SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A1
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 18, 2000
-----------------
Greg Manning Auctions, Inc.
(Exact name of registrant as specified in charter)
New York 1-11988 22-2365834
---------------------- ----------------- ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
775 Passaic Avenue, West Caldwell, New Jersey 07006
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 882-0004
--------------
Not Applicable
(Former name or former address, if changed since last report)
Page 1 of 45 pages.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired.
Set forth below on pages 3 through 30 are the financial statements of the
business acquired required to be set forth in the registrant's Current
Report on Form 8-K dated March 6, 2000, which report is hereby amended. The
following are included:
Report of Independent Public Accountants
Consolidated Balance Sheet - December 31, 1998
Consolidated Statement of Income and Retained Earnings (Deficit)
for the year ended December 31, 1998
Consolidated Statement of Cash Flows for the year ended December
31, 1998
Schedule Supporting Consolidated Statement of Cash Flows for the
year ended December 31, 1998
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheet - September 30, 1999
Consolidated Statement of Income and Retained Earnings (Deficit)
for the nine months ended September 30, 1999
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999
Schedule Supporting Consolidated Statement of Cash Flows for the
nine months ended September 30, 1999
Notes to Consolidated Financial Statements
Additional financial statements of business acquired:
Consolidated Balance Sheet - December 31, 1999 (Unaudited)
Consolidated Statements of Operations for the three and
six months ended December 31, 1999 (Unaudited)
Consolidated Statements of Cash Flows for the six months
ended December 31, 1998 and 1999 (Unaudited)
Consolidated Statements of Comprehensive Income for the
six months ended December 31, 1998 and 1999
(Unaudited)
<PAGE>
(b) Pro Forma Financial Information
Set forth on pages 31 through 40 is pro forma financial information required
to be set forth in registrant's Current Report on Form 8-K dated March 6,
2000, which report is hereby amended. The following are included:
Pro Forma Condensed Combined Balance Sheet dated December 31, 1999
(Unaudited)
Pro Forma Condensed Combined Statements of Operations for the years
ended June 30, 1998 and 1999 (Unaudited)
Pro Forma Condensed Combined Statements of Operations for the three
and six months ended December 31, 1998 and 1999 (Unaudited)
Pro Forma Condensed Combined Statement of Comprehensive Income for
the six months ended December 31, 1998 and 1999 (Unaudited)
(c) Exhibits
Consent of Independent Accountants
<PAGE>
November 3, 1999,
except as for Note 11
as to which the date is
December 23, 1999
Board of Directors
Spectrum Numismatics International, Inc.
Santa Ana, California
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of Spectrum
Numismatics International, Inc. and subsidiary as of December 31, 1998, and the
related consolidated statements of income and retained earnings (deficit), and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spectrum Numismatics
International, Inc. and subsidiary as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Braverman, Codron & Co.
Certified Public Accountants
Beverly Hills, California
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1998
ASSETS
Current assets:
Cash $ 872,169
Accounts receivable (Notes 2D, 4A and 9) 2,263,960
Inventories (Notes 2E, 4A, 5C and 9) 8,190,653
Notes receivable - employee 29,201
Prepaid expenses and other current assets 80,497
--------------
Total current assets 11,436,480
Property and equipment, net of accumulated
depreciation (Note 2F) 27,410
Other assets:
Intangible assets, net of accumulated
amortization (Note 2G) 2,093
Deposits 2,727
Investment in limited liability companies (Notes
2J and 3) 711,908
--------------
$ 12,180,618
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank (Note 9) $ 3,700,000
Notes payable - related parties (Note 4B) 5,000,000
Accounts payable and accrued expenses (Note 4A) 3,055,187
--------------
Total current liabilities 11,755,187
Other liabilities:
Minority interest (Note 2B) 5,004
--------------
Total liabilities 11,760,191
Commitments (Note 5)
Stockholders' equity:
Common stock (Note 2I) -
Series A - no par value,
10,000 shares authorized; 2,807 shares
issued and outstanding (Note 5B) 403,317
Series B - no par value,
5,000 shares authorized; 3,236 shares
issued and outstanding 125,000
Deficit (107,890)
---------
Total stockholders' equity 420,427
-----------------
$ 12,180,618
See accompanying notes to consolidated financial statements.
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
Year ended December 31, 1998
Sales (Note 4A) $ 53,948,979
Cost of sales (Note 4A) 48,704,080
--------------
Gross profit 5,244,899
Operating expenses 5,392,541
--------------
Loss from operations (147,642)
Other income -
Income from limited liability companies (Note 3) 237,454
Interest income (Note 4E) 96,491
Other expense -
Minority interest (1,930)
--------------
Income before provision for taxes 184,373
Provision for taxes (Notes 2H and 7) 800
--------------
Net income 183,573
Deficit, January 1, 1998 (179,958)
Less dividends (111,505)
--------------
Deficit, December 31, 1998 $ (107,890)
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
For the year ended December 31, 1998
Cash flows from operating activities:
Cash received from customers $ 53,711,808
Cash paid to suppliers and employees (53,830,477)
Consulting fees paid to related party (786,423)
Interest received 96,491
Interest paid (1,063,704)
---------------
Net cash used in operating activities (1,872,305)
Cash flows from investing activities:
Investment in limited liability companies (120,144)
Repayment of loan to related party 195,223
Purchases of property and equipment (31,386)
--------------
Net cash provided by investing activities 43,693
Cash flows from financing activities:
Proceeds from bank loan 6,000,000
Repayment of bank loan (2,900,000)
Proceeds from related parties loans 1,625,000
Payments on borrowings from related parties (2,300,000)
Dividends paid (111,505)
--------------
Net cash provided by financing activities 2,313,495
Net increase in cash 484,883
Cash, January 1, 1998 387,286
--------------
Cash, December 31, 1998 $ 872,169
Supplemental disclosure of noncash investing activities:
Common stock issued (Note 5B)
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
SCHEDULE SUPPORTING CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
Reconciliation of net income to net cash
used in operating activities:
Net income $ 183,573
Adjustments to reconcile net income
to net cash used in operating activities:
Income from limited liability companies (237,454)
Depreciation and amortization 38,502
Minority interest 1,930
Increase in accounts receivable (237,171)
Decrease in inventories 649,791
Decrease in prepaid expenses and other current
assets 22,281
Decrease in accounts payable and accrued expenses (2,288,065)
Decrease in franchise taxes payable (5,692)
---------------
Net cash used in operating activities $ (1,872,305)
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note 1 - NATURE OF OPERATIONS:
Spectrum Numismatics International, Inc. (Spectrum) was formed on
February 22, 1991, and is a wholesale dealer of rare and
investment grade coins, selling to other dealers, retail
operations, and other interested parties, primarily within the
United States.
