet as of December 31, 1999 and
related consolidated statements of operations, stockholders' equity, cash flows
and comprehensive income for the three and six month periods ended December 31,
1998 and 1999 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 16%
shareholder of the Company, formed a joint venture known as GMAI-EUROPE.COM 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 which will be accounted for
under the Equity method of accounting.
On December 9, 1999, the Company announced the signing of a definitive
agreement to purchase Spectrum Numismatics International, Inc., a Santa Ana,
California company, a leading wholesaler of rare coins. Under the terms of the
agreement, which is subject to the approval of the Company's shareholders, which
is scheduled for February 18, 2000, the Company will pay Spectrum shareholders
$25 million in the Company's common stock valued at $14.25 per share. For
further information, refer to the Proxy Statement and disclosures thereto filed
with the Securities and Exchange Commission on January 13, 2000.
(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.
The Company does not provide any guarantee with respect to the
authenticity of property offered for sale at auction. Each lot is sold as
genuine and as described by the Company in the catalog. When however, in the
opinion of a competent authority mutually acceptable to the Company and the
purchaser, a lot is declared otherwise, the purchase price will be refunded in
full if the lot is returned to the Company within a specified period. In such
event, the Company will return such lot to the consignor before a settlement
payment has been made to such consignor for such lot in question. To date,
returns have not been material. Large collections are generally sold on an "as
is" basis.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
Business Segment
The company operates in one segment, the auctioning or private treaty
sale of rare stamps and other collectibles. Set forth below is a table of
aggregate sales of the Company, subdivided by source and market:
<TABLE>
<CAPTION>
For the six months ended
December 31, Percentages
----------------------------------------- ----------------------------
1998 1999 1998 1999
------------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 15,250,467 $ 20,321,749 100% 100%
======================== ================== ============ =============
By source:
A. Auction $ 10,799,503 $ 15,612,979 71% 77%
B. Sales of inventory 4,450,964 4,708,770 29% 23%
------------------------ ------------------ ------------ -------------
By market:
A. Philatelics $ 10,077,027 $ 7,594,231 66% 37%
C. Sports Collectibles 1,651,750 3,981,787 11% 20%
D. Numismatics 2,910,685 7,563,889 19% 37%
D. Diamond 131,730 107,493 1% 1%
E. Art 424,725 49,903 3% 0%
F Other 54,550 1,024,446 0% 5%
</TABLE>
Intangible Assets
Goodwill
Goodwill primarily includes the excess purchase price paid over the fair value
of the net assets acquired. Goodwill is being amortized on a straight-line basis
over twenty to twenty-five years. Total accumulated amortization at December 31,
1998 and 1999 was approximately $ 382,000 and $ 661,000, 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 six months ended December 31, 1998 and
1999 was approximately $ 71,000 and $ 122,000 respectively.
Trademarks and Customer List
Part of the purchase price for Teletrade was allocated to Trademarks and
Customer List. These are being amortized on a straight-line basis over a 20-year
period for Trademarks and a 5-year period for Customer List. Total accumulated
amortization at December 31, 1999 was approximately $ 263,000. Amortization
expense charged to operations for the six months ended December 31, 1998 and
1999 was approximately $ 35,000 and $ 115,000, 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.
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. There is no dilutive effect to these options for the
three and six months ended December 31, 1999.
Comprehensive Income
Effective July 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The objective of the Statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than transactions
with owners ("Comprehensive income"). Comprehensive income is the total of net
income and all other nonowner changes in equity.
<PAGE>
(3) Inventories
Inventories as of December 31, 1999 consisted of the following:
Current Non-current Total
--------------- -------------- ---------------
Stamps $ 4,618,032 $ 4,618,032
Sports Cards and Memorabilia 3,707,409 3,707,409
Coins 659,252 673,252
Art 315,893 315,893
Other 1,448,457 $ 900,000 2,348,457
--------------- -------------- ---------------
$ 10,749,043 $ 900,000 $ 11,649,043
=============== ============== ===============
(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 six months ended December 31, 1999, 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 six months ended
December 31, 1998 and 1999 were approximately $166,000 and $ 142,000
respectively, in the case of Kramer, Levin, Naftalis & Frankel, approximately $
51,000 and $ 151,000 respectively, in the case of Micro Strategies,
Incorporated, and $0 and $ 25,000 respectively in the case of Mr. Liebman.
