SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Name of Registrant as specified in its Charter)
Delaware 22-2365834
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
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(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (973) 882-0004
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
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Common Stock, $.01 par value The Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the Common Stock held by non-affiliates of
the Issuer as of September 25, 2001 (based on closing sale price of $1.95 per
share as reported on NASDAQ), was $10,703,523. For purposes of this computation,
the registrant has excluded the market value of all shares of Common Stock
reported as beneficially owned by Afinsa Bienes Tangibles, S.A. and all
directors and executive officers of the registrant; such exclusion shall not be
deemed an admission that any such person is an "Affiliate" of the registrant.
As of September 25, 2001, Issuer had 12,733,642 shares of its Common Stock
outstanding.
Portions of the Registrant's definitive proxy statement, which will be
filed within 120 days of June 30, 2001, are incorporated by reference into Part
III.
Greg Manning Auctions, Inc.
Index
Page
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PART I
Item 1 Description of Business............................................. 4
Item 2 Description of Property............................................. 14
Item 3 Legal Proceedings................................................... 14
Item 4 Submission of Matters to a Vote of Security Holders................. 14
PART II
Item 5 Market For Common Equity and Related Shareholder Matters............ 14
Item 6 Selected Consolidated Financial Data................................ 15
Item 7 Management's Discussion and Analysis of Financial Condition
And Results of Operations........................................... 18
Item 8 Financial Statements and Supplementary Data......................... 27
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................. 56
PART III
Item 10 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act................... 56
Item 11 Executive Compensation.............................................. 58
Item 12 Security Ownership of Certain Beneficial Owners and Management...... 58
Item 13 Certain Relationships and Related Transactions...................... 58
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 60
2
PART I
Item 1. Description of Business
A. OVERVIEW
Greg Manning Auctions, Inc. (the "Company" or "GMAI") is a multi-category
business-to-business and business-to-consumer collectibles auctioneer &
merchant. The Company combines traditional and electronic (Internet, interactive
telephone, and live with simulcast Internet) capabilities to sell coins, stamps,
sports trading cards & memorabilia, comic books & comic art, Hollywood & Rock `n
Roll memorabilia, movie posters, and affordable fine art. Vertically integrated,
the Company's offerings and distribution channels span the entire price range
from low end to ultra-high end, its businesses include wholesale, retail and
direct response sales, and it possesses a branded presence in all major sales
channels both in the traditional and the eCommerce worlds. On the Internet, GMAI
offers products through two owned web sites and on GMAI branded and non-branded
pages on other persons' web sites, including (without limitation) www.ebay.com,
www.amazon.com, and www.yahoo.com. GMAI generates income through the resale of
goods purchased directly by the Company and from sellers and buyers through
auctions of consigned goods.
The Company seeks to provide the highest quality service and personal attention
to its clients. Its longevity in its core auction business selling rare stamps
and stamp collections has enabled it to develop an international network of
clients, both dealers and collectors, buyers and sellers, who use the Company's
services on a consistent basis. These relations, coupled with the Company's
quality reputation and extensive auction and marketing experience, have
permitted it to expand beyond its core philatelic roots into other areas of the
collectibles business, and to make opportunistic investments in, or acquisitions
of, other collectibles companies, both domestically and in Europe and Asia.
For purposes of competitive analysis and market positioning, the Company
organizes its business into four units: collectibles auctions (both traditional
and electronic); collectibles merchant/dealer; coin wholesaler; and direct
response merchant. Each unit is described separately below.
B. COLLECTIBLES AUCTIONEER
General
The Company conducts both traditional auctions featuring full electronic
capabilities and Internet-only auctions. Its traditional auctions and
Internet-only auctions are targeted to both collectors and dealers, and feature
offerings spanning the modest to ultra-high end price spectrum. Based on its
knowledge of the collectibles markets, the Company believes that it is one of
the world's largest (measured by aggregate sales) auctioneers of stamps, and a
leading auctioneer of rare coins, comic books & comic art, and sports trading
cards & memorabilia. Additionally, the Company believes that it possesses a
significant market share as an auctioneer of other high-end collectibles.
Traditional Auctions
"Traditional auctions" are live, in-person auctions conducted by a licensed
auctioneer. The Company holds several traditional auctions each year in a
variety of venues, including strategically located hotels, and at major trade
conferences and conventions. All traditional auctions are augmented by
electronic catalogs and most are augmented by one or more forms of electronic
bidding. Commissions are typically charged from the seller of 5% to 15% and from
the buyer of 10% to 15%.
The Company's traditional auctions are based on a "Full Service" auction model
in which the Company takes physical possession of all items offered for sale in
its auctions, inspects and describes all offerings, receives all sums due,
remits sale proceeds to the seller, and professionally packs and ships items
sold to the buyer. Additionally, the Company generally guarantees the
genuineness of all items sold (subject to the terms of sale) and that each lot
is "as described" in the auction catalog.
In the Company's traditional auctions, prospective buyers place bids on each lot
as presented in the order shown in the catalog at the time and date of the
auction. Before the auction, prospective buyers may bid by lot as shown in the
catalog and communicate such bids to the Company by mail, fax, telephone, or the
Internet. At the auction, the auctioneer typically opens bidding at levels based
on bids received prior to auction or a percentage of previously established
reserve prices. The item offered is sold to the highest bidder, whether such bid
was received before the auction or at the time of sale, and such high bidder
must pay the hammer
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price, the applicable buyer's premium, and all applicable sales taxes.
Additionally, buyers pay a shipping and handling fee if they do not accept
delivery of the items at the place of the auction.
The auctioneer regulates the bidding and reserves the right to refuse any bid
believed by him/her not to be made in good faith.
Costs involved in conducting a traditional auction include, among other things,
the cost of inspecting, describing and storing the items to be offered for sale,
catalog creation, printing and mailing, insurance, transportation, auction
advertising, auction venue site rental fees, security, temporary personnel and
expenses of certain additional auction-related accounting and shipping
functions.
Internet Auctions
"Internet Auctions" are auctions wherein there is no live, natural-person
auctioneer and no bidders in a single physical location orally making bids as in
a "traditional auction." Rather, all bids are made electronically via the
Internet or telephone, and a computer system processes the bids and determines
the highest bidder.
In October 1998, the Company acquired Teletrade, Inc. and entered the online
auction market. Since that time the Company has expanded its online offerings
and presence, improved its technologies, and created new proprietary Internet
auction technologies. Currently, the Company's only owned online auction web
site is www.teletrade.com (the Company uses its www.gregmanning.com web site to
present electronic catalogs of its "traditional auctions" and to receive
electronic bids for its traditional auctions, but does not currently conduct
Internet auctions on that site). Additionally, the Company offers via Internet
auctions Company owned collectibles and collectibles consigned to it by others
on third persons' Internet auction web sites.
Consistent with the Company's full service traditional auction business model
and its commitment to customer service, the Company's Internet auctions feature
many of the same full service amenities as its traditional auctions.
Specifically, unless otherwise noted in a particular sale's terms and
conditions, the Company takes physical possession of all items offered for sale
prior to the sale, guarantees the genuineness of all items offered, describes
the items, collects all sums due, remits the sale proceeds to the seller, and
professionally packs and ships the items sold to the buyer. Additionally,
because the buyer in an Internet auction has not had an opportunity to
personally view the item offered, the Company also offers buyers a 100%
Satisfaction Guaranty.
The Company's Internet auction business model is distinct from the more common
consumer-to-consumer model employed by Internet auctioneers such as eBay(R) and
Yahoo(R) wherein the auctioneer creates and manages the bidding facility and the
buyer and seller must work-out themselves the procedures for completing the
transaction. The Company believes that its business-to-consumer, full service
model provides it competitive advantages, distinguishes the Company from other
Internet auctioneers, and permits the Company to sell mid-range to high-end,
high value collectibles over the Internet.
The Company charges sellers a commission for its Internet auction services of 5%
to 15%. Buyers in its Internet auctions on the teletrade.com site are charged a
commission of 10% to 15%. Depending on the particular auction conducted on a
third party's web site, buyers may or may not be charged a commission. When
charged, the commissions are typically 15% however they may be less.
Costs involved in conducting the Company's Internet auctions include, among
other things, the cost of inspecting, describing, imaging and storing the items
to be offered for sale. Other costs include technology development and
maintenance, computer and Internet hardware procurement and maintenance,
advertising, and expenses of certain additional auction-related accounting and
shipping functions.
Auction Venues/Brands
Traditional Auctions
The Company conducts traditional auctions under two distinct brands: Greg
Manning Auctions ("GMA") and Ivy & Mader Philatelic Auctions ("Ivy & Mader").
The GMA brand was created in 1966 and has historically been used primarily for
auctions of stamp collections and accumulations targeted to philatelic dealers.
Commencing in 1998, the GMA brand was expanded and used for high-end
business-to-business
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and business-to-consumer auctions of comic books & comic art, Hollywood & Rock
'n Roll memorabilia, movie posters, and sports trading cards & memorabilia.
The Company created the Ivy & Mader brand in 1993 when it acquired the
predecessor to Ivy & Mader Philatelic Auctions, Inc. Since that time, the Ivy &
Mader brand has been used for high-end philatelic auctions of rare single stamps
and collections targeted to individual collectors as well as dealers.
During fiscal year 2001, four stamp and five comic/movie poster auctions were
conducted under the GMA brand, and three stamp auctions were conducted under the
Ivy & Mader brand.
The Company's traditional auctions are held in locations appropriate for the
particular auction and all catalogs are available online.
Internet Auctions
The Company offers coins and sports trading cards on its www.teletrade.com
Internet auction web site. The Company offers affordable fine art, coins, comic
books & comic art, Hollywood & Rock `n Roll memorabilia, movie posters, sports
trading cards & memorabilia, stamps and other fine collectibles on third party
owned web sites, the Company selecting the electronic auction venue most
suitable for the particular items being offered. As a result of the Company's
highly regarded brand and the quality and quantity of its offerings, the Company
is typically able to negotiate favorable terms from owners of third party owned
Internet auction web sites.
Proprietary Auction Technology
Interphonic(TM)
"Interphonic(TM) " is a Company owned and developed telephone/Internet auction
technology. Interphonic(TM) is the technology operating the Company's
Internet/telephone auctions conducted on the Company's www.teletrade.com web
site. The technology permits bidders to participate in electronic auctions
either by touch-tone telephone or via the Internet.
MaxBid(TM)
"MaxBid(TM) " is a Company owned and developed proprietary technology that
enables absentee participants in an electronic auction to enter the highest
amount they are willing to bid for a particular lot. The computer records the
amount bid on each lot and, during the auction, bids on behalf of the absentee
bidder entering bids up to the maximum amount authorized.
TouchBid(TM)
"TouchBid(TM) " is a Company co-owned and developed proprietary auction
technology. Intended to bring live auctions to bidders all over the world, the
TouchBid(TM) technology broadcasts through the telephone a live audio feed from
the auction floor, and permits bidders to place bids using their telephones. The
Company believes that "TouchBid" will offer material advantages over current
technologies.
Auction Offerings
Traditional Auction Offerings
Philately
Philately, often referred to as stamp collecting, has grown in the United States
and globally during the twentieth century. The hobby is increasing in popularity
due in part to the increased offerings from the United States Postal Service of
popular interest issues. The Company believes, based on its knowledge of the
market, that the combination of GMA with Ivy & Mader creates one of the world's
largest combined philatelic auction houses, although there is limited publicly
available data with respect to stamp auction sales, and provides a competitive
advantage to the Company through the complementary nature of the two brands'
targeted customer bases. In fiscal year 2001, the Company offered over 8,400
philatelic lots in its traditional auctions yielding over $ 15 million in
aggregate sales.