Spectrum has a 99% membership interest in Kensington Associates,
LLC (Kensington), which was formed in December 1996 as a holding
company for its investments in two coin companies.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. PERVASIVENESS OF ESTIMATES -
The preparation of 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.
B. PRINCIPLES OF CONSOLIDATION -
The accompanying financial statements include the accounts
of Spectrum and Kensington. All material intercompany
accounts and transactions have been eliminated.
The minority interest on the balance sheet represents the 1%
equity of the minority stockholder in Kensington.
Spectrum and Kensington, collectively, are hereinafter
referred to as "the Company".
C. CASH AND CASH EQUIVALENTS -
Cash equivalents are highly liquid investments with a
maturity of three months or less from date of acquisition.
The Company maintains its cash in bank accounts which, at
times, exceed federally insured limits. The Company has not
experienced any losses in such accounts.
D. ACCOUNTS RECEIVABLE -
Management considers all receivables to be collectible and,
therefore, has not established an allowance for doubtful
accounts.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
Note 2 - CONTINUED:
E. INVENTORIES -
Inventories are stated at the lower of cost (specific
identification method) or market.
F. PROPERTY AND EQUIPMENT -
The cost of property and equipment is depreciated using the
straight-line and accelerated methods over estimated useful
lives of the assets ranging from five to seven years.
Property and equipment as of December 31, 1998 consisted of
the following:
Machinery and equipment $ 159,785
Furniture and fixtures 33,339
Leasehold improvements 1,978
------------
195,102
Less accumulated depreciation (167,692)
------------
$ 27,410
G. INTANGIBLE ASSETS -
Intangible assets at December 31, 1998 consisted of the
following:
Amortization
period in
months
Covenant not to compete 36 $ 100,000
Organization costs - Spectrum 60 11,783
Organization costs - Kensington 60 3,487
------------
115,270
Less accumulated amortization (113,177)
------------
$ 2,093
H. INCOME TAXES -
Spectrum has elected to be treated as an "S" corporation for
income tax purposes. As such, it is not generally subject to
income taxes, other than a 1-1/2% California franchise tax
(see Note 7), since its income is reportable by its
stockholders on their respective income tax returns.
Kensington, which is a limited liability company, does not
provide for income taxes since it is not a taxpaying entity.
Instead, members' distributive shares of income and other
items are reported in their respective tax returns.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
Note 2 - CONTINUED:
The Company provides for deferred taxes on temporary
differences between financial and income tax reporting. The
temporary differences result from use of different
depreciation methods between financial and income tax
reporting, the capitalization of certain operating expenses
as inventory for income tax reporting pursuant to Section
263A of the Internal Revenue Code, and the accrual of
interest on related party debt for financial reporting which
is not deductible in the same period for income tax
purposes. The deferred tax assets in the amount of $2,700
resulting from these temporary differences as of December
31, 1998 are included in "prepaid expenses and other current
assets".
I. CAPITAL STRUCTURE -
Spectrum has both Series A common stock and Series B common
stock outstanding. Stockholders of Series A stock have 1 vote
per share. Stockholders of Series B stock have 5 votes per
share. The Board of Directors consists of three members, of
one which is elected by the stockholders of Series A stock
and two of which are elected by the stockholders of Series B
stock. During the year ended December 31, 1998, Spectrum
issued 1,550 shares of Series A common stock pursuant to a
stock option agreement (see Note 5B). Proceeds in the amount
of $274,598 were recorded as an increase in capital stock.
J. INVESTMENTS IN LIMITED LIABILITY COMPANIES -
The Company accounts for its investments under the "equity
method", whereby the carrying value of its investments is
increased by capital contributions and earnings and decreased
by distributions and losses.
K. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE -
The Year 2000 issue arises because many computerize systems
use two digits rather than four to identify a year.
Date-sensitive systems may recognize the year 2000 as 1900
or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates
in 1999 to represent something other than a date. The
effects of the Year 2000 issue may be experienced before,
on, or after January 1, 2000 and, if not addressed, the
impact on operations and financial reporting may range from
minor errors to significant systems failure which could
affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all
aspects the Year 2000 issue affecting the entity, including
those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
Note 3 - INVESTMENTS IN LIMITED LIABILITY COMPANIES:
The Company owns a 25% membership interest and a 20% membership
interest, respectively, in two coin companies (Companies "A" and
"B", respectively). The following is condensed financial
information of the limited liability companies as of December 31,
1998:
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
Company Company
A B
--------------- --------
(Unaudited)
Balance sheet -
Current assets $ 191,998 $ 862,295
Noncurrent assets 1,817 692,421
------------- --------------
Total assets 193,815 1,554,716
Current liabilities 11,153 298,497
------------- ------------
Members' Equity $ 182,662 $ 1,256,219
============= =============
Statement of income -
Revenues $ 3,421,148 $ 27,720,870
Cost of goods sold (3,046,359) (22,644,790)
Operating expenses (286,328) (3,986,035)
------------- ---------------
Net income $ 88,461 $ 1,090,045
The carrying amount of the Company's investments is different from
its respective percentage shares in the underlying equity of the
limited liability companies, due to disproportionate capital
contributions made by the Company.
In February 1999, Company A was sold in exchange for cash and
shares of common stock of another company (Company "C"). In
addition, Spectrum purchased 20,000 shares of Company C for $5 per
share through a private placement offering in April 1999.
On June 30, 1999, Spectrum was granted stock options for 21,000
shares of common stock under the terms of a nonqualified stock
option agreement with Company C. The stock options are exercisable
on April 1, 2006 at $5 per share. However, if Company C generates
a specified amount of gross revenues from coins supplied by
Spectrum, certain of the shares would vest (and thus become
exercisable) on each respective anniversary date of the stock
option agreement.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
Note 4 - RELATED PARTY TRANSACTIONS:
A. Included in sales are $20.9 million of sales to related
entities, and included in cost of sales are $2.2 million of
purchases from related entities. No losses have occurred on
these related party transactions. Accounts receivable
include $469,400 from related entities. Accounts payable
include $45,850 owed to related parties.
B. The Company was indebted to related parties under the terms
of three secured notes all bearing interest at 10% per
annum, payable monthly, and due on demand or, if no demand
is made, then on December 31, 2001. The total outstanding
balance on these notes at December 31, 1998 was $5 million.
The notes are collaterized by all assets of Spectrum,
evidenced by security agreements, and allow for aggregate
borrowings of up to $7.6 million.
Interest expense on the related party debt totaled $526,875
for the year ended December 31, 1998.
Related party debts up to $2 million are subordinated to
Spectrum's indebtedness to Bank of America Illinois (see
Note 9).
C. The Company paid consulting fees of $746,506 to related
parties.