(5) Debt
At December 31, 1999, the Company was a party to secured revolving credit and
term loan facilities with Brown Brothers Harriman & Co. ("BBH&Co"). At December
31, 1999, the borrowing under these facilities totaled $4,752,000 and
$2,450,000, respectively.
On February 1, 2000, the Company paid off in full all of such facilities from
the proceeds of the private equity financing which is more fully described in
the accompanying subsequent events note. Accordingly, at February 14, 2000, the
full amount of the revolving credit facility, or an aggregate of $5.25 million,
remains available to the Company.
(6) Stock subscriptions receivable
On February 10, 1999, the Company entered into a stock
purchase agreement with whereby Afinsa agreed to purchase 475,624 shares of the
Company's Common Stock for an aggregate purchase price of $5 million (at $10.51
per share, which was the closing price of the Company's common stock as reported
by NASDAQ at the close of business on the date the agreement was signed). During
the year ended June 30, 1999, the Company received $2 million from Afinsa and
issued 172,251 shares of common stock.
As of June 30, 1999, the Company had recorded a stock
subscription receivable for the remaining 285,373 shares with an aggregate
purchase price of $3 million. This amount was received from Afinsa on July 9,
1999.
(7) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Six Months Ended
December 31,
--------------------------------------------
1998 1999
------------------ --------------------
Interest paid $ 281,999 $ 337,854
Income taxes paid 1,314 1,222
Summary of significant non-cash transactions:
Income tax effect of the
exercise of options - 222,850
(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.
<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 inveestors 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.
Greg Manning Auctions, Inc. is continuing to pursue its strategy of becoming a
global internet auction company, through its investments in GMAI-Asia and
GMAI-Europe, as well as through its continuing efforts to expand its market
within the North American internet marketplace. Through its alliances with eBay
and Amazon.com (see Subsequent Events, below), it continues to increase its
presence within the internet collectible auction marketplace.
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 six months ended December 31, 1998 and 1999. General and
administrative expenses are incurred to pay employees and to provide support and
services to those employees, including the physical facilities and data
processing. Marketing expenses are incurred to promote the services of the
Company to sellers and buyers of collectibles through advertising and public
relations, producing and distributing its auction catalogs and conducting
auctions.
Three months ended December 31, 1999 Compared with the three months ended
December 31, 1998
Net Revenues
The Company recorded a decrease in revenues of approximately $ 1,074,000 (23%),
from approximately $ 4,669,000 for the three months ended December 31, 1998 to
approximately $ 3,595,000 for the three months ended December 31, 1999. The
primary reason for this decrease is that during the second quarter ended
December 31, 1998, there were two significant "private treaty" sales of the
Company's owned inventory, one in stamps and one in art. The Company is no
longer focusing on such private treaty sales as it pursues its strategy of
increasing its on-line internet sales. To this end the Company has concentrated
on obtaining inventory for initial sale on the internet. Our auction sales of
owned inventory actually increased from approximately $1,010,000 during the
three months ended December 31, 1998 to approximately $1,762,000for the three
months ended December 31, 1999.
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 $ 1,957,000, or 54.4% of net
revenues for the three months ended December 31, 1999 compared to approximately
$ 2,416,000, or 51.4% of net revenues for the three months ended December 31,
1998. As mentioned above, the primary reason for the decrease in value and
profit margin % is primarily attributable to the overall decrease in more
profitable private treaty sales in 1999 as compared to 1998.