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Comic Books
Comic book and comic art collecting have recently experienced dramatic growth in
popularity, stimulated in part by the introduction of third party grading and
certification of comic books. Recognizing this trend, the Company pursued the
comic book/art category during fiscal year 2001 and conducted three major
traditional auctions of comic books/art.
Hollywood & Rock `n Roll Memorabilia, Movie Posters
and Sports Trading Cards & Memorabilia
During the last several years, the Company has expanded its collectibles product
lines, adding Hollywood & Rock 'n Roll memorabilia, original movie posters &
lobby cards, and sports trading cards & memorabilia to its offerings.
Internet Auctions
teletrade.com
The Company currently offers rare coins and sports trading cards in its
teletrade.com auctions. During fiscal year 2001, the Company held 126 coin
auctions comprising approximately 1,100 lots each and 111 sports trading card
auctions comprising approximately 800 lots per auction.
Third Party Owned Web Sites
In the past 36 months the Internet auction industry has experienced dramatic
consolidation leaving a very small number of viable broad-based Internet auction
websites and several smaller, "niche" Internet auction web sites featuring a
limited type and quality of offerings. The Company's www.teletrade.com web site
is a successful "niche" Internet auction web site featuring coin and sports
trading cards generally spanning the $50 - $5,000 price spectrum. Lower priced
items and non-coin and sports trading card items generally sell for higher
yields on other web sites, hence when the Company has products that do not fit
within the "niche" offering categories of the www.teletrade.com web site it
offers such items on third parties' web sites including sites owned by eBay,
Inc., Amazon.com, Inc. and Yahoo, Inc.
Collectibles Auction Competition
The auction market, both traditional and Internet, for the collectibles offered
by the Company is highly competitive and dynamic. With the exception of the
low-end and consumer-to-consumer segments of the Internet auction market wherein
eBay, Inc. has secured a dominant market position, no clear market leader
exists.
Traditional Auction Competitors
Among the Company's primary competitors in the domestic and worldwide philatelic
auction business are Matthew Bennett, Inc., Charles Shreve Galleries, Inc., H.R.
Harmer, and Robert A. Siegel Auction Galleries, Inc. In the sports trading card
auction business, the Company's primary competitors are Mastro Fine Sports
Auctions, Superior Galleries, Inc., Sports Trading Cards Plus, LLC, Collectors
Universe, Inc. and Sales OnLine Direct, Inc. (d/b/a Rotman Auctions). The
Company's principal coin auction competitors are Heritage Rare Coin Galleries,
Inc., Stacks Rare Coins, Collectors Universe, Inc.'s Bower's and Merena, and
Superior Galleries, Inc. With respect to the Company's Hollywood Rock `n Roll
memorabilia business, the Company's primary competitors are Butterfields &
Butterfields Auctioneers, Inc., Sotheby's Holdings, Inc. and Christie's, Inc.
With respect to the Company's comic book business, the Company's primary
competitor is Sotheby's Holdings, Inc. With respect to the Company's movie
poster business, the Company's primary competitors are Ron Moore, Skinner, Inc.,
Butterfields & Butterfields Auctioneers, Inc., Sotheby's Holdings, Inc.and
Christie's, Inc.
Internet Auction Competitors
A number of companies offer business-to-business and business-to-consumer
auctions of collectibles, including eBay, Inc., Yahoo!, Inc., Amazon.com, Inc.,
Interactive Collector, Inc. (d/b/a iCollector.com), Collectors Universe, Inc.
and Sothebys.com, Inc. Additionally, several companies host consumer-to-consumer
auctions of collectibles. While the Company is not in the consumer-to-consumer
auction business, these companies' services provide collectors the option to
sell or buy their collectibles themselves. Consumer-to-consumer auction sites
selling collectibles include: eBay, Inc., Yahoo!, Inc., Amazon.com, Inc.,
FairMarket Network, Inc., The boxLot Company, eDeal Auction Network, and
eHammer, LLC, among others.
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C. MERCHANT/DEALER
General
In order to complement and enhance the Company's auction business, the Company
buys collectibles in its own name and resells them as a merchant/dealer.
For a variety of reasons, some collectors require the immediate liquidation of
their collections and cannot wait for an appropriate auction. Other collectors
do not wish to sell by auction and prefer a negotiated, fixed price sale. In
these instances, the Company uses its knowledge of the markets and product to
make what the Company calls "opportunistic purchases." In most instances,
collectibles purchased in this manner are resold within 180 days either in one
of the Company's auctions or in a private treaty transaction. In other
instances, either because the markets are not yet ripe or because the collection
purchased is so large, it is most profitably sold over a period of time, the
collectibles purchased are held in the Company's inventory and resold after 180
days.
In addition to these "opportunistic buys," the Company continually searches the
collectibles markets for favorable buying opportunities and buys individual
pieces and collections to re-sell to a particular collector pursuant to a
specific purchase request, to fill a need for one of its auctions to make that
auction more attractive to the targeted audience, or to take advantage of what
the Company believes is a favorable price and buying opportunity. In these
circumstances, items purchased are generally resold in less than 180 days.
The Company earns a profit or incurs a loss on the sale of owned inventory to
the extent the sale price exceeds or is less than the purchase price paid by the
Company. The Company intends to sell its owned inventory as quickly and
efficiently as possible, thereby promoting a high level of inventory turnover
and maintaining maximum liquidity.
Merchant/Dealer Sales Venues
The Company conducts its merchant/dealer business through five primary
distribution channels: auctions, private sales, print advertisements (usually in
collector specific publications), Internet fixed-price sales on the
www.gregmanning.com web site and on third parties' Internet web sites.
Private Sales
In a private sale, the Company contacts known collectors and sells specific,
usually high or ultra-high end items, to such collectors at a privately
negotiated price. When such sales are conducted of Company-owned items, the
Company earns a profit based upon the sale price paid by the private buyer. The
Company also conducts private sales of consigned items. In such instances, the
Company earns a fee for its services. Generally, the fee is a percentage of the
sale price however in some circumstances the Company will be paid a fixed,
negotiated fee.
Private treaty sales are typically settled more promptly than auction sales,
with the buyer paying all or substantially all of the purchase price at the time
of sale. In some circumstances, however, the buyer may receive extended payment
terms. When this occurs, the Company and the seller negotiate a settlement of
the remaining amounts due the seller which may or may not include a sharing of
the credit risk or a deferral of a portion or all of the Company's fee until the
Company has collected all of the outstanding balance from the buyer.
A private treaty sale is attractive to some potential consignors because it
provides an opportunity for a sale at a fixed price or at a price controlled by
the consignor rather than by bidders as is the case at public auction. Often, a
private treaty sale can be consummated more quickly than a sale at auction,
providing increased liquidity for the seller. For the Company, private treaty
sales provide an opportunity to realize increased revenues because such sales
involve less costs than auction sales, primarily because there are minimal
expenses associated with such sales.
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Internet Retail Sales
The Company sells its owned inventory on its owned eCommerce web site
www.gregmanning.com and on Internet web sites owned by others.
www.gregmanning.com
The Company has developed the gregmanning.com web site as a resource for
collectors' needs. Currently the site offers fixed priced collectibles from the
Company's own inventory. In the future, it is expected that the site will offer
collectibles from various collectibles categories.
Items are offered with a stated sale price, and are purchased by "clicking" a
buy button and proceeding to the Company's eCommerce sales facility where the
name, address, ship to and other information necessary to complete the sale is
gathered. The Company offers customers the option of paying by major credit
card, check, or wire transfer. If by credit card, the Company's electronic
systems process the transaction. If by check or wire transfer, the Company's
Customer Service department assists in facilitating the transaction. In all
circumstances, the merchandise is only shipped after the Company is paid in full
or appropriate credit arrangements have been made.
Merchant/Dealer Competition
Competition among dealers and merchants of the collectibles sold by the Company
is intense. The market is comprised of thousands of merchant/dealers, as well as
individual collectors buying and selling directly through consumer-to-consumer
Internet trading platforms and at collectibles shows and conventions. Most of
these competitors, however, are small, privately owned companies, and no large
dominant competitor exists. Additionally, most competitors are focused on a
single collectible category and do not have a multi-category presence similar to
the Company's.
Among the Company's primary competitors in the domestic and worldwide philatelic
merchant/dealer business are Mystic Stamp Company, Superior Galleries, and
Regency Stamps, Ltd. The Company's principal coin competitors are Heritage Rare
Coin Galleries, Inc. and Stack's Rare Coins. In the sports trading card &
memorabilia business, the Company's primary competitors are Sports Cards Plus,
Piedmont Cards and Goodwin & Company. With respect to the Company's Hollywood
Rock `n Roll memorabilia business, the Company's primary competitors are Stars
and Starifacts. The Company's principal comic book and comic art competitors are
Metropolis, Pacific Comics Exchange, and Comic Heaven. With respect to the
Company's movie poster business, the Company's primary competitors are Last
Moving Picture Company and Cinema Icons.
D. WHOLESALE COIN SALES
In February 2000, the Company acquired Spectrum Numismatics International, Inc.
("Spectrum"), one of the leading coin wholesalers in the United States. The
Spectrum business complements the Company's auction and merchant/dealer
businesses by providing a supply of favorably priced coin offerings for its
auctions and fixed price sales venues.
The majority of Spectrum's revenue is generated from wholesale sales of coins
and from sales of coins to retailers and auction houses. Additionally, Spectrum
sells directly to a limited number of select private collectors.
Based on its knowledge of the market, Spectrum believes that it is one of the
largest wholesalers of rare coins in the United States (although there is no
publicly available data to confirm this belief). Spectrum currently sells, in
the aggregate, over $44 million of coins per year.
E. DIRECT RESPONSE SALES
Effective January 2000, the Company entered into agreements with Tristar
Products, Inc. to create and mass-market high interest collectibles targeted to
the beginning collector. Under the agreements, the Company created a subsidiary,
Greg Manning Direct, Inc. ("GMD"), and is pursuing its direct response business
through that entity.
GMD will utilize television commercials and infomercials, print media, TV
shopping channels, major retail chains and the Internet to sell and distribute
its offerings. Sales operations commenced in 2000 with the 50 State US Quarter
Map and coin set. Other products have included the "Presidential Coin" series,
coin related jewelry, signed photographs of the rock group Kiss and other
products intended to appeal to the mass market collector.
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F. GMAI-Asia.com, Inc.
In March 1999, GMAI, along with other investors, formed GMAI-Asia.Com, Inc., a
Delaware corporation ("GMAI-Asia"), with the intent to expand into China and
South-East Asia via the Internet GMAI's core philatelic and collectible auction
and merchant/dealer businesses.
Consistent with GMAI's initial goals, GMAI-Asia developed a technology package
for the People's Republic of China ("PRC") marketplace and an Internet presence
in the PRC. Additionally, GMAI-Asia launched its China business with a very
successful electronic auction of stamps during the World Stamp Exposition, which
was held in Beijing in June, 1999.
While the initial stamp auction was successful, the opportunity for a
collectibles focused Internet business in the PRC in 1999 and the foreseeable
future proved very limited given the early state of development of the Internet
infrastructure in the PRC at that time. Thus, GMAI-Asia determined to expand its
focus and mission by developing a broad based cybermall.