D. The Company paid guarantee fee of $39,917 to a related
party.
E. Interest income from related parties totaled approximately
$45,000 for the year ended December 31, 1998.
Note 5 - COMMITMENTS:
A. LEASE COMMITMENTS -
The Company leases its premises in Santa Ana, California
under an operating lease agreement that expires March 31,
2000. The lease calls for monthly payments of $2,815, plus a
share of the lessor's increase in its operating costs.
Future minimum annual payments under the lease as of
December 31, 1998 are as follows:
Year ending December 31,
1999 $ 33,780
2000 8,445
-----------
$ 42,225
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
B. STOCK OPTION AGREEMENT -
Spectrum has entered into a Stock Option Agreement with an
officer which allows him the option to purchase shares of
Series A common stock. The shares available to him for
purchase are as follows:
Number of Shares Exercise
- ------------------------------------- price
Beginning End Expiration per
of year Exercised of year Date share
- --------- --------- ------- --------------------------- ---
1,768 1,550* 218 December 31, 1999 $177
* The officer exercised the option for 1,550 shares in
January 1998 for $247,598, which was paid to the Company
on December 31, 1997.
C. "SPLIT DEALS" -
The Company has arrangements with certain parties to share
the net profit or loss attributable to the sales of specific
items of its inventories. As of December 31, 1998, the amount
of inventories subject to these arrangements was
approximately $5.7 million.
Note 6 - RETIREMENT PLAN:
The Company has maintained a Salary Reduction Simplified Employee
Pension Plan since March 1993. The Plan is funded through employee
salary deferrals. Each employee can contribute as much as 15% of
his compensation up to the maximum amount allowable under Internal
Revenue Code ($10,000 for 1998). For 1998, the Company has also
agreed to contribute 3% of participating employees' compensation,
but the combined amount of employer and employee contributions
cannot exceed the maximum allowable amount ($24,000 per employee
for 1998). For the year ended December 31, 1998, the board of
directors has authorized the Company to contribute $30,000 to the
Plan.
Note 7 - PROVISION FOR TAXES:
The provision for California franchise tax for the year ended
December 31, 1998 is as follows:
Current payable $ 800
Deferred -
---------
$ 800
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
December 31, 1998
Note 8 - BUSINESS CONCENTRATIONS:
The Company's two largest customers accounted for 30% of net sales
for the year ended December 31, 1998.
The Company has concentration of credit risk with respect to
accounts receivable. Two customers accounted for 76% of accounts
receivable at December 31, 1998. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral.
Note 9 - NOTE PAYABLE - BANK:
Spectrum has a loan agreement with Bank of America Illinois which
provides for borrowings under a revolving note, originally dated
January 20, 1997, and renewed on April 20, 1998, allowing for
borrowings of up to $4,000,000, with interest payable monthly at
the bank's reference rate of interest. As of December 31, 1998,
the outstanding balance owed was $3,700,000.
The loan is secured by eligible inventories and accounts
receivable. A stockholder of Spectrum has personally guaranteed
repayment of the debt. In addition, the loan agreement contains
certain restrictions regarding borrowings from other parties.
The outstanding principal plus unpaid interest was to be due on
April 20, 1999, but this due date was extended for 60 days.
As of June 18, 1999, the loan was renegotiated allowing for
borrowing of up to $7,000,000 with the same interest rate as above
and maturing on June 18, 2000. The loan continues to be secured by
eligible inventories and accounts receivable, and the personal
guarantee of a stockholder of Spectrum. In addition, the
stockholder has executed two deeds of trust on real property as
security for the borrowings.
Note 10 - SETTLEMENT OF LITIGATION:
During the year ended December 31, 1998, the Company settled a
lawsuit, to which it was a party, without monetary damages;
however, it incurred legal fees and other related expenses of
approximately $530,000.
Note 11 - SUBSEQUENT EVENT
On December 8, 1999, the Company entered into an agreement to be
acquired by Greg Manning Auctions, Incorporated, subject to stockholders'
approval.
<PAGE>
November 3, 1999
except as for Note 11
as to which the date is
December 23, 1999
Board of Directors
Spectrum Numismatics International, Inc.
Santa Ana, California
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of Spectrum
Numismatics International, Inc. and subsidiary as of September 30, 1999, and the
related consolidated statements of income and retained earnings (deficit), and
cash flows for the nine months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spectrum Numismatics
International, Inc. and subsidiary as of September 30, 1999, and the results of
their operations and their cash flows for the nine months then ended, in
conformity with generally accepted accounting principles.
Braverman, Codron & Co.
Certified Public Accountants
Beverly Hills, California
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 1999
ASSETS
Current assets:
Cash $ 988,466
Accounts receivable (Notes 2D, 5A and 10) 2,656,733
Inventories (Notes 2E, 6C and 10) 9,571,784
Notes receivable - employee 25,201
Prepaid expenses and other current assets 60,313
--------------
Total current assets 13,302,497
Property and equipment, net of accumulated
depreciation (Note 2F) 25,022
Other assets:
Investment in limited liability company (Notes 2I and 3) 633,983
Investment in common stock (Note 4) 385,000
Deposits and other assets 27,627
--------------
$ 14,374,129
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank (Note 10) $ 4,925,000
Notes payable - related parties (Note 5B) 4,750,000
Accounts payable and accrued expenses (Note 5A) 3,689,655
Income tax payable 10,400
--------------
Total current liabilities 13,375,055
Other liabilities:
Minority interest (Note 2B) 8,240
--------------
Total liabilities 13,383,295
Commitments and contingencies (Note 6) Stockholders' equity:
Common stock (Note 2H) -
Series A - no par value,
10,000 shares authorized; 2,807 shares
issued and outstanding (Note 6B) 403,317
Series B - no par value,
5,000 shares authorized; 3,236 shares
issued and outstanding 125,000
Retained earnings 462,517
--------------
Total stockholders' equity 990,834
--------------
$ 14,374,129
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
Nine months ended September 30, 1999
Sales (Note 5A) $ 43,762,786
Cost of sales (Note 5A) 41,413,216
--------------
Gross profit 2,349,570
Operating expenses 2,176,551
--------------
Income from operations 173,019
Other income -
Gain on sale of investment in a coin company (Note 4) 531,834
Income from limited liability company (Note 3) 26,241
Interest income 33,801
Other expense -
Minority interest (4,866)
--------------
Income before provision for taxes 760,029
Provision for taxes (Notes 2G and 8) 12,000
--------------
Net income 748,029
Deficit, January 1, 1999 (107,890)
Less dividends (177,622)
--------------
Retained earnings, September 30, 1999 $ 462,517
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
Nine months ended September 30, 1999
Cash flows from operating activities:
Cash received from customers $ 43,370,014
Cash paid to suppliers and employees (43,531,865)
Consulting fees paid to related party (125,586)
Interest received 33,801
Interest paid (649,726)
Income taxes paid (1,600)
--------------
Net cash used in operating activities (904,962)
Cash flows from investing activities:
Investment in common stock (100,000)
Distribution from limited liability company 49,370
Repayment of loan to related party 4,000
Purchases of property and equipment (29,489)
Proceeds from sale of investment 300,000
--------------
Net cash provided by investing activities 223,881
Cash flows from financing activities:
Proceeds from bank loan 2,275,000
Repayment of bank loan (1,050,000)
Payments on borrowings from related parties (250,000)
Dividends paid (177,622)
--------------
Net cash provided by financing activities 797,378
Net increase in cash 116,297
Cash, January 1, 1999 872,169
--------------
Cash, September 30, 1999 $ 988,466
Supplemental disclosure of noncash investing activities:
Common stock received from sale of investment (Note 4) $ 285,000
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
SCHEDULE SUPPORTING CONSOLIDATED STATEMENT OF CASH FLOWS
Nine months ended September 30, 1999
Reconciliation of net income to net cash
used in operating activities:
Net income $ 748,029
Adjustments to reconcile net income
to net cash used in operating
activities:
Gain from sale of investment (531,834)
Income from limited liability company (26,241)
Depreciation and amortization 32,399
Minority interest 4,866
Increase in accounts receivable (392,773)
Increase in inventories (1,381,131)
Increase in prepaid expenses and other current assets (2,845)
Increase in accounts payable and accrued expenses 634,168
Increase in income tax payable 10,400
---------------
Net cash used in operating activities $ (904,962)
See accompanying notes to consolidated financial statements.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note 1 - NATURE OF OPERATIONS:
Spectrum Numismatics International, Inc. (Spectrum) was formed on
February 22, 1991, and is a wholesale dealer of rare and
investment grade coins, selling to other dealers, retail
operations, and other interested parties, primarily within the
United States.