Marketing and Operating Expenses
The Company's marketing and operating expenses increased by approximately $
1,508,000 (81%) in the three months ended December 31, 1999 compared to the same
period in the prior year. These costs resulted in operating costs of 94% of
operating revenues for the three months ended December 31, 1999 compared to 40%
for the comparable period in the prior year. This increase in costs are
primarily attributable to increases in marketing and advertising expenses of
approximately 55%, salaries and wages of approximately 38%, and auction related
expenses of approximately 122%. It is management's belief that these cost
increases are consistent with its strategy to provide sufficient infrastructure
to the Company in order to meet the demands which are anticipated from its
growth in the e-commerce marketplace. Also included in these costs are
approximately $224,000 in depreciation and amortization (an increase of 24% over
the three months ended December 31, 1998) and approximately $405,000 in
noon-recurring acquisition costs related to Spectrum.
The Company's decrease in operating profits of approximately $ 2,122,000 during
the three month period ending December 31, 1999 as compared to the comparable
period ended December 31, 1998, and the gain on sale of PICK stock of
approximately $ 103,000 during the three months ended December 31, 1998 were the
primary components of the net loss of approximately $ 1,181,000 for the three
months ended December 31, 1999 compared to net income of approximately $ 256,000
during the three months ended December 31, 1998.
Six months ended December 31, 1999 Compared with the six months ended December
31, 1998
Net Revenues
The Company had an increase in net revenues of approximately $ 970,000 (15%) to
approximately $ 7,237,000 for the six months ended December 31, 1999 as compared
to the comparable period ended December 31, 1998. This increase was attributable
to an increase in sales of the Company's inventory of approximately $ 258,000
(5.8%) and an increase in commissions earned of approximately $ 712,000 (39.2%).
Cost of Revenues
Cost of revenues for the six months ended December 31, 1999 were approximately $
3,814,000, or 52.7% of net revenues compared to approximately $3,138,000, or
50,4% of net revenues for the six months ended December 31, 1998. The primary
reasons for the increase were a decrease in more profitable non-auction sales of
approximately $ 1,700,000 with an average gross profit margin of 36% for the six
month period last year and 26% for the six month period this year, and an
increase in auction sales of approximately $ 1,958,000 with average gross profit
margins of 21% last year and 17% this year.
Marketing and Operating Expenses
The Company recorded an increase in marketing and operating expenses of
approximately $ 3,193,000 for the six months ended December 31, 1999 as compared
to the comparable period ended December 31, 1998. This increase in costs are
primarily attributable to increases in marketing and advertising expenses of
approximately $ 559,000 (128%), salaries and wages of approximately $ 785,000
(74%), and auction related expenses of approximately $391,000 (190%). It is
management's belief that these cost increases are consistent with its strategy
to provide sufficient infrastructure to the Company in order to meet the demands
which are anticipated from its growth in the e-commerce marketplace. Also
included in these costs are approximately $ 593,000 in depreciation and
amortization (a 130% increase from the same period from the prior year) and
approximately $405,000 in non-recurring acquisition costs relating to Spectrum.
Interest Income and Expense
Interest expense increased approximately $ 125,000 for the six months ended
December 31, 1999 as compared to the comparable period ended December 31, 1998.
The increase was primarily attributable to increased outstanding borrowings
during the current six month period to support our increased inventory purchases
in anticipation of expanding our e-commerce sales. Interest income increased by
approximately $ 124,000 for the six months ended December 31, 1999 as compared
to the comparable period ended December 31, 1998.
The Company recorded a net loss of approximately $ 1,658,000 for the six months
ended December 31, 1999 as compared to net income of approximately $ 466,000 for
the comparable period ended December 31, 1998. This change was primarily due to
those factors mentioned above as well as the gain on sale of PICK stock of
approximately $ 659,000 during the six months ended December 31, 1998.
The Company's program relating to Year 2000 issue is ongoing, as the Company
monitors (1) the software and systems used in the Company's internal business;
and (2) third party vendors, manufacturers and suppliers. The Company has not
experienced any issues or problems with regard to Y2K.
Liquidity and Capital Resources
At December 31, 1999, the Company's working capital position was approximately $
6,129,000, compared to approximately $ 9,002,000 as of June 30, 1999. This
decrease of approximately $ 2,873,000 was primarily due to the net six month
operating loss of approximately $ 2,774,000, auctions receivable of
approximately $ 894,000 and increases in demand and loans payable of
approximately $ 2,118,000 and accrued expenses of approximately $ 2,075,000,
which were partly offset by increases in inventory of approximately $ 4,573,000
(in anticipation of increased e-commerce activity), and advances to consignors
of approximately $ 626,000.