In October, 1999, new branding for the company was created under the trade name
"iAtoZ.com" and a new re-designed web site created for GMAI-Asia's new mission
was launched, www.iatoz.com. Additionally, the company commenced a search for a
traditional, "bricks and mortar" business which was synergistic with GMAI-Asia's
eCommerce strategy and possessed a common customer base, and which would support
GMAI-Asia's eCommerce vision and activities while the PRC Internet
infrastructure developed. The result of that search was GMAI-Asia's acquisition,
in February, 2000, of 65% of, and the exclusive right to manage, China
Everbright Telecom Land Network, Ltd., Shanghai's largest chain of retail stores
devoted exclusively to the sale of cellular telephone handsets, pagers, and
related communication devices.
China Everbright Telecom Land Network, Ltd., a company created and existing
pursuant to the laws of the British Virgin Islands, operated under the brand
names "EBT" and "Everbright Telecommunications" and its 100% owner immediately
prior to GMAI-Asia's purchase of 65% of the company was China Everbright
Technology Limited, a publicly listed company (SEHK: 256) ("EB Technology"). At
the time of GMAI-Asia's acquisition, China Everbright Telecom Land Network, Ltd.
owned or controlled 200+ physical stores and kiosks in Shanghai and several
smaller cities in the East China region of the PRC.
Immediately following the acquisition, GMAI-Asia and EB Technology re-branded
the China Everbright Telecom Land Network, Ltd. stores as "iAtoZ.com/EBT"
("IAE"). Additionally, GMAI-Asia, as the exclusive manager of the chain,
commenced a process of consolidating the chain's operations in order to reduce
costs and improve profitability, and eliminated unprofitable and marginal stores
shrinking the total number of stores to approximately 150 by December, 2000.
GMAI-Asia also commenced implementing a strategy to convert the physical stores
from single purpose retail sales facilities into dual purpose facilities: retail
stores selling cell phones and related equipment and accessories and Internet
service centers at which customers of the iAtoZ cybermall can "browse" the
iAtoZ.com cybermall (not the Internet) on publicly accessible computer
terminals, pay for goods purchased on-line by delivering payment to the IAE
staff, and receive delivery of goods purchased on-line.
GMAI-Asia's operations are conducted through four companies: i) China Everbright
Telecom Land Network, Ltd., a company created and existing pursuant to the laws
of the British Virgin Islands ("IAE"); ii) iAtoZ.com, Limited, a company created
and existing pursuant to the laws of the PRC ("iAtoZ"); iii) iAtoZ International
Trade (Shanghai) Co., Ltd., a company created and existing pursuant to the laws
of the PRC ("iAtoZ Trade"), and; iv) iAtoZ.com (HK) Ltd., a company created and
existing pursuant to the laws of the Special Administrative Region of Hong Kong
("iAtoZ HK").
GMAI-Asia owns 100% of the shares of iAtoZ Trade and iAtoZ.com HK, and 65% of
the shares of IAE plus the exclusive right to manage IAE. GMAI-Asia owns an
option to acquire 100% of the outstanding stock of that company for a nominal
amount, exerciseable under certain circumstances. GMAI-Asia also has the
exclusive right to manage iAtoZ.
GMAI-Asia's business operations are principally conducted through two companies,
iAtoZ and China Everbright Telecommunications Products Limited ("Products"), a
company created and existing pursuant to the laws of the PRC. iAtoZ Trade and
iAtoZ HK are trading companies used to support the activities of the two
operating companies, iAtoZ and Products.
iAtoZ is GMAI-Asia's eCommerce company. It owns the iAtoZ.com cybermall and
related technology and technological infrastructure, as well as the rights to
the domain name iAtoZ.com. Additionally, iAtoZ owns the right to build and
operate a business-to-business web-site and electronic exchange for China's
automotive industry pursuant to an official grant of the PRC's Bureau of
Internal Trade.
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Products is the PRC operating company of IAE. It owns all of the retail stores
of IAE and operates under the brand iAtoZ.com/EBT. Substantially all of the
retail sales transactions of IAE are conducted through Products. Immediately
prior to GMAI-Asia's acquisition of its 65% interest in IAE, EB Technology owned
75% of IAE and a third party, Shanghai Everbright Hite Communications Chain
Limited ("Hite"), owned the remaining 25% of IAE. Under this structure, some of
the retail stores comprising the IAE chain of stores acquired and certain
additional assets utilized by IAE were owned by Hite and another company,
Everbright Telecom Land Communication System (Shanghai) Co., Ltd. ("ETL").
Concurrent with the closing of the GMAI-Asia/EB Technology transaction, EB
Technology agreed to cause all of the IAE related assets owned by Hite and ETL
to be transferred to Products. The transfer process commenced immediately
following the closing and was completed prior to June 30, 2001. Some of the
assets to be transferred included licenses to retail stores comprising the IAE
chain.
PRC law does not currently permit non-PRC citizens or companies to own companies
carrying out certain types of activities, including the business activities
conducted by IAE. As a result, IAE, a British Virgin Islands company, cannot own
directly the shares of Products. Thus, the shares of Products are owned by PRC
companies controlled by EB Technology, and IAE and GMAI-Asia own options to
purchase for a nominal amount 65% (GMAI-Asia) and 35% (EB Technology) of the
shares of Products. GMAI-Asia also owns the exclusive right to manage Products.
Accordingly, Products and iAtoZ are not consolidated in the operations of
GMAI-Asia. The pro-forma net sales attributable to the operations managed by
GMAI-Asia in fiscal 2001 were approximately $49 million, on an unaudited,
unconsolidated basis. (These pro-forma results are presented for informational
purposes only and are not prepared in accordance with generally accepted
accounting principles.)
G. AUCTION POLICY & PROCEDURES
Unless otherwise stated in the terms and conditions of a particular sale, each
lot is sold as genuine and as described by the Company in the catalog or item
description. However, when, in the opinion of a competent authority mutually
acceptable to the Company and the purchaser, a lot is declared otherwise, the
purchase price will be refunded in full if the lot is returned to the Company
within a specified period. In such event, if the item is consigned to the
Company, the Company will return the item to the consignor before a settlement
payment has been made to such consignor. To date, returns have not been
material. Large collections are generally sold on an "as is" basis.
After an auction, purchasers must make arrangements to take possession of the
items bought. The Company generally forwards the property to its buyer by mail
unless other arrangements are requested. As agent of the consignor, the Company
bills the buyer for property purchased, receives payment from the buyer, and
remits to the consignor at the settlement date the consignor's portion of the
buyer's payment, less consignor cash advances, if any, and commissions payable
to the Company. The Company often releases property sold at auction to buyers -
primarily dealers - before the Company receives payment, permitting such buyers
to take immediate possession on an open credit account basis (within established
credit limits) and to make payment generally within 30 days.
Whether or not the Company has received payment from such well-established
customers, it must pay the consignor and generally will do so no later than the
contracted settlement date (generally 45 days after the sale of the consignor's
property). In instances where the buyer has not paid as of settlement date, the
Company assumes all risks of loss and responsibility of collection from the
buyer.
Extending credit to creditworthy buyers at auction is an important marketing
tool for the Company because it allows buyers who may not have immediately
available funds at time of auction the opportunity to settle at a later date.
The Company will generally extend credit only to buyers who have done business
with the Company in the past and have an established credit standing in the
industry.
When the Company does not grant credit to a buyer, under the standard terms and
conditions of the Company's auction sales, it is not obligated to pay the
consignor of the property if it has not been paid by the buyer. In such
instances, the Company holds auctioned property until it receives payment from
the buyer. If the buyer defaults on payment, the Company may cancel the sale and
return the property to the owner, re-offer the property at another auction, or
contact other bidders to negotiate a private sale.
CLIENT SERVICES AND METHODS OF SALE FOR COLLECTIBLES OWNERS
The Company's business depends, in part, on its ability to attract owners of
collectibles who desire to sell their property at auction or by private treaty.
The Company seeks to provide the highest quality service to such owners,
providing them with
10
an efficient and secure means by which to sell their property. The Company's
ability to provide quality service to its clients on a consistent basis has
enabled it to develop long-standing relationships with many professional dealers
and collectors and to develop a reputation in the industry for client service.
The Company enjoys repeat business and receives a substantial amount of business
as a result of referrals. In addition to its industry reputation, the Company
relies on advertising in trade publications to promote its services to potential
clients, such as professional dealers, collectors, and estate administrators.
The Company is able to offer most clients several options for the sale of their
property. An owner desiring to sell property may choose to: 1) consign it to the
Company for sale at auction to the highest bidder; 2) place it with the Company
under a private treaty for sale at a price negotiated by the Company with a
buyer; or 3) sell it directly to the Company for a negotiated price. The Company
has available to it a staff of experts who are knowledgeable in many areas of
collectibles, and who are able to make reasonable estimates of the price at
which an item may be expected to sell at auction or privately. The Company's
experts can examine an owner's property and furnish a presale auction estimate,
which represents the Company's opinion of the current value of the property
based on recent selling prices of similar properties, and the quality, rarity,
authenticity, physical condition and history of prior ownership of the subject
item. These capabilities permit the Company to assist a client in deciding the
appropriate method of sale.
Generally, an owner desiring to use the Company's services to sell property at
auction or by private treaty will deliver the property to the Company on a
consignment basis, contracting with the Company to sell the property to the
highest bidder. The Company and the consignor will enter into a written contract
which sets forth the terms and conditions of the consignment with respect to
settlement, commissions and cash advances, if any, and the determination of the
authenticity of the property. Generally, the Company will hold consignment
property until the next regularly scheduled auction sale, or if the sale is to
be by private treaty, for no longer than six months. With respect to private
treaty sales, if the consigned property is not sold within the agreed upon price
parameters during such time, the Company will inform the owner of the situation
and provide the owner with the following options: 1) continue for another period
under a private treaty arrangement at the existing or at new price parameters;
2) consign the property for sale at the next auction; 3) sell the property
outright to the Company at a price determined by the Company's experts; or 4)
have the property returned.
The Company's range of client services for owners of items to be auctioned
includes making arrangements for the pick-up and transport of property (fully
insured for loss or damage) to the Company's vault for storage and safe-keeping,
and all matters relating to displaying and promoting the property to potential
buyers. Certain aspects of these services are discussed in more detail in the
following subsections.
CONSIGNOR ADVANCES
Frequently, an owner consigning property to the Company will request a cash
advance at the time the property is delivered to the Company, prior to its
ultimate sale at auction or otherwise. The cash advance is in the form of a
self-liquidating secured loan, usually bearing an interest rate of 12% per year,
using the consigned property as collateral. The Company is a secured party with
respect to the collateral, holds a security interest in the collateral and
maintains possession of the collateral until it is sold.
The ability to offer cash advances is often critical to the Company's ability to
obtain consignments of desirable property. In the case of property sold at an
auction, an owner may have to wait up to 45 days after the auction sale date for
settlement and payment of the owner's portion of the sales proceeds. In many
instances, an owner's motivation to consign property for sale may include a need
for cash on an immediate basis. Offering cash advances allows the Company to
attract owners who desire immediate liquidity while preserving the opportunity
to sell at auction at the highest available price. The Company believes that its
ability to make consignor advances on a consistent basis has enabled it to
receive regular consignments of high value lots from professional dealers and
private collectors.
The amount of a cash advance generally does not exceed 50% of the Company's
estimate of the value of the property when sold at auction.
COMPUTERIZATION AND SECURITY
The Company maintains computerized tracking systems that are used to catalog and
describe all of the property delivered to the Company. Property is stored in the
Company's specialized vaults until it is sold or put on public exhibition, which
in the case of property to be sold at auction is generally 21 days before
auction.