Spectrum has a 99% membership interest in Kensington Associates,
LLC (Kensington), which was formed in December 1996 as a holding
company for its investments in two coin companies. One of the
companies was sold in February 1999 (see Note 4).
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. PERVASIVENESS OF ESTIMATES -
The preparation of 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.
B. PRINCIPLES OF CONSOLIDATION -
The accompanying financial statements include the accounts
of Spectrum and Kensington. All material intercompany
accounts and transactions have been eliminated.
The minority interest on the balance sheet represents the 1%
equity of the minority member in Kensington.
Spectrum and Kensington, collectively, are hereinafter
referred to as "the Company".
C. CASH AND CASH EQUIVALENTS -
Cash equivalents are highly liquid investments with a
maturity of three months or less from date of acquisition.
The Company maintains its cash in bank accounts which, at
times, exceed federally insured limits. The Company has not
experienced any losses in such accounts.
D. ACCOUNTS RECEIVABLE -
Management considers all receivables to be collectible and,
therefore, has not established an allowance for doubtful
accounts.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 1999
Note 2 - CONTINUED:
E. INVENTORIES -
Inventories are stated at the lower of cost (specific
identification method) or market.
F. PROPERTY AND EQUIPMENT -
The cost of property and equipment is depreciated using the
straight-line and accelerated methods over estimated useful
lives of the assets ranging from five to seven years.
Property and equipment as of September 30, 1999 consisted of
the following:
Machinery and equipment $ 185,779
Furniture and fixtures 36,833
Leasehold improvements 1,978
------------
224,590
Less accumulated depreciation (199,568)
------------
$ 25,022
G. INCOME TAXES -
Spectrum has elected to be treated as an "S" corporation for
income tax purposes. As such, it is not generally subject to
income taxes, other than a 1-1/2% California franchise tax
(see Note 8), since its income is reportable by its
stockholders on their respective income tax returns.
Kensington, which is a limited liability company, does not
provide for income taxes since it is not a taxpaying entity.
Instead, members' distributive shares of income and other
items are reported in their respective tax returns.
The Company provides for deferred taxes on temporary
differences between financial and income tax reporting. The
temporary differences result from use of different
depreciation methods between financial and income tax
reporting, the capitalization of certain operating expenses
as inventory for income tax reporting pursuant to Section
263A of the Internal Revenue Code, and the accrual of
interest on related party debt for financial reporting which
is not deductible in the same period for income tax purposes.
The deferred tax assets in the amount of $2,700 resulting
from these temporary differences as of September 30, 1999 are
included in "prepaid expenses and other current assets".
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 1999
Note 2 - CONTINUED:
H. CAPITAL STRUCTURE -
Spectrum has both Series A common stock and Series B common
stock outstanding. Stockholders of Series A stock have 1
vote per share. Stockholders of Series B stock have 5 votes
per share. The Board of Directors consists of three members,
of one which is elected by the stockholders of Series A
stock and two of which are elected by the stockholders of
Series B stock.
K. INVESTMENT IN LIMITED LIABILITY COMPANY -
The Company accounts for its investment under the "equity
method", whereby the carrying value of its investment is
increased by capital contributions and earnings and decreased
by distributions and losses.
J. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE -
The Year 2000 issue arises because many computerize systems
use two digits rather than four to identify a year.
Date-sensitive systems may recognize the year 2000 as 1900
or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates
in 1999 to represent something other than a date. The
effects of the Year 2000 issue may be experienced before,
on, or after January 1, 2000 and, if not addressed, the
impact on operations and financial reporting may range from
minor errors to significant systems failure which could
affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all
aspects the Year 2000 issue affecting the entity, including
those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
Note 3 - INVESTMENT IN LIMITED LIABILITY COMPANY:
The Company owns a 20% membership interest in a coin company. The
following is condensed financial information of the limited
liability company as of September 30, 1999:
(Unaudited)
Balance sheet -
Current assets $ 1,274,057
Noncurrent assets 649,866
--------------
Total assets 1,923,923
Current liabilities 576,863
--------------
Members' equity $ 1,347,060
Statement of income -
Revenues $ 18,826,375
Cost of goods sold (15,941,635)
Operating expenses (2,753,535)
---------------
Net income $ 131,205
The carrying amount of the Company's investment is different in
the coin company from its respective percentage share in the
underlying equity of the limited liability company due to
disproportionate capital contributions made by the Company.
Note 4 - INVESTMENT IN COMMON STOCK:
In February 1999, one of the coin companies was sold in exchange
for cash and shares of common stock of another company (the
corporation). As a result, Spectrum received 57,000 shares of the
corporation valued at $5 per share. This value was determined as
based on the $5 per share price paid by Spectrum for 20,000 shares
that it purchased through a private placement offering in April
1999.