The Company experienced a decrease in cash flow from investing
activities for the six months ended December 31, 1999 of approximately $
404,000. This was primarily attributable to the acquisition of property and
equipment.
The Company experienced an increase in cash flow from financing
activities for the six months ended December 31, 1999 of approximately $
4,932,000. This was primarily attributable to the exercise of employee stock
options and the proceeds from stock subscriptions receivable.
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.
Subsequent events
On January 31, 2000, we issued in a private placement to Amazon.com, Inc.,
285,551 shares of our common stock, together with a warrant to acquire 25,000
shares of our 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
subsidiary's Web site.
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,
together with warrants to acquire 112,500 shares of our common stock. The
warrants are immediately exercisable at a price of $18.85 per share.
On January 15, 2000, GMAI-Asia.com Inc. agreed to enter into a group of related
transactions. The Company expects the closing of these transactions to occur in
mid-February 2000. At the closing, GMAI-Asia.com will acquire 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 RMB8.2788 to US$1.00), payable in our common stock, and GMAI-Asia.com's
guarantee of 40,000,000 Chinese Renmimbi (approximately US$4,832,000) of
indebtedness of China Everbright Telecom-Land's Shanghai subsidiary; enter into
a shareholders' agreement governing the management of China Everbright
Telecom-Land and its Shanghai subsidiary and providing GMAI-Asia.com certain
rights to acquire the remaining 35% interest in China Everbright Telecom-Land;
enter into a management agreement with China Everbright Telecommunication
Products Limited (a Chinese company wholly owned by affiliates of China
Everbright Technology); and receive 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, we will be guaranteeing performance by
GMAI-Asia.com of its obligations in these various transactions, and will be
registering the shares of our stock that we issue 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. In consideration of this additional investment in GMAI-Asia.com, the
Company has raised its interest in GMAI-Asia.com from 42.5% to 51.7%.
<PAGE>
GREG MANNING AUCTIONS, INC.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on December 9, 1999. At
the Annual Meeting, each of Mark B. Segall and Richard Cohen were elected to
hold off ice as directors of the Company until the third succeeding Annual
Meeting of Shareholders in 2002, and until their respective successors have been
elected and qualified.
Set forth below is information concerning the voting results of matters voted
upon at the Annual Meeting:
1. Election of Directors:
Mark B. Segall
For: 4,075,967
Against: 254,863
Richard Cohen
For: 4,075,967
Against: 254,863
2. Ratification of the appointment of Amper, Politziner, & Mattia as
the Company's independent public accountants for the Company's
fiscal year ended June 30, 2000:
For: 4,052,383
Against: 276,288
Abstentions: 2,159
PROPOSAL APPROVED
3. Approval of adoption of the amendment to the Company's 1997 Stock
Incentive Plan:
For: 3,939,562
Against: 366,102
Abstentions: 12,205
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
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: February 14, 1999
/s/ Greg Manning
------------------
Greg Manning
Chairman and Chief Executive Officer
----------------
/s/ James Smith
-----------------
James Smith
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------------------------------------
27 Financial Data Schedule
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<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 688275
<SECURITIES> 0
<RECEIVABLES> 6680382
<ALLOWANCES> 379517
<INVENTORY> 3427233
<CURRENT-ASSETS> 10749043
<PP&E> 2609145
<DEPRECIATION> (1714400)
<TOTAL-ASSETS> 35099558
<CURRENT-LIABILITIES> 15951078
<BONDS> 0
0
0
<COMMON> 68767
<OTHER-SE> 17836992
<TOTAL-LIABILITY-AND-EQUITY> 35099558
<SALES> 7237139
<TOTAL-REVENUES> 7237139
<CGS> 3814774
<TOTAL-COSTS> 6055416
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 406824
<INCOME-PRETAX> (2773707)
<INCOME-TAX> (1116024)
<INCOME-CONTINUING> (1657683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1657683)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