Tracking the consigned property aids in the prompt and efficient production of
catalogs for auctions. Such catalogs are an important marketing tool for the
Company to solicit business with both potential consignors and bidders. For
potential
11
consignors, the Company utilizes the catalogs from prior auction sales to
demonstrate its expertise in presenting property to the bidders. For bidders,
the Company utilizes the catalog as a direct solicitation and enticement for
participation in a given auction. The Company believes that the computerization
of the auction operations enables it to compete favorably with other auction
houses in terms of service.
The Company stores consigned property in high security vaults located at the
West Caldwell headquarters and the Kingston, New York facility. Additionally,
the Company stores consigned and owned property in its California facilities in
the offices of Spectrum. The installed security system at all of the Company's
facilities is rated by an alarm service company, and the Company believes that
there is a significant level of protection of an owner's property from theft,
fire and other causes of damage.
In addition to the protection provided by the vaults, the Company provides
insurance coverage for consigned property and the inventory of the Company. The
Company maintains a policy with Lloyds of London that management believes
provides adequate coverage for damage or loss while the property is stored at
the Company's offices. The policy also provides what management believes is
adequate coverage for damage or loss during the transportation of property from
the customer to the Company's offices and from the Company's offices to an
auction location. The Company maintains the flexibility to obtain higher limits
for coverage as circumstances may require.
FUTURE PLANNED EXPANSION
The Company continues to evaluate potential acquisition candidates in the
collectibles industry and believes that acquisitions are potentially the most
effective means to grow market share in its existing collectibles categories and
to expand into certain new collectibles areas.
REGULATORY MATTERS
Regulation of the auction business varies from jurisdiction to jurisdiction, and
to the best of management's knowledge and belief, the Company is in compliance
with all material and significant regulations governing its business activities.
REINCORPORATION
On January 25, 2001, at a special meeting of shareholders, the shareholders of
the Company approved a proposal to reincorporate the Company from New York to
Delaware. The reincorporation was effected on February 16, 2001. The
reincorporation changed the legal domicile of the Company from New York to
Delaware, but did not result in a change in the name, principal offices,
business, management, capitalization, assets or liabilities of the Company.
The Board of Directors believes that the more favorable corporate environment
afforded by Delaware will enable it to compete more effectively with other
public companies, most of which are incorporated in Delaware.
EMPLOYEES
The Company presently has 64 full-time employees, including its President, Chief
Executive Officer and Chairman of the Board, Greg Manning, Chief Operating
Officer, Tom Davanzo and Chief Financial Officer, Larry Crawford. The Company
also hires persons on a temporary basis to assist in organizing its auctions and
for other specialized purposes.
12
RECENT EVENTS
During September , 2001, the Company was considering an offer to purchase
substantially all of the assets comprising its comics division, including
comics, comic books, certain Hollywood and "rock `n' roll" memorabilia and movie
posters. This proposal is still being discussed and there can be no assurance
that the transaction will be consummated.
Item 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located in space leased under an agreement
that extends to January 31, 2005 (with an option to purchase) and consists of
approximately 18,600 square feet of office and warehouse facilities located at
775 Passaic Avenue, West Caldwell New Jersey at an annual rental of
approximately $137,000. The Company also leases approximately 7,300 square feet
of office space for its Teletrade subsidiary in Kingston, New York at an annual
rental of approximately $89,000. The Company also leases approximately 7,500
square feet of office space in Santa Ana, California for its Spectrum subsidiary
at an annual rental of approximately $192,000. The Company also rents other
storage facilities located mostly in New Jersey, at annual rentals of
approximately $21,000.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation material to the Company's
financial position or results of operations nor, to the knowledge of the
Company, is any litigation of a material nature threatened.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on NASDAQ National Market ("NASDAQ")
under the symbol "GMAI". According to American Stock Transfer & Trust and ADP
Proxy Services, the holders of record of the Company's Common Stock totaled 89
and beneficial owners of record totaled 2,241 at June 30, 2001.
The Company has not paid any dividends. The Company expects that a
substantial portion of the Company's future earnings will be retained for
expansion or development of the Company's business. However, the Company
intends, to the extent that earnings are available, consistent with the above
objectives, to consider paying cash dividends on its Common Stock in the future.
The amount of any such dividend payments could be restricted by the covenants or
other terms of any loan agreements to which the Company is then a party.
The quarterly high and low bid ranges on the NASDAQ for the Common Stock
of the Company for the years ended June 30, 2001, 2000 and 1999 are shown in the
following schedule:
For the years ended June 30,
--------------------------------------------------------
2001 2000 1999
------------------ ----------------- -----------------
(Quarter) High Low High Low High Low
---------- ---------------- ----------------- -----------------
First $11.88 $ 7.69 $ 28.50 $10.88 $ 2.41 $ 1.50
Second $ 8.69 $ 1.75 $ 17.50 $ 9.31 $ 21.75 $ 1.63
Third $ 3.22 $ 1.78 $ 27.81 $12.88 $ 14.50 $ 7.50
Fourth $ 3.01 $ 1.25 $ 21.50 $ 9.53 $ 22.00 $ 9.25
The quotations shown above reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
On May 14, 2001, the Company entered into an agreement with The Tail Wind
Fund Ltd., LBI Group Inc., and Lombard Odier & Cie which amended certain
provisions of the original purchase agreement between the Company and such
investors, dated January 25, 2000. Under the terms of the amendment, the
Investors waived rights to receive additional stock
13
of the Company pursuant to the terms of the original agreement, (which they had
received as anti-dilution protection) in exchange for the issuance to the
investors of an aggregate of 627,500 shares of the Company's common stock, par
value $.01 per share, and subject to certain other conditions. In addition, on
that date, the Company entered into a purchase agreement with The Tail Wind Fund
Ltd. pursuant to which the Company sold an aggregate of 500,000 shares of common
stock of GMAI-Asia.com, Inc., par value $1.00 per share, owned by it to such
investor.
In addition, during the fourth quarter the Company entered into two stock
purchase agreements with Auctentia, S.A. ("Auctentia"), a wholly owned
subsidiary of Afinsa Bienes Tangibles, S.A. ("Afinsa"). Under the first
agreement, dated as of May 16, 2001, the Company issued to Auctentia 1,000,000
shares of the Company's common stock, for an aggregate purchase price of $2
million, which represents the closing price of the Company's common stock on May
16, 2001. Under the second agreement, dated as of May 23, 2001, the Company
agreed to issue an additional 1,000,000 shares of the Company' common stock for
an aggregate purchase of $2 million, in five installments (which vary in amount)
commencing June 15, 2001 and ending October 15, 2001. Subsequent to June 30,
2001, Afinsa has paid $1.4 million for 700,000 shares.
Esteban Perez, a director of the Company, is Chairman of the Board of
Directors and Chief Executive Officer of Auctentia. Albertino de Figueiredo,
also a director of the Company, is Chairman of the Board of Afinsa. At September
10, 2001, Auctentia held 4,771,630 shares of common stock of the Company,
representing approximately 42.4% of the total number of shares outstanding as of
May 10, 2001, plus 126,833 shares into which the 126,833 warrants held by
Auctentia may be exercised, according to the Amendment to Schedule 13D filed by
Afinsa with the Securities and Exchange Commission, dated September 10, 2001.
The stock of the Company issued and to be issued as described above is
subject to certain registration rights.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with, and are qualified by reference to, the Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this report. The
consolidated statement of operations and the consolidated balance sheet data for
the years ended June 30, 2001, 2000, and 1999, are derived from, and are
qualified by reference to, the audited consolidated financial statements of Greg
Manning Auctions, Inc.
14
Years Ended June 30,
(In Thousands, except per share data)
------------------------------------------------------------------------
2001 2000 1999(1) 1998(1) 1997
-------- -------- -------- -------- --------
Consolidated Statements of Operations Data
Net Revenues $ 67,396 $ 62,379 $ 77,484 $ 8,690 $ 15,051
Cost of merchandise sold 62,354 50,559 65,741 4,569 8,287
-------- -------- -------- -------- --------
Gross profit 5,042 11,820 11,743 4,121 6,764
Sales and marketing expenses 1,879 2,442 2,033 581 777
Depreciation and Amortization 1,564 1,010 739 374 343
Other Expense 340 -- -- -- --
Acquisition and merger costs 205 926 -- -- --
Intangible Impairment 2,158 -- -- -- --
General and administrative expenses 10,536 10,845 9,136 3,892 4,262
-------- -------- -------- -------- --------
Total operating expenses 16,682 15,223 11,908 4,847 5,382
-------- -------- -------- -------- --------
Income (loss) from operations (11,640) (3,403) (165) (726) 1,382
Interest and other expense (net) (1,136) (1,090) (1,201) (233) (138)
Gain on sale of marketable securities
and investments -- 14 2,555 672 --
Income (loss) from operations of investees (4,951) (851) 95
-------- -------- -------- -------- --------
Income (loss) before income taxes (17,727) (5,330) 1,284 (287) 1,244
Provision for (benefit from)
income taxes (1,404) (1,661) 461 (55) 583
-------- -------- -------- -------- --------
Net income (loss) $(16,323) $ (3,669) $ 823 $ (232) $ 661
======== ======== ======== ======== ========
Net income (loss) per share:
Basic $ (1.58) $ (0.38) $ 0.11 $ (0.05) $ 0.15
======== ======== ======== ======== ========
Diluted $ (1.58) $ (0.38) $ 0.11 $ (0.05) $ 0.15
======== ======== ======== ======== ========
Weighted average shares:
Basic 10,299 9,710 7,355 4,420 4,520
======== ======== ======== ======== ========
Diluted 10,299 9,710 7,799 4,420 4,520
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 2,158 $ 1,092 $ 811 $ 603 $ 635
======== ======== ======== ======== ========
Total Current Assets 24,235 33,265 33,967 12,465 22,019
======== ======== ======== ======== ========
Total Assets 40,452 55,443 46,772 18,663 25,529
======== ======== ======== ======== ========
Total Current Liabilities $ 16,885 $ 17,365 $ 22,840 $ 11,010 $ 17,373
======== ======== ======== ======== ========
Total Long-Term Liabilities 168 111 3,605 118 421
======== ======== ======== ======== ========
Total Liabilities 17,053 17,476 26,445 11,128 17,794
======== ======== ======== ======== ========
Total Stockholders' Equity 23,399 37,967 20,327 7,536 7,735
======== ======== ======== ======== ========
Total Liabilities and Stockholders' Equity $ 40,452 $ 55,443 $ 46,772 $ 18,663 $ 25,529
======== ======== ======== ======== ========
----------
(1) All 1999 amounts reflect the acquisition of Spectrum Numismatics
International, Inc., which was accounted for using the pooling of
interests method of accounting, as if it had been acquired July 1,
1998,and also include the operations of Teletrade, Inc. (which was
accounted for using the purchase method of accounting) from November 1,
1998
15
Condensed Interim Financial Data
(unaudited)
1st 2nd 3rd 4th
(In Thousands except per share amounts) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------
2001
-----------------------------------------------------------------------------------------------------------
Net Revenues $ 14,407 $ 13,527 $ 17,836 $ 21,626
Cost of merchandise sold 11,945 11,288 16,683 22,438
-------- -------- -------- --------
Gross profit 2,462 2,239 1,153 (812)
Sales and marketing expenses 616 461 306 496
Depreciation and Amortization 363 373 424 404
Other Expense -- -- -- 340
Acquisition and merger costs -- 205 -- --
Intangible Impairment -- -- 300 1,858
General and administrative expenses 2,356 2,542 2,665 2,973
-------- -------- -------- --------
Total operating expenses 3,335 3,581 3,695 6,071
-------- -------- -------- --------
Income (loss) from operations (873) (1,342) (2,542) (6,883)
Interest and other expense (net) (173) (265) (344) (354)
Gain on sale of marketable
securities and investments -- -- -- --
Income (loss) from operations of investees (277) (432) (245) (3,997)
-------- -------- -------- --------
Income (loss) before income taxes (1,323) (2,039) (3,131) (11,234)
Provision for (benefit from) income taxes (423) (604) (977) 600
-------- -------- -------- --------
Net income (loss) $ (900) $ (1,435) $ (2,154) $(11,834)
======== ======== ======== ========
Net income (loss) per share:
Basic
$ (0.09) $ (0.14) $ (0.21) $ (1.07)
======== ======== ======== ========
Diluted
$ (0.09) $ (0.14) $ (0.21) $ (1.07)
======== ======== ======== ========
1st 2nd 3rd 4th
(In Thousands except per share amounts) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------
2001
-----------------------------------------------------------------------------------------------------------
Net Revenues $ 15,208 $ 12,981 $ 18,050 $ 16,140
Cost of merchandise sold 12,863 10,918 13,335 13,443
-------- -------- -------- --------
Gross profit 2,345 2,063 4,715 2,697
Sales and marketing expenses 560 577 624 681
Depreciation and Amortization 231 235 226 318
Acquisition and merger costs 15 553 66 292
Intangible Impairment -- -- -- --
General and administrative expenses 2,213 2,737 2,605 3,290
-------- -------- -------- --------
Total operating expenses 3,019 4,102 3,521 4,581
-------- -------- -------- --------
Income (loss) from operations (674) (2,039) 1,194 (1,884)
Interest and other expense (net) (177) (266) (384) (263)
Gain on sale of marketable securities
and investments 14 --
Income (loss) from operations of investees (59) 64 (103) (753)
-------- -------- -------- --------
Income (loss) before income taxes (876) (2,241) 707 (2,900)
Provision for (benefit from) income taxes (408) (708) 205 (750)
-------- -------- -------- --------
Net income (loss) $ (488) $ (1,533) $ 502 $ (2,150)
======== ======== ======== ========
Net income (loss) per share:
Basic $ (0.06) $ (0.18) $ 0.05 $ (0.22)
======== ======== ======== ========
Diluted $ (0.06) $ (0.18) $ 0.05 $ (0.22)
======== ======== ======== ========
16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis should be read with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements contained in
this report. (Dollars in thousands except as noted or per share information)
Effective February 18, 2000, the Company's acquisition of Spectrum
Numismatics International, Inc. ("Spectrum") was consummated. The acquisition
has been accounted for using the pooling of interests method of accounting. In
accordance with Generally Accepted Accounting Principles, the historical
financial statement information presented below include the balances from
Spectrum's financial statements as if the acquisition had been made as of July
1, 1998.