On June 30, 1999, Spectrum was granted stock options for 21,000
shares of common stock under the terms of a nonqualified stock
option agreement with the corporation. The stock options are
exercisable on April 1, 2006 at $5 per share. However, if the
corporation generates a specified amount of gross revenues from
coins supplied by Spectrum, certain of the shares would vest (and
thus become exercisable) on each respective anniversary date of
the stock option agreement.
As of September 30, 1999, the shares of common stock in the
corporation were restricted, not yet registered under the
Securities Act of 1993. Subsequently, on November 3, 1999, the
corporation had a public offering and registered all of the above
shares. However, the Company is restricted from selling its shares
of the corporation until May 2000.
<PAGE>
SPECTRUM NUMISMATICS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
September 30, 1999
Note 5 - RELATED PARTY TRANSACTIONS:
A. Included in sales are $11.6 million of sales to related
entities, and included in cost of sales are $4.6 million of
purchases from related entities. No losses have occurred on
these related party transactions. Accounts receivable
include $971,452 from related entities. Accounts payable
include $233,271 owed to related parties.
B. The Company was indebted to related parties under the terms
of three secured notes all bearing interest at 10% per
annum, payable monthly, and due on demand or, if no demand
is made, then on December 31, 2001. The total outstanding
balance on these notes at September 30, 1999 was $4.75
million. The notes are collaterized by all assets of
Spectrum, evidenced by security agreements, and allow for
aggregate borrowings of up to $7.6 million.
Interest expense on the related party debt totaled $370,654
for the nine months ended September 30, 1999.
Related party debts up to $2 million are subordinated to
Spectrum's indebtedness to Bank of America Illinois (see
Note 10).
C. The Company paid a consulting fee of $59,994 to a related party
D. The Company paid a guarantee fee of $65,592 to a related party.
Note 6 - COMMITMENTS AND CONTINGENCIES:
B. LEASE COMMITMENTS -
The Company leases its premises in Santa Ana, California
under an operating lease agreement that expires March 31,
2000. The lease calls for monthly payments of $2,815, plus a
share of the lessor's increase in its operating costs.
Future minimum annual payments under the lease as of
September 30, 1999 are $16,890.
<PAGE>
B. STOCK OPTION AGREEMENT -
Spectrum has entered into a Stock Option Agreement with an
officer which allows him the option to purchase shares of
Series A common stock. The shares available to him for
purchase are as follows:
Number of Shares Exercise
- -----------------------------------
Beginning End Expiration price
of year Exercised of period Date per share
- --------- --------- --------- ---------------------------- ----------
218 0 218 December 31, 1999 $177
C. "SPLIT DEALS" -
The Company has arrangements with certain parties to share
the net profit or loss attributable to the sales of specific
items of its inventories. As of September 30, 1999, the
amount of inventories subject to these arrangements was
approximately $6.7 million.
Note 7 - RETIREMENT PLAN:
The Company has maintained a Salary Reduction Simplified Employee
Pension Plan since March 1993. The Plan is funded through employee
salary deferrals. Each employee can contribute as much as 15% of
his compensation up to the maximum amount allowable under Internal
Revenue Code ($10,000 for 1999). The Company has agreed to
contribute 3% of participating employees' compensation for the
year 1999. The combined amount of employer and employee
contributions cannot exceed the maximum allowable amount ($24,000
per employee for 1999). The total accrued contribution as of
September 30, 1999 is approximately $23,000.
Note 8 - PROVISION FOR TAXES:
The provision for California franchise tax for the nine months
ended September 30, 1999 is as follows:
Current payable $ 12,000
Deferred -
---------
Net income $ 12,000
Note 9 - BUSINESS CONCENTRATIONS:
The Company's two largest customers accounted for 30% of net sales
for the nine months ended September 30, 1999.
The Company has concentration of credit risk with respect to
accounts receivable. Two customers accounted for 44% of accounts
receivable at September 30, 1999. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral.
Note 10 - NOTE PAYABLE - BANK:
Spectrum has a loan agreement with Bank of America Illinois which
matures on June 18, 2000 and provides for borrowings under a
revolving note, originally dated January 20, 1997, and renewed on
June 18, 1999, allowing for borrowings of up to $7 million, with
interest payable monthly at the bank's reference rate of interest.
As of September 30, 1999, the outstanding balance owed was
$4,925,000.
The loan is secured by eligible inventories and accounts
receivable. A stockholder of Spectrum has personally guaranteed
repayment of the debt. In addition, the loan is secured by
property owned by the stockholder.
Note 11 - SUBSEQUENT EVENT
On December 8, 1999, the Company entered into an agreement to be
acquired by Greg Manning Auctions, Incorporated, subject to
stockholders' approval.
<PAGE>
Spectrum Numismatics International, Inc.