General
The Company has one segment consisting of various collectibles which are
summarized in the accompanying table.
The Company's aggregate sales are generated by the sale of property at
auction, by private treaty and by sale of the Company's inventory. The following
table displays the aggregate sales for the Company for the years ended June 30,
2001, 2000 and 1999, and shows the comparisons for the respective years
subdivided by source and collectible type:
For the Years Ended June 30,
-----------------------------------------------------------------
(In Thousands, except for percentages)
Percentages
--------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Aggregate Sales $ 96,489 $114,122 $102,288 100% 100% 100%
======== ======== ======== ======== ======== ========
By Source:
A. Auction 34,156 $ 58,459 $ 24,804 35% 51% 24%
B. Sales of Inventory 62,333 55,663 77,484 65% 49% 76%
-------- -------- -------- -------- -------- --------
By Collectible Type:
A. Philatelics 15,192 $ 14,125 $ 18,501 16% 12% 18%
B. Numismatics 58,641 60,110 74,078 61% 53% 72%
C. Mass Market Collectibles 5,313 26,925 -- 6% 24% 0%
D. Sports Collectibles 7,034 8,078 7,248 7% 8% 7%
E. Diamond 93 484 422 0% 0% 0%
F. Art 39 74 1,359 0% 0% 2%
G. Other Collectibles 10,177 4,326 680 11% 4% 1%
Aggregate sales consist of the aggregate proceeds realized from the sale
of property, which include the Company's commissions when applicable. Property
sold by the Company is either consigned to it by the owner of the property, or
is owned by the Company directly. Aggregate sales of the Company's inventory are
classified as such without regard as to whether the inventory was sold at
auction or directly to a customer. Aggregate sales by auction and by private
treaty represent the sale of property consigned by third parties. Mass market
collectibles as shown above are the sales of the Greg Manning Direct, Inc.
subsidiary.
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 following table sets forth, for the periods presented certain data
from our consolidated statements of operations as a percentage of net revenues.
The information contained in the table below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this report.
17
Percentage Increase
Fiscal Year (Decrease) in $
2001 2000 1999 2001 vs 2000 2000 vs
----------------- -----------------------------
Net Revenue 100.0% 100.0% 100.0% 8.0% -19.5%
Gross Profit 7.5 18.9 15.2 (57.3) 0.7
Operating Expenses
General and Administrative 8.0 9.7 6.2 (10.8) 25.5
Depreciation and Amortization 2.3 1.6 1.0 54.9 36.6
Intangible Impairment 3.2 -- -- N/A N/A
Other Expense 0.5 -- -- N/A N/A
Salaries and Wages 7.7 7.7 5.6 7.1 11.2
Acquisition and Merger Costs 0.3 1.5 -- (77.9) --
Marketing 2.8 3.9 2.6 (23.1) 20.1
------- ----- ----- ------- -------
Total Operating Expenses 24.8 24.4 15.4 (9.6) 27.8
------- ----- ----- ------- -------
(17.3) (5.5) (0.2) 242.1 1,961.6
Interest and other Expense net (1.7) (1.7) (1.5) 4.2 (9.2)
Loss from operations of investees (7.3) (1.4) 0.1 481.5 (993.6)
Gain on sale of marketable securites -- -- 3.3 (100.0) (99.4)
------- ----- ----- ------- -------
Loss before income taxes (26.3) (8.5) 1.7 232.6 (515.0)
------- ----- ----- ------- -------
Provision for (Benefit from) income taxes (2.1) (2.7) 0.6 (15.4) (460.0)
------- ----- ----- ------- -------
Net Loss (24.2) (5.9) 1.1 344.9 (545.8)
======= ===== ===== ======= =======
Results of Operations Years ended June 30, 2001 and 2000 (Dollars in thousands
except as noted or per share information)
Revenues: For the year ended June 30, 2001, operating revenues increased
approximately $ 5,017 (8%) to approximately $ 67,396 compared with approximately
$ 62,379 for the year ended June 30, 2000. This increase is largely attributable
to an increase in sales of owned inventory of approximately $6,670. This
increase was primarily the result of higher sales by Spectrum of approximately $
2,356, and increased sales of comics and movie posters. These increases were
partially offset by an decrease in commission revenue of approximately $ 1,653,
which was primarily the result of decreased commissions earned from Greg Manning
Direct Inc. of approximately $ 1,640.
The variation in any year in the composition of total revenues (as between
revenues resulting from inventory sales and commissions resulting from
consignment sales) is largely a function of availability, market demand and
conditions rather than any deliberate attempt by the Company to emphasize one
area over the other. Sellers/consignors of property to the Company generally
make their own determinations as to whether the property should be sold to the
Company for the specified price offered by the Company or offered for sale at
auction at a price that cannot be predicted in advance. Such determination is
based on the potential risks and rewards involved, and includes an evaluation of
the marketability of the property and the potential pool of buyers. The Company
engages in a similar analysis in determining whether to acquire inventory for
its own account and the price it is willing to pay for such inventory.
Gross profit decreased , from approximately $ 11,820 for the year ended
June 30, 2000 to approximately $5,042 for the year ended June 30, 2001. This
represents a decrease of approximately $6,778. Included in Cost of Merchandise
Sold are reserves recorded to reflect management's estimate of net realizable
value of inventories relating to price variability of approximately $2,400 and
$500 for the years ended June 30, 2001 and 2000, respectively. This reduced
gross profit also reflects management's aggressive program to lower inventory
balances which was initiated earlier this year.
Operating Expenses: The Company's aggregate operating expenses, exclusive
of cost of merchandise sold, for the year ended June 30, 2001 totaled
approximately $16,682 compared with approximately $15,223 for the year ended
June 30, 2000, representing an increase of approximately $1,459 (or 10%).
Included in the operating loss for fiscal 2001 are expenses relating to
intangible impairment of $2,158 and acquisition and merger costs of $205. The
primary changes in the operating expenses for the year ended June 30, 2001 from
the prior year were decreases in marketing costs of approximately $563 (23%) and
general and administrative expenses of approximately $ 651 (11%), which were
partly offset by increases in depreciation and amortization of approximately
$554 (55%) and salaries and wages of approximately $342 (7%). These increases in
overall costs, in combination with the revenue increases had the effect of
increasing operating costs as a percent
18
of operating revenue from 24% during the year ended June 30, 2000 to 25% in the
year ended June 30, 2001. The Company recorded expenses relating to bad debts of
$415 in fiscal 2001 and $534 during fiscal 2000. Over the past five years, the
average ratio of bad debt to aggregate sales was less than 1%.
Interest income and expense: Interest expense decreased approximately $115
(11%) to approximately $1,428 for the year ended June 30, 2001 as compared to
that of the previous year. This decrease was attributable to lower average
borrowings caused primarily by the repayment of loans. Interest income decreased
during the year ended June 30, 2001 by approximately $161 (36%). This was caused
by an overall decrease in advances to consignors.
Provision for Income Taxes: . The Company's effective tax rate (benefit)
for the year ended June 30, 2001 and 2000 were approximately (8%) and (31%),
respectively. The difference primarily relates to a valuation allowance provided
for net operating loss carryforwards. This rate may change in future periods if
operating results or acquisition related costs differ significantly from current
projections.
Net Income (Loss): The Company recorded a net loss for the year ended June
30, 2001 of approximately $16,323 compared to approximately $3,669 for the year
ended June 30, 2000 and reflected an increased loss of approximately $12,654
during this period. The decrease in operating income of approximately $8,237
during the year ended June 30, 2001, coupled with the increase in losses from
operations of investees of approximately $4,100 and a decrease in the provision
for income taxes (benefit) of approximately $257 compared to the previous year
were the main contributors to the change in earnings.
Of the aforementioned loss from operations of investees, approximately
$3,186 relates directly to advances made by GMAI-Asia, to its unconsolidated
affiliates, China Everbright Telecommunication Products, Ltd. ("Products") and
iAtoZ.Com, Limited ("iAtoZ"). These advances were written off in Fiscal 2001;
the effect of this write-off on GMAI's fiscal 2001 results was approximately
$2,086. The effect on the Company relating to GMAI-Asia's amortization of
goodwill expense was approximately $1,200.
Results of Operations Years Ended June 30, 2000 and 1999 (Dollars in thousands
except as noted or per share information)
Revenues: For the year ended June 30, 2000, operating revenues decreased
approximately $ 15,105 (19%) to approximately $ 62,379 compared with
approximately $ 77,484 for the year ended June 30, 1999. This decrease is
largely attributable to a decrease in sales of owned inventory of approximately
$ 16,888. This decrease was primarily the result of lower sales by Spectrum of
approximately $ 20,419, and the deferral of an Ivy & Mader auction, ordinarily
held during the fourth quarter, which was deferred until July, 2000 so that it
could be held during the World Stamp Expo 2000, which was sponsored by the
United States Postal Service, for which Ivy & Mader was appointed the official
exclusive auctioneer. These decreases were partially offset by an increase in
commission revenue of approximately $ 1,783, which was primarily the result of
commissions earned from Greg Manning Direct Inc. of approximately $ 2,027.
The Company believes the reduced Spectrum sales resulted primarily from
non-recurring Y2K influenced sales of generic gold coins and bullion during the
year ended June 30, 1999. At that time, Spectrum experienced these types of
sales in significantly greater than historical amounts due, the Company
believes, to fears over Y2K and Spectrum's customers building their inventories
of gold to meet perceived market demands for hard currency. Additionally,
Spectrum's sales during the current year were negatively affected by Spectrum's
customers' reduced cash availability resulting from their inventories of unsold
or repurchased generic gold coins and bullion.
The variation in any year in the composition of total revenues (as between
revenues resulting from inventory sales and commissions resulting from
consignment sales) is largely a function of availability, market demand and
conditions rather than any deliberate attempt by the Company to emphasize one
area over the other. Sellers/consignors of property to the Company generally
make their own determinations as to whether the property should be sold to the
Company for the specified price offered by the Company or offered for sale at
auction at a price that cannot be predicted in advance. Such determination is
based on the potential risks and rewards involved, and includes an evaluation of
the marketability of the property and the potential pool of buyers. The Company
engages in a similar analysis in determining whether to acquire inventory for
its own account and the price it is willing to pay for such inventory.
Gross profit increased by 1%, from approximately $ 11,743 for the year
ended June 30, 1999 to approximately $11,820 for the year ended June 30, 2000.
This represents an increase of approximately $77.
19
Operating Expenses: The Company's aggregate operating expenses, exclusive
of cost of merchandise sold, for the year ended June 30, 2000 totaled
approximately $15,223 compared with approximately $11,908 for the year ended
June 30, 1999, representing an increase of approximately $3,315 (or 28%). Of
this increase, approximately $1,578 (48%) was attributable to the inclusion of a
full year of operating expenses by Teletrade, of which only eight months were
included last year. The primary changes in the operating expenses for the year
ended June 30, 2000 from the prior year were increases in marketing costs of
approximately $409 (20%), depreciation and amortization of approximately $270
(37%) and salaries and wages of approximately $486 (11%). Also included are
approximately $926 in acquisition costs, approximately $534 in non-cash Bad Debt
expense, approximately $280 in non-cash inventory reserves, approximately $227
in other non-recurring costs and approximately $655 in costs incurred to build
the infrastructure of the Company. These increases in overall costs, in
combination with the revenue decreases had the effect of increasing operating
costs as a percent of operating revenue from 15% during the year ended June 30,
1999 to 24% in the year ended June 30, 2000.
The Company recorded expenses relating to bad debts of $534 at the end of
fiscal 2000, compared to $86 in fiscal 1999. While the fiscal 2000 amount
represents a significant increase over the prior year, it is consistent with
prior years as a percentage of aggregate sales. The fiscal 2000 bad debt charge
represents .5% of aggregate sales . Over the past five years, the average ratio
of bad debt to aggregate sales was less than 1%.
Interest income and expense: Interest expense decreased approximately $101
(6%) to approximately $1,543 for the year ended June 30, 2000 as compared to
that of the previous year. This decrease was attributable to lower average
borrowings caused primarily by the repayment of loans outstanding with the
proceeds of the sale of common stock during the third quarter of fiscal 2000.
Interest income increased during the year ended June 30, 2000 by approximately
$5 (1%). This was caused by an overall increase in advances to consignors.
Provision for Income Taxes. The Company's effective tax rate (benefit)
for the year ended June 30, 2000 and 1999 were approximately (31%) and 44%,
respectively. The difference primarily relates to a valuation allowance provided
for net operating loss carryforwards. This rate may change in future periods if
operating results or acquisition related costs differ significantly from current
projections.
Net Income (Loss): The Company recorded a net loss for the year ended June
30, 2000 of approximately $3,669 compared to net income of approximately $ 823
for the year ended June 30, 1999, reflecting a decrease of approximately $4,492
during this period. The decrease in operating income of approximately $3,238
during the year ended June 30, 2000, coupled with a decrease in the gain on sale
of marketable securities and investments of approximately $2,540, and the
increase in losses from operations of investees of approximately $851 and a
decrease in the provision for income taxes of approximately $2,122 compared to
the previous year were the main contributors to the change in earnings.
European Monetary Union
The European Monetary Unit (the "euro") was introduced on January 1, 1999
as a wholesale currency. The eleven participating European Monetary Union member
countries established fixed conversion rates between their existing currencies
and the euro. The existing currencies will continue to be used as legal tender
through January 1, 2002; thereafter, on July 1, 2002, the existing currencies
will be cancelled and euro bills and coins will be used for cash transactions in
the participating countries.
The Company believes that its European financial and cash management
operations affected by the euro conversion have adequately been prepared for its
introduction. For the transition period and the period after January 1, 2002,
the Company has established an internal group of management to analyze the
potential business implications of converting to a common currency. The Company
is able to determine the ultimate financial impact, if any, of the euro
conversion on its operations, given that the impact will be dependent upon the
competitive situations that exist in the various regional markets in which the
Company participates.
Liquidity and Capital Resources
The Company experienced a positive cash flow from operating activities of
approximately $620 for the year ended June 30, 2001 as compared to a negative
cash flow of approximately $7,639 for fiscal 2000, an increase of approximately
$8,259. This increase in cash flow for the year ended June 30, 2001 was
primarily attributable to a decrease in inventory of approximately $6,248 and a
decrease in advances it consignors of approximately $2,000 and a decrease in
accounts payable to third party consignors of approximately $1,243.
20
The Company experienced a negative cash flow from operating activities of
approximately $7,639 for the year ended June 30, 2000 as compared to a negative
cash flow of approximately $5,514 for fiscal 1999, a decrease of approximately
$2,125. This decrease in cash flow for the year ended June 30, 2000 was
primarily attributable to a decrease in net income of approximately $4,492, an
increase in inventory and deferred tax benefit of approximately $1,567 and a
decrease in accounts payable and other assets of approximately $3,643 which was
partly offset by increases in accounts payable to third party consignors,
accrued expenses, bad debt reserves and depreciation and amortization of
approximately $3,474.
The Company had a negative cash flow from investing activities of
approximately $720 for the year ended June 30, 2001 as compared to a negative
cash flow of approximately $2,743 for the previous year, an increase of
approximately $2,023. The negative cash flow for the year ended June 30, 2001
was primarily attributable to additional purchases of property and equipment.
The Company had a negative cash flow from investing activities of
approximately $2,743 for the year ended June 30, 2000 as compared to a negative
cash flow of approximately $1,316 for the previous year, a decrease of
approximately $1,262. The negative cash flow for the year ended June 30, 2000
was primarily attributable additional cash investment in GMAI-Asia.com.
The Company had positive cash flow from financing activities of
approximately $1,166 for the year ended June 30, 2001 as compared to $10,663 for
the previous year, a decrease of approximately $9,497. This decrease was
primarily caused by a decrease in proceeds from stock subscriptions receivable
of approximately $3,000 and proceeds from the sale of common stock of
approximately $13,868 which was partly offset by decreases in repayment of
demand and loans payable of approximately $7,318.
The Company had positive cash flows from financing activities of
approximately $10,663 for the year ended June 30, 2000 as compared to $6,314 for
the previous year, an increase of approximately $4,349. This increase was
primarily caused by an increase in proceeds from stock subscriptions receivable
of approximately $3,000 and an increase in proceeds from the sale of common
stock of approximately $12,669 which was partly offset by an increase in
repayment of demand and notes payable of approximately $5,361.
During the year ended June 30, 2000, the Company paid off two term loans
aggregating $1,587 from Brown Brothers Harriman & Co. ("Brown Brothers"). During
this same period, the Company decreased its borrowings under its revolving
credit facility by $ 2,102. The Company also paid off $650 to the Bank of
America under its revolving credit facility and $2,000 to a former shareholder
of Spectrum. In addition, the Company paid $750 to former shareholders of
Teletrade as part of the purchase of Teletrade and approximately $1,333 for the
purchase of treasury stock. These amounts were offset by the exercise of
employee stock options, receipt of proceeds from stock subscriptions receivable
and the sale of the Company's Common Stock totaling approximately $19,000. This
provided for a net increase in cash provided by financing activities of
approximately $10,663.
The credit agreement with Brown Brothers was entered into in May 1995, and
was amended in February 1998 and June 1999. Borrowings under this facility are
based on a formula of account receivables, inventory and consignor advances.
This credit facility is used to fund cash advances and inventory purchases as
well as to provide additional liquidity using the Company's auction receivables
and other assets as collateral. At June 30, 2001 and 2000, borrowings under this
facility aggregated $2,400 and $1,600, respectively, and are payable on demand.
The Company is seeking alternate financing sources and plans to repay these
facilities by October 31, 2001. As of September 25, 2001, the balance owed to
Brown Brothers was $600.
As of June 30, 2001 the Company was not in compliance with guidelines in
the loan agreement relating to the formula of earnings before interest,
depreciation and taxes to interest expense and increase in tangible net worth
(as defined in the agreement). As a result, Brown Brothers has the right under
the credit agreement to demand immediate repayment of all amounts outstanding
without the otherwise applicable 120 day notice period. As of September 25,
2001, Brown Brothers had not demanded such repayment.
At June 30, 2001, Spectrum was a party to a secured revolving credit
facility with Bank of America, and provides for a credit facility for working
capital purposes in an aggregate amount of $10,000 subject to adjustments as
defined in the agreement. Borrowings under this facility are based on a formula
of account receivables and inventory and consignor advances. This credit
facility is used to fund cash advances and inventory purchases as well as to
provide additional liquidity using the Company's receivables and other assets as
collateral. At June 30, 2001, borrowings under this facility aggregated $5,200
and are payable on demand. Greg Manning, Chairman of the Board of Directors,
President and Chief Executive Officer of the Company, has personally guaranteed
this line of credit. Spectrum is seeking alternate financing sources and plans
to repay these facilities by October 31, 2001. As of September 25, 2001, the
balance owed to Bank of America was $1,275.
21
Subsequent to June 30, 2001, the Company obtained a secured loan from a
privately held capital fund for a $1,600, which is due July 31, 2002. This loan
is collateralized by certain inventories and bears interest at a rate of 10% per
annum. The Company will continue to seek new sources of financing.
A buyer of auctioned property may be permitted to take possession of the
property before payment is made. Most accounts receivable are collected within
30 to 60 days, which is consistent with business practice in the collectible
markets. For the years ended June 30, 2001 and 2000, the Company's expense
relating to bad debt was approximately $0 and $534 respectively. For the years
ended June 30, 2001 and 2000 the Company's history of bad debts has been 0% and
.47% respectively, of aggregate sales.
Because of the nature of the auction business of the Company, there is a
relationship between accounts receivable, advances to consignors, and payable to
consignors. Depending upon the relationship of the balance sheet date to a given
auction sale date and a settlement date for a given auction, these balances
could change substantially from one balance sheet date to another.
In the cycle of any single auction, the effect on the balance sheet and on
the Company's cash flows is significant when compared to the total assets of the
Company.
The cycle for a single auction begins with consignors contracting with the
Company to sell their property at auction. Typically these contracts are signed
from 8 to 16 weeks in advance of the auction sale date. No entry is made on the
balance sheet of the Company when the Company receives the property for auction
or when a contract for the consignment to the auction is signed. Since the
contract for the sale of the property is for services not yet rendered, there is
no financial statement impact.