and Subsidiary
Consolidated Balance Sheet
December 31, 1999
(Unaudited)
ASSETS
Current assets:
Cash $ 301,599
Accounts receivable 871,077
Inventories 7,309,989
Notes receivable - employee 17,201
Prepaid expenses and other current assets 148,802
----------------
Total current assets 8,648,668
Property and equipment, net of accumulated
depreciation 14,266
Intangible - net of accumulated amortization 1,395
Other assets:
Investment in limited liability companies 662,830
Investment in common stock 138,166
Deposits 2,724
----------------
Total Assets $ 9,468,049
================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - bank $ 7,825,000
Accounts payable and accrued expenses 1,236,396
----------------
Total current liabilities 9,061,396
Other liabilities
Minority interest 4,298
----------------
Total Liabilities 9,065,694
Stockholders' equity
Common Stock-
Series A - no par value, 10,000 shares
authorized; 3,025 shares issued
and outstanding 441,938
Series B - no par value, 5,000 shares
authorized; 3,236 shares issued
and outstanding 125,000
Retained earnings (164,583)
----------------
Total Stockholders' Equity 402,355
----------------
Total Liabilities and Stockholders' Equity $ 9,468,049
================
<TABLE>
<CAPTION>
Spectrum Numismatics International, Inc.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- -------------------------------------
1998 1999 1998 1999
--------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C>
Sales $ 14,784,219 $ 9,386,705 $ 30,459,019 $ 20,951,810
Cost of Sales 13,774,156 8,961,558 28,197,920 19,966,420
--------------- ------------- --------------- ------------------
Gross Profit 1,010,063 425,147 2,261,099 985,390
Marketing 70,890 107,930 241,277 143,726
General + Administrative 2,088,160 616,045 2,372,310 921,665
--------------- ------------- --------------- ------------------
Total SGA 2,159,050 723,975 2,613,587 1,065,391
--------------- ------------- --------------- ------------------
Operating Income (Loss) (1,148,987) (298,828) (352,488) (80,001)
Interest Income 61,898 59,707 54,760 14,527
Gain on Investment in LLC 80,087 431,510 80,087
Other Income 36,158 48,682
Interest Expense (246,448) (192,174) (522,894) (426,020)
Minority Interest 952 (495) (1,794) (439)
--------------- ------------- --------------- ------------------
Net Income (Loss) $ (1,332,585) $ (351,703) $ (354,748) $ (363,164)
=============== ============= =============== ==================
</TABLE>
<PAGE>
Spectrum Numismatics International, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended December 31,
(Unaudited)
1998 1999
------------ ------------
Cash flows from operating activities:
Net Income (loss) $ (363,163) $ (354,748)
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 20,210 22,425
(Increase) decrease in assets:
Auctions/Accounts receivable 1,600,783 1,805,083
Inventory 418,337 2,147,373
Prepaid expenses and deposits 931 448,130
Increase (decrease) in liabilities:
Payable to third-party
consignors (116,432)
Accounts payable (1,892,702) (2,563,104)
Accrued expenses and other
liabilities (333,198) (88,403)
------------ ---------------
(548,802) 1,300,324
Cash flows from investing activities
Capital expenditures for property
and equipment - (18,000)
Investment in joint venture (200,860) (53,587)
Proceeds from sale of marketable
securities 7,500
-------------- ---------------
(200,860) (64,087)
Cash flows from financing activities:
Net proceeds from (repayment of)
demand notes payable (2,000,000)
Net proceeds from (repayment of)
loans payable 3,000,000 (1,175,000)
Proceeds from sale of common stock 38,622
Dividend to Spectrum Shareholders (213,135) (195,823)
-------------- ---------------
786,865 (1,332,201)
Net change in cash and cash equivalents 37,203 (95,964)
Cash and cash equivalents
at beginning of period 834,966 397,563
-------------- ---------------
Cash and cash equivalents
at end of period $ 872,169 $ 301,599
=============== ===============
<PAGE>
Spectrum Numismatics International Inc. and Subsidiary
Consolidated Statement of Comprehensive Income
For the six months ended December 31,
(Unaudited)
1998 1999
-------------- --------------
Net Income (Loss) $ (363,163) $ (354,748)
Other Comprehensive income (loss)
Unrealized gains on securities - -
Less: reclassification adjustment for
gains included in net income - -
------------- --------------
Comprehensive income (loss) $ (363,163) $ (354,748)
============= ==============
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The pro forma condensed combined balance sheets and statements of operations
were derived by applying pro forma adjustments to Greg Manning Auctions, Inc.'s
("GMAI") historical audited and unaudited consoldiated financial statements
incorporated by reference herein.
We have provided unaudited condensed combined financial statements of GMAI and
Spectrum Numismatics International, Inc's ("Spectrum") after giving effect to
the merger, which are referred to as "pro forma" information. In presenting
these unaudited pro forma condensed combined financial statements, we treated
our companies as if they have been combined for accounting and financial
reporting purposes. This method is known as the "pooling of interests" method of
accounting. You should be aware that these unaudited pro forma condensed
combined financial statements are presented for illustrative purposes only and
may not be indicative of the operating results or financial position that would
have occurred or that will occur after the consummation of the merger.
The unaudited pro forma information set forth below gives effect to the merger
of GMAI and Spectrum as if it had been completed on July 1, 1997 for purposes
of the statement of operations, and as if it had been completed on December
31, 1999 for balance sheet purposes, subject to the assumptions and
adjustments in the accompanying notes to the pro forma information.
The unaudited condensed combined financial information is derived from the
historical financial statements of GMAI and Spectrum.
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1999
(Unaudited)
Historical Pro Forma
Greg Manning Spectrum Adjustments Combined
Assets
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 688,275 $ 301,599 $ 989,874
Accounts receivable 6,300,865 871,077 7,171,942
Auctions receivable
Other accounts receivable 17,201 17,201
Advances to consignors 3,663,331 3,663,331
Inventory 10,749,043 7,309,989 18,059,032
Deferred tax asset 339,510 339,510
Prepaid expenses and deposits 339,308 151,526 490,834
-------------- ------------- ------------
Total current assets 22,080,332 8,651,392 30,731,724
Property and equipment (net) 894,745 14,266 909,011
Goodwill (net) 4,397,200 4,397,200
Customer lists (net) 311,667 311,667
Trademarks (net) 2,825,000 2,825,000
Other intangible assets 1,395 1,395
Investment in joint ventures and other 467,283 662,830 1,130,113
Marketable securities 138,166 138,166
Other non-current assets 4,123,331 4,123,331
-------------- ------------- -----------
Total assets $ 35,099,558 $ 9,468,049 $44,567,607
= =========== ============ ===========
Liabilities and Stockholders' Equity
Current liabilities:
Demand notes payable $ 4,752,000 $ 4,752,000
Notes payable 2,281,722 $ 4,825,000 7,106,722
Notes payable - related party 3,000,000 3,000,000
Payable to third party consignors 3,595,303 3,595,303
Accounts payable 1,469,744 1,052,263 2,522,007
Accrued expenses 3,852,309 184,137 4,036,443
-------------- ------------- ------------
Total current liabilities 15,951,078 9,061,397 25,012,475
Minority interest 4,298 4,298
Notes payable - long term 1,242,721 1,242,721
-------------- ------------- -------------
Total liabilities 17,193,799 9,065,695 26,259,494
Stockholders' equity 17,905,759 402,354 18,308,113
------------- ------------- ----------------
Total liabilities and stockholders'
equity $ 35,099,558 $ 9,468,049 $44,567,607
= =========== ============ =============
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
AND SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended June 30, 1998
(Unaudited)
Historical
Greg Manning Pro Forma Pro Forma
Auctions Spectrum Adjustments Combined
------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Aggregate Sales $ 22,487,908 $ 48,486,660 <C> $ 70,974,568
============ ============== ==========
Operating Revenues
Sales of merchandise $ 6,143,990 $ 48,486,660 $ 54,630,650