At the time of the consignment, or any time thereafter until the auction
sale date, the consignor may request a cash advance which is a prepaid portion
of the prices to be realized of the property irrevocably committed to be sold in
the auction. The cash advance takes the form of a self-liquidating, secured loan
to the consignor, using the property consigned as collateral. Cash advances to
consignors are often used as a marketing tool in order to obtain property for a
sale. When the cash advance is made, there is an increase of the accounts of the
Company in cash advances to consignors, and simultaneously, there is a
corresponding decrease in cash.
Approximately 6 weeks after the auction date, often referred to as the
settlement date, the payables to consignors decrease to zero as all the
consignors are paid and the Company withholds a portion of the amounts due the
consignor for the sale of the property as an offset to repay the principal
amount and the accrued interest on, the cash advances to consignors (or loans to
consignors), and there is a decrease in cash, corresponding to the net amount
paid to the consignors.
The entire cycle for a single auction typically is about 14 to 22 weeks in
duration. Because of the high level of activity in the Company, single auction
cycles do not occur in series, with the next cycle beginning immediately after
the previous cycle ends. Rather, single auction cycles occur in parallel. For
example, when a certain cycle ends, a second cycle may be at the midpoint, while
yet a third cycle is just beginning. Depending upon the relative values of the
property consigned to each sale in the three cycles in this example, and
depending upon the demand for auction advances in each of the cycles, the
cumulative effect on the balance sheet, and particularly the current assets and
current liabilities and the Company's cash flows, is very significant.
The Company has developed both a customer and supplier base of major
stamp, numismatic, sports and other collectibles dealers and collectors
throughout the world that services the Company's operations. Although intense
competition exists for the acquisition of quality properties for purchase or
consignment from estates and private collectors, the Company believes that the
short-term and long-term availability of these items will continue to be
sufficient to augment the core dealer-based business. While there can be no
assurance that prices of and demand for the collectibles offered by the Company
will not decrease in the future, demand has traditionally not been adversely
affected by negative economic conditions.
However, the Company's need for liquidity and working capital may increase
as a result of its potential business expansion activities. In addition to the
need for such capital to enhance the Company's ability to offer cash advances to
a larger number of potential consignors of property (which is an important
aspect of the marketing of an auction business), the Company will require
additional working capital in the future in order to further expand its sports
trading card and sports memorabilia auction business, to acquire collectibles
for sale in the Company's business, to expand into sales of other collectibles
and to initiate any other new business activities.
22
Management believes that the Company's cash flow from ongoing operations
supplemented by the Company's working capital credit facilities will be adequate
to fund the company's working capital requirements for the next 12 months.
However, to complete any of the Company's proposed expansion activities or to
make any significant acquisitions, the Company will consider exploring financing
alternatives including increasing its working capital credit facilities or
raising additional debt or equity capital. The raising of additional equity
capital will cause dilution to existing shareholders.
Inflation
The effect of inflation on the Company has not been significant during the
last three fiscal years.
Safe Harbor Statement
From time to time, information provided by the Company, including but not
limited to statements in this report, or other statements made by or on behalf
of the Company, may contain "forward-looking" information within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. The cautionary statements set forth
below identify important factors that could cause actual results to differ
materially from those in any forward-looking statements made by or on behalf of
the Company:
o The Company incurred a net loss of $16,323 for the fiscal year ended
June 30, 2001. The Company is seeking to reduce operating expenses,
optimize profitability and align resources with long-term business
growth strategies, as well as to explore new sources of collectibles
in an effort to increase margins and revenues from commissions.
There can be no assurance, however, that these steps (or any others)
will result in a significant improvement in the Company's financial
condition, on either a short or long-term basis particularly in
light of generally unfavorable economic conditions and changes in
the collectibles marketplace.
o The Company is currently seeking new sources of financing to replace
its current credit facilities, which will expire shortly. While the
Company believes it will be able to obtain such new financing, if it
fails to do so on a timely basis and upon satisfactory terms, the
Company's operations and cash flow could be materially and adversely
affected.
o If the revenue of the Company fails to offset operating expenses in
the future, the Company may be required to fund future operations
through the sale of additional common stock, which could cause the
market price of the stock to decline, as well as have a dilutive
effect on the value of the common stock currently outstanding.
o At times there may be a limited supply of collectibles available for
sale by the Company, and such supply varies from time to time. While
the Company generally has not experienced a lack of collectibles
that has prevented it from conducting appropriately sized auctions
on an acceptable schedule, no assurance can be given that the
Company will be able to obtain consignments of suitable quantities
of collectibles in order to conduct auctions of the size, and at the
times, the Company may desire in the future. The Company's inability
to do so would have a material adverse effect on the Company.
o The development and success of the Company's business has been and
will continue to be dependent substantially upon its President,
Chairman and Chief Executive Officer, Greg Manning. The
unavailability of Mr. Manning, for any reason, would have a material
adverse effect upon the business, operations and prospects of the
Company if a suitable replacement is not engaged.
o The Company frequently grants credit to certain purchasers at its
auctions permitting them to take immediate possession of auctioned
property on an open account basis, within established credit limits,
and to make payment in the future, generally within 30 days. This
practice facilitates the orderly conduct and settlement of auction
transactions, and enhances participation at the Company's auctions.
In such events, however, the Company is liable to the seller who
consigned the property to the Company for the net sale proceeds even
if the buyer defaults on payment to the Company. While this practice
has not resulted in any material loss to the Company, the dollar
volume of the Company's potential exposure from this practice could
be substantial at any particular point in time.
23
o The business of selling stamps, coins, and other collectibles at
auction and in retail sales is highly competitive. The Company
competes with a number of auction houses and collectibles companies
throughout the United States and the world. While the Company
believes that there is no dominant company in the stamp auction or
collectibles business in which it operates, there can be no
assurances that other companies with greater financial and other
resources and name recognition will not enter the market.
o The Company may be adversely affected by the costs and other effects
associated with (i) legal and administrative cases and proceedings;
(ii) settlements, investigations, claims and changes in those items;
and (iii) adoption of new, or changes in, accounting policies and
practices and the application of such policies and practices.
o The Company intends to consider appropriate acquisition candidates
as described in "Future Planned Expansion" herein. There can be no
assurance that the Company will find or consummate transactions with
suitable acquisition candidates in the future.
o The Company's operations may be adversely affected by governmental
regulation and taxation of the Internet, which is subject to change.
A number of legislative and regulatory proposals under consideration
by federal, state, local and foreign governmental organizations may
result in there being enacted laws concerning various aspects of the
Internet, including online content, user privacy, access charges,
liability for third-party activities, and jurisdictional issues.
These laws could harm our business by increasing the Company's cost
of doing business or discouraging use of the Internet.
o The Company's business will be adversely affected if use of the
Internet by consumers, particularly purchasers of collectibles, does
not continue to grow. A number of factors may inhibit consumers from
using the Internet. These include inadequate network infrastructure,
security concerns, inconsistent quality of service and a lack of
cost-effective high-speed service. Even if Internet use grows, the
Internet's infrastructure may not be able to support the demands
placed on it by this growth and its performance and reliability may
decline. In addition, many Web sites have experienced service
interruptions as a result of outages and other delays occurring
throughout the Internet infrastructure. If these outages or delays
occur frequently in the future, use of the Internet, as well as use
of the Company's Web sites, could grow more slowly or decline.
o A number of legislative and regulatory proposals under consideration
by federal, state, local and foreign governmental organizations may
result in there being enacted laws concerning various aspects of the
Internet, including online content, user privacy, access charges,
liability for third-party activities, and jurisdictional issues.
These laws could harm the Company's business by increasing its cost
of doing business or discouraging use of the Internet.
In addition, the tax treatment of the Internet and electronic
commerce is currently unsettled. A number of proposals have been
made that could result in Internet activities, including the sale of
goods and services, being taxed. The U.S. Congress has passed the
Internet Tax Information Act, which placed a three-year moratorium
on new state and local taxes on Internet commerce and is currently
considering extending such moratorium. There may, however, be
enacted in the future laws that change the federal, state or local
tax treatment of the Internet in a way that is detrimental to our
business.
Some local telephone carriers claim that the increasing popularity
of the Internet has burdened the existing telecommunications
infrastructure and that many areas with high Internet use are
experiencing interruptions in telephone service. These carriers have
petitioned the Federal Communications Commission to impose access
fees on Internet service providers. If these access fees are
imposed, the cost of communicating on the Internet could increase,
and this could decrease the demand for the Company's services and
increase its cost of doing business.
o The Company holds rights to various Web domain names. Governmental
agencies typically regulate domain names. These regulations are
subject to change. The Company may not be able to acquire or
maintain appropriate domain names in all countries in which it or
its affiliates do business. Furthermore, regulations governing
domain names may not protect the Company's trademarks and similar
proprietary rights. The Company may be unable to prevent third
parties from acquiring domain names that are similar to, infringe
upon or diminish the value of the Company's trademarks and other
proprietary rights.
24
o The Company cannot accurately forecast revenues of its business. The
Company may experience significant fluctuations in its quarterly
operating results. Future fluctuations in operating results or
revenue shortfalls could adversely affect the success of the
Company.
o The popularity of collectibles could decline. This could affect the
market value of inventory the Company currently holds or may hold in
the future.
o The Company's future results of operations could be adversely
affected by changes in accouanting standards promulgated by the
Financial Accounting Standards Board, the Securities and Exchange
Commission, and the American Institute of Certified Public
Accountants.
This list should not be considered an exhaustive statement of all potential
risks and uncertainties.
25
Item 8. FINANCIAL STATEMENTS and SUPPLEMENTARY DATA
The Financial Statements of the Company, together with the report of
independent accountants thereon, are presented under this Item 8:
INDEX
Page
Number
Report of Independent Accountants .......................................... 28
Report of Management ....................................................... 29
Consolidated Balance Sheets - June 30, 2001 and 2000 ....................... 30
Consolidated Statements Of Operations - Years ended
June 30, 2001, 2000 And 1999 ............................................... 31
Consolidated Statement of Stockholders' Equity--Years ended
June 30, 2001, 2000 and 1999 ............................................... 32
Consolidated Statements of Cash Flows - Years ended
June 30, 2001, 2000 And 1999 ............................................... 35
Consolidated Statements of Comprehensive Income--Years ended
June 30, 2001, 2000 and 1999 ............................................... 36
Notes to Consolidated Financial Statements ................................. 37
26
Report of Independent Accountants
To the Board of Directors and
Stockholders of Greg Manning Auctions, Inc.
We have audited the accompanying consolidated balance sheets of Greg Manning
Auctions, Inc. and Subsidiaries as of June 30, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, cash flows and
comprehensive income for each of the three years in the period ended June 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the Untied States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Greg Manning
Auctions, Inc. and its Subsidiaries as of June 30, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Amper, Politziner & Mattia P.A.
-----------------------------------
September 14, 2001
Edison, New Jersey
27
Greg Manning Auctions, Inc.
775 Passaic Avenue
West Caldwell, New Jersey 07006
September 14, 2001
REPORT OF MANAGEMENT
The Company's consolidated financial statements were prepared by management,
which is responsible for their integrity and objectivity. The financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and, as such, include amounts based on
management's best estimates and judgements.
Management is further responsible for maintaining a system of internal control
structure and related policies and procedures designed to provide reasonable
assurance that assets are adequately safeguarded and that the accounting records
reflect transactions executed in accordance with management's authorization.