Commissions earned 2,546,431 2,546,431
------------- ------------- -------------
8,690,421 48,486,660 57,177,081
Operating expenses
Cost of merchandise sold 4,568,670 41,587,592 46,156,262
General and administrativ 4,266,507 3,251,527 $ (1,419,882) 6,098,152
Marketing 580,999 1,164,800 1,745,799
------------- ------------- ------------- -------------
Operating income (loss) (725,755) 2,482,741 1,419,882 3,176,868
Other income (expense)
Gain on sale of marketable securities 672,452 672,452
Interest income 376,932 58,256 435,188
Interest expense (610,181) (1,235,948) (1,846,129)
Income from operations of investments 169,796 169,796
------------ ------------ -------------- ------------
Income (loss) before income taxes (286,552) 1,474,845 1,419,882 2,608,175
Provision for (benefit from) income taxes (55,000) 1,157,891 1,102,891
------------ ------------- -------------- ------------
Net Income (Loss) $ (231,552) $ 1,474,845 $ 261,991 $ 1,505,284
============= =========== =========== ===========
Basic and Diluted Earnings (loss) per share:
Weighted average shares outstanding 4,419,997 6,174,383
========= =========
Earnings (loss) per share $ (0.05) $ 0.24
=========== ==========
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended June 30, 1999
(Unaudited)
Historical Pro Forma
GMAI Spectrum Adjustments Combined
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 39,602,859 $ 62,664,403 $ 102,267,262
= =========== == =========== = ===========
Operating revenues
Sales of merchandise $ 9,865,894 $ 62,664,403 $ 72,530,297
Commissions earned 4,933,481 4,933,481
--------------- --------------- ---------------
Total revenues 14,799,375 62,664,403 77,463,778
Operating expenses
Cost of merchandise sold 7,069,174 58,601,750 65,670,924
General and administrative 6,785,720 2,693,817 $ (626,410) 8,853,127
Marketing 1,556,206 476,453 2,032,659
--------------- --------------- ---------------- ---------------
Operating income (loss) (611,725) 892,383 626,410 907,068
Other income (expense)
Gain on sale of marketable 2,023,206 2,023,206
securities
Gain on sale of investment 531,834 531,834
Interest income 365,315 87,076 452,391
Interest expense (720,712) (904,170) (1,624,882)
Income (loss) from operations
of investments (19,430) 138,306 118,876
Minority interest (6,640) (6,640)
--------------- --------------- ---------------- ---------------
Income (loss) before income taxes 1,036,654 738,789 626,410 2,401,853
Provision for income taxes 456,000 12,800 587,200 1,056,000
--------------- --------------- ---------------- ---------------
Net income (loss) $ 580,654 $ 725,989 $ 39,210 $ 1,345,853
============== ============== =============== ===============
Basic earnings per share:
Weighted average shares
outstanding 5,601,251 7,355,637
============ =============
Basic earnings per share $ 0.10 $ 0.18
=========== ========
Diluted earnings per share:
Weighted average shares
outstanding 6,044,608 7,798,994
============ ==========
Diluted earnings per share $ 0.10 0.17
===== ====
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended December 31, 1998
(Unaudited)
Historical Pro Forma
-------------------------------------
GMAI Spectrum Adjustments Combined
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 10,768,259 $ 14,784,219 $ 25,552,478
= =========== ============= ==============
Operating revenues
Sales of merchandise $ 3,454,335 $ 14,784,219 18,238,554
Commissions earned 1,214,406 1,214,406
--------------- ------------- --------------
Total revenues 4,668,741 14,784,219 19,452,960
Operating expenses
Cost of merchandise sold 2,415,765 13,774,156 16,189,921
General and administrative 1,567,440 2,088,160 $ (1,040,030) 2,615,570
Marketing 302,693 373,583
70,890
--------------- ------------- ---------------- --------------
Operating income (loss) 382,843 (1,148,987) 1,040,030 273,886
Other income (expense)
Gain on sale of marketable securities 102,635 102,635
Interest income 105,807 61,898 167,705
Interest expense (178,976) (246,448) (425,424)
Minority interest 952 952
--------------- ------------- ---------------- --------------
Income (loss) before income taxes 412,309 (1,332,585) 1,040,030 119,754
Provision for income taxes 156,058 (137,595) 18,463
--------------- ------------- ---------------- -------------
Net income (loss) $ 256,251 $ (1,332,585) $ 1,177,625 $ 101,291
============== =========== = ========== ===========
$ $
Basic earnings per share:
Weighted average shares outstanding 5,404,399 7,158,785
========== =========
Basic earnings per share $ 0.05 $ 0.01
===== ====
Diluted earnings per share:
Weighted average shares outstanding 6,042,267 7,796,653
========== =========
Diluted earnings per share $ 0.04 $ 0.01
===== ====
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended December 31, 1998
(Unaudited)
Historical Pro Forma
---------------------------------------
Greg Manning Spectrum Adjustments Combined
---------------------- ----------------
Auctions
------------------ --------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 15,250,467 $ 30,459,019 $ 45,709,486
= =========== =========== ==========
Operating revenues
Sales of merchandise $ 4,450,964 30,459,019 $ 34,909,983
Commissions earned 1,815,855 1,815,855
---------------- -------------- ---------------
Total revenues 6,266,819 30,459,019 36,725,838
Operating expenses
Cost of merchandise sold 3,137,931 28,197,920 31,335,851
General and administrative 2,427,211 2,372,310 $ (640,020) 4,159,501
Marketing 434,911 241,277 676,188
--------------- -------------- ---------- ------------
Operating income (loss) 266,766 (352,488) 640,020 554,298
Other income (expense)
Gain on sale of marketable securities 659,452 659,452
Other income 36,158 36,158
Interest income 202,449 54,760 257,209
Interest expense (281,666) (522,894) (804,560)
Income (loss) from operations of
investments 431,510 431,510
Minority interest (1,794) (1,794)
----------------- -------------- ------------ -----------
Income (loss) before income taxes 847,001 (354,748) 640,020 1,132,273
Provision for income taxes 381,129 123,863 504,992
------------------ -------------- ------------- -----------
Net income (loss) $ 465,872 $ (354,748) $ 516,157 $ 627,281
================= =========== =========== ============
Basic earnings per share:
Weighted average shares outstanding 4,912,198 6,666,584
========== =========
Basic earnings per share $ 0.09 $ 0.09
=======
Diluted earnings per share:
Weighted average shares outstanding 5,307,226 7,061,612
========== =========
Diluted earnings per share $ 0.09 $ 0.09
==== =====
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended December 31, 1999
(Unaudited)
Historical Pro Forma
-------------------------------------
GMAI Spectrum Adjustments Combined
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Aggregate Sales $ 10,253,865 $ 9,386,705 $ 19,640,570
=========== ========== ==========
Operating revenues
Sales of merchandise $ 2,330,381 9,386,705 11,717,086
Commissions earned 1,264,263 1,264,263
--------------- ---------- -----------
Total revenues 3,594,644 9,386,705 12,981,349
Operating expenses
Cost of merchandise sold 1,956,575 8,961,558 10,918,133
General and administrative 2,907,954 616,045 $ (64,559) 3,459,440
Marketing 469,740 107,930 577,670
--------------- --------------- ---------------- ----------
Operating income (loss) (1,739,625) (298,828) 64,559 (1,973,894)
Other income (expense)
Interest income 102,086 59,707 161,793
Interest expense (235,992) (192,174) (428,166)
Income (loss) from operations of
investments (15,385) 80,087 64,702
Minority interest (495) (495)
--------------- --------------- ---------------- ----------
Income (loss) before income taxes (1,888,916) (351,703) 64,559 (2,176,060)
Provision for income taxes (708,238) (135,050) (843,288)
--------------- --------------- ---------------- -----------
Net income (loss) $ (1,180,678) $ (351,703) $ 199,609 $(1,332,772)
== =========== =========== =============== ===========
Basic earnings per share:
Weighted average shares outstanding 6,858,620 8,613,006
=== ========== =========
Basic earnings per share $ (0.17) $ (0.15)
====== ======
Diluted earnings per share:
Weighted average shares outstanding 6,858,620 8,613,006
=== ========== =========
Diluted earnings per share $ (0.17) $ (0.15)
====== ======
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREG MANNING AUCTIONS, INC.
and SPECTRUM NUMISMATICS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended December 31, 1999
(Unaudited)
Historical Pro Forma
--------------------------------------
Greg Manning Spectrum Adjustments Combined
Auctions --------------- ---------------- -------------
----------------
<S> <C> <C> <C>
Aggregate Sales $ 20,321,749 $ 20,951,810 $ 41,273,559
=========== =========== ==========
Operating revenues
Sales of merchandise $ 4,708,770 $ 20,951,810 $ 25,660,580
Commissions earned 2,528,369 2,528,369
----------------- -------------- -------------
Total revenues 7,237,139 20,951,810 28,188,949
Operating expenses
Cost of merchandise sold 3,814,774 19,966,420 23,781,194
General and administrative 5,061,748 921,666 $ 13,607 5,997,021
Marketing 993,668 143,726 1,137,394
----------------- -------------- ----------- -------------
Operating income (loss) (2,633,051) (80,002) (13,607) (2,726,660)
Other income (expense)
Gain on sale of marketable securities 14,494 14,494
Other income 48,682 48,682
Interest income 326,372 14,527 340,899
Interest expense (406,824) (426,020) (832,844)
Income (loss) from operations of
investments (74,698) 80,088 5,390
Minority interest (439) (439)
----------------- -------------- ---------- -------------
Income (loss) before income taxes (2,773,707) (363,164) (13,607) (3,150,478)
Provision for income taxes (1,116,024) (163,591) (1,279,615)
----------------- -------------- ----------- -------------
Net income (loss) $ (1,657,683) $ (363,164) $ 149,984 $ (1,870,863)
== =========== ========= =========== ===========
Basic earnings per share:
Weighted average shares outstanding 6,820,071 8,574,457
========== =========
Basic earnings per share $ (0.24) $ (0.22)
================ =======
Diluted earnings per share:
Weighted average shares outstanding 6,820,071 8,574,457
========== =========
Diluted earnings per share $ (0.24) $ (0.22)
================ =======
See accompanying notes to unaudited pro forma condensed combined financial statements
</TABLE>
<PAGE>
Greg Manning Auctions, Inc.
And Spectrum Numismatics International, Inc.
Pro Forma Condensed Combined Statement of
Comprehensive Income for the six months ended
December 31,
(Unaudited)
1998 1999
-------------- --------------
Net Income (Loss) $ 627,281 $ (1,870,863)
Other Comprehensive income (loss)
Unrealized gains on securities 353,650
Less: reclassification adjustment for
gains included in net income (395,671)
-------------- --------------
Comprehensive income (loss) $ 585,260 $ (1,870,863)
============== ==============
See accompanying notes to unaudited pro forma condensed combined financial
statements
<PAGE>
GREG MANNING AUCTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the year ended June 30,
1999 and For the three and six month periods
ended December 31, 1998 and 1999
( 1 ) Basis of Presentation
The unaudited pro forma condensed combined financial statements assume a
business combination between GMAI and Spectrum accounted for using the pooling
of interests method and are based upon the respective historical financial
statements and the accompanying notes of GMAI and Spectrum.
The Company's December 31, 1999 consolidated balance sheets and statements of
operations (unaudited), which was included with the Form 10-QSB filed on
February 14, 2000, did not reflect the acquisition of Spectrum Numismatics
International, Inc. ("Spectrum").
The statements of operations of Spectrum included in the Pro Forma Condensed
Consolidated Statements of Operations (Unaudited) for the years ended June 30,
1998 and 1999 and for the six month periods ended December 31, 1998 and 1999
represent the operations of Spectrum prior to the acquisition for the years
ended June 30, 1998 and 1999 and for the three and six month periods ended
December 31, 1998 and 1999.
The Pro Forma Condensed Consolidated Statements of Operations for the years
ended June 30, 1998 and 1999 and for the three and six month periods ended
December 31, 1998 and 1999 do not purport to be indicative of the results that
actually would have been obtained if the operations were combined at the
beginning of the fiscal year ended June 30, 1998, and this presentation is not
intended to be a projection of future results or trends.
( 2 ) General and Administrative Operating Expenses
The pro forma adjustments to General and Administrative Operating Expenses for
the years ended June 30, 1998 and 1999 and for the three and six month periods
ended December 31, 1998 and 1999 consist of adjustments to salaries and wages
for in the amount of ($ 1,419,882), ($ 626,410), ($ 1,040,030), ($ 640,020),
($ 64,559), and $ 13,607, respectively, to reflect salaries and bonuses
per employment contracts signed at the closing.
( 3 ) Income Tax and Tax Benefit
The pro forma adjustments for income tax and tax benefits for the years ended
June 30, 1998 and 1999 and for the three and six month periods ended December
31, 1998 and 1999 are the estimates of the federal and state income taxes that
would be due assuming Spectrum was acquired on July 1, 1997. No federal or state
income tax or tax benefit was previously recorded by Spectrum because Spectrum
had elected to be taxed under the S Corporation provisions of the Internal
Revenue Code.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23 Consent of Independent Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREG MANNING AUCTIONS, INC.
By: ___/s/_______________________
Name: Greg Manning
Title: Chairman, President and
Chief Executive Officer
By: ___/s/_______________________
Name: James A. Smith
Title: Chief Financial Officer
<PAGE>
Date: May 5, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our reports dated
November 3, 1999, on the audited financial statements of Spectrum Numismatics
International, Inc. as of December 31, 1998 and fot the year then ended, and as
of September 30, 1999 and for the nine months then ended, respectively, which is
included in Form 8-K/A filed by Greg Manning Auctions, Inc. on or about May 5,
2000.
/s/ BRAVERMAN CODRON, LLP
(formerly known as BRAVERMAN, CODRON & CO.)
Certified Public Accountants
Beverly Hills, California
May 4, 2000