The Company's financial statements have been audited by independent public
accountants who have expressed their opinion with respect to the fairness of
these statements.
The Audit Committee of the Board of Directors, composed of non-employee
directors, meets periodically with the independent public accountants to
evaluate the effectiveness of the work performed by them in discharging their
responsibilities and to assure their independent and free access to the
Committee.
/s/ GREG MANNING /s/ LARRY CRAWFORD
----------------------- -----------------------
Greg Manning Larry Crawford
Chairman, President and Chief Financial Officer
Chief Executive Officer
28
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheets
June 30,
(In Thousands except Per Share Amounts)
2001 2000
-------- --------
Assets
Current Assets
Cash and Cash Equivalents $ 2,158 1,092
Accounts Receivable, net
Auctions Receivable 7,480 6,748
Auctions Receivable - Related Party -- 614
Advances to Consignors 853 2,852
Other 700 16
Inventory 12,866 20,601
Deferred Tax Asset 1,590 824
Prepaid Expenses 324 518
-------- --------
Total Current Assets 25,971 33,265
Property and Equipment, Net 1,422 928
Goodwill, Net 5,122 6,601
Other Purchased Intangibles, Net 3,022 3,022
Marketable Securities 147 231
Investment in Equity Method Investees -- 5,937
Other Non-Current Assets
Deferred Tax Asset 2,554 1,920
Inventory 1,700 2,400
Advances to Consignors 358 753
Other 156 386
-------- --------
Total Assets 40,452 55,443
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Demand Notes Payable 8,040 7,950
Notes Payable 75 182
Payable to Third Party Consignors 2,711 1,468
Accounts Payable 4,135 3,493
Advance from Related Party 90 2,422
Accrued Expenses 1,834 1,850
-------- --------
Total Current Liabilities 16,885 17,365
Notes Payable - Long Term 168 111
-------- --------
Total Liabilities 17,053 17,476
Stockholders' Equity
Preferred Stock, $.01 par value. Authorized
10,000 shares; none issued
Common Stock, $.01 par value
Authorized: 40,000 shares
Issued June 30, 2001 - 11,987 shares
Issued June 30, 2000 - 10,025 shares 120 100
Additional paid in capital 44,252 41,251
Accumulated other comprehensive income:
Unrealized loss on marketable securities,
net of tax (143) (92)
Accumulated Deficit (18,282) (1,959)
Treasury stock, at cost
368 shares at June 30, 2001
100 shares at June 30, 2000 (2,548) (1,333)
-------- --------
Total Stockholders' Equity 23,399 37,967
-------- --------
Total Liabilities and Stockholders' Equity $ 40,452 $ 55,443
======== ========
See accompanying notes to consolidated financial statements.
29
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations
For the Years Ended June 30,
(In Thousands, Except Per Share Amounts)
2001 2000 1999
-------- -------- --------
Operating Revenues
Sales of merchandise
$ 62,333 $ 55,663 $ 72,551
Commissions earned 5,063 6,716 4,933
-------- -------- --------
Total Revenues 67,396 62,379 77,484
Cost of merchandise sold 62,354 50,559 65,741
-------- -------- --------
Gross profit 5,042 11,820 11,743
Operating Expenses
General and Administrative 5,373 6,024 4,801
Salaries and Wages 5,163 4,821 4,335
Depreciation and Amortization 1,564 1,010 739
Intangible Impairment 2,158 -- --
Marketing 1,879 2,442 2,033
Other Expense 340 -- --
Acquisition and Merger Costs 205 926 --
-------- -------- --------
Total Operating Expenses 16,682 15,223 11,908
-------- -------- --------
Operating Loss (11,640) (3,403) (165)
Other Income (expense)
Gain on sale of marketable
securities and investments -- 14 2,555
Interest Income 292 453 448
Interest Expense (1,428) (1,543) (1,644)
Minority Interest -- -- (5)
Income (Loss) from operations of investees (4,951) (851) 95
-------- -------- --------
Income (Loss) before income taxes (17,727) (5,330) 1,284
Provision for (Benefit from) income taxes (1,404) (1,661) 461
-------- -------- --------
Net Income (Loss) $(16,323) $ (3,669) $ 823
======== ======== ========
Basic Earnings (Loss) per Share:
Weighted average shares outstanding 10,299 9,710 7,355
======== ======== ========
Basic Earnings (Loss) per Share $ (1.58) $ (0.38) $ 0.11
======== ======== ========
Diluted Earnings (Loss) per Share:
Weighted average shares outstanding 10,299 9,710 7,799
======== ======== ========
Diluted Earnings (Loss) per Share $ (1.58) $ (0.38) $ 0.11
======== ======== ========
See accompanying notes to consolidated financial statements
30
Greg Manning Auctions, Inc.
Consolidated Statement of Stockholders' Equity
July 1, 1998 to June 30, 2001
(In Thousands)
Unrealized
Gain
Common Stock Additional (loss) on Total
-------------------- Paid-In Marketable Retained Treasury Stockholders'
Shares $ Capital Securities Earnings Stock Equity
------- ------- ---------- --------- -------- -------- -------------
Balance June 30, 1998 6,174 62 7,330 19 1,275 -- 8,686
Options Exercised 535 5 887 892
Income Tax Benefit from
Exercise of stock options 1,374 1,374
Options issued relating to loan 200 200
Options issued relating to
acquisition of subsidiary 75 75
Options issued relating to
Professional services 150 150
Unrealized loss from marketable
securities, net of tax (19) (19)
Common shares sold for cash 1,076 11 6,489 6,500
Common shares issued relating
to acquisition of subsidiary 750 7 1,868 1,875
Shareholder Distributions-Spectrum (229) (229)
Net income - June 30, 1999 823 823
------- ------- ------- ------- ------- -------- -------
Balance June 30, 1999 8,535 $ 85 $18,373 $ -- $ 1,869 $ -- $20,327
31
Unrealized
Gain
Common Stock Additional (loss) on Total
-------------------- Paid-In Marketable Retained Treasury Stockholders'
Shares $ Capital Securities Earnings Stock Equity
-------- ------- ---------- ---------- -------- -------- -------------
Balance June 30, 1999 8,535 85 18,373 - 1,869 - 20,327
Options Exercised
123 1 226 227
Income Tax Benefit from exercise of
stock options 284 284
Common shares sold for cash 1,036 10 16,989 16,999
Expenses relating to sale of common stock (793) (793)
Common shares issued relating to
acquisition of subsidiary 168 2 3,612 3,614
Common shares issued relating to
acquisition of GMD 163 2 2,276 2,278
Common Shares repurchased as
Treasury Shares (1,333) (1,333)
Shareholder Distributions-Spectrum (159) (159)
Options issued relating to common
shares sold for cash 245 245
Unrealized loss from marketable
securities, net of tax (92) (92)
Spectrum shareholder purchase of
additional shares for cash 39 39
Net loss - June 30, 2000 (3,669) (3,669)
-------- ------- -------- --------- --------- -------- ---------
Balance June 30, 2000 10,025 $ 100 $ 41,251 $ (92) $ (1,959) $(1,333) $ 37,967
32
Unrealized
Gain
Common Stock Additional (loss) on Total
-------------------- Paid-In Marketable Retained Treasury Stockholders'
Shares $ Capital Securities Earnings Stock Equity
-------- ------- -------- ---------- --------- -------- -------------
Balance June 30, 1999 10,025 100 41,251 (92) (1,959) (1,333) 37,967
Options Exercised 25 - 40 40
Income Tax Benefit from exercise of
stock options, net of valuation allowance 58 58
Common shares issued relating to
acquisition of GMD, net of expenses 159 2 530 532
Common shares sold for cash 1,150 12 2,289 2,301
Common shares issued to private
placement investors 628 6 (6) -
Options issued relating to
professional services 90 90
Unrealized loss from marketable securities,
net of tax (51) (51)
Common shares repurchased as
Treasury Shares (1,215) (1,215)
Net loss - June 30, 2001 (16,323) (16,323)
-------- ------- -------- --------- --------- -------- ---------
Balance June 30, 2001 11,987 $ 120 $ 44,252 $ (143) $ (18,282) $(2,548) $ 23,399
See accompanying notes to consolidated financial statements
33
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
For the Years Ended June 30,
(In Thousands)
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net Income (Loss) $(16,323) $ (3,669) $ 823
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 1,564 1,361 801
Intangible impairment 2,158
Provision for bad debts (recovery) and
consignor advance 415 524 (92)
Provision for inventory reserve 2,388 290 --
Gain on sale of marketable securities and investments -- (14) (2,555)
Equity in loss (income) of equity method investees 4,951 851 (95)
Deferred tax (benefit) expense (1,346) (952) 1,096
Income tax benefit relating to exercise of stock options (58) (284) (1,374)
(Increase) decrease in assets:
Auctions receivable (286) 2,061 1,883
Advances to consignors 2,000 131 (814)
Inventory 6,248 (6,104) (5,495)
Prepaid expenses and deposits 202 (104) (101)
Other assets (502) (39) 2,046
Increase (decrease) in liabilities:
Payable to third-party consignors 1,243 (2,416) (3,136)
Accounts payable 119 (1,656) (98)
Accrued expenses and other liabilities 179 (41) 803
Advance from Related Party (2,332) 2,422 --
Income taxes payable -- -- 794
-------- -------- --------
620 (7,639) (5,514)
Cash flows from investing activities
Capital expenditures for property and equipment (928) (650) (280)
Additional goodwill and acquisition (332) (97) (66)
Purchase of customer list -- -- (100)
Acquisition of subsidiary -- -- (3,270)
Proceeds from sale of interest in equity method investee 500 -- --
Investment in equity method investee 40 (2,060) (271)
Purchase of marketable securities -- -- (100)
Distribution from investees -- 41 --
Proceeds from sale of marketable securities and investments -- 23 2,660
-------- -------- --------
(720) (2,743) (1,427)
Cash flows from financing activities:
Net proceeds from (repayment of) demand notes payable 90 (2,752) (501)
Net proceeds from (repayment of) loans and loans payable (50) (4,526) 2,418
Repayment of notes receivable -- -- 234
Proceeds from exercise of options 40 227 892
Proceeds from sale of common stock (net of expenses) 2,301 16,169 3,500
Dividend to Spectrum partners -- (160) (229)
Investment by Spectrum partner -- 38 --
Payment for Treasury Stock (1,215) (1,333) --
Proceeds from Stock Subscriptions Receivable -- 3,000 --
-------- -------- --------
1,166 10,663 6,314
Net change in cash and cash equivalents 1,066 281 (627)
Cash and cash equivalents:
Beginning of period 1,092 811 1,438
-------- -------- --------
End of period $ 2,158 $ 1,092 $ 811
======== ======== ========
See accompanying notes to consolidated financial statements
34
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Comprehensive Income
For the Years Ended June 30,
(In Thousands)
2001 2000 1999
-------- -------- -------
Net Income (Loss) $(16,323) $ (3,669) $ 823
Other Comprehensive Income (Loss)
Unrealized gain (loss) from marketable securities,
net of tax (77) (92) 1,195
Less: reclassification adjustment for gains included
in net income, net of tax - - (1,214)
-------- -------- -------
Comprehensive Income (Loss) $(16,400) $ (3,761) $ 804
======== ======== =======
See accompanying notes to consolidated financial statements
35
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(1) Nature of Business and Summary of Significant Accounting Policies
Greg Manning Auctions, Inc. together with its wholly-owned
subsidiaries, Ivy and Mader Philatelic Auctions, Inc., Greg Manning
Galleries, Inc., Teletrade Inc., Spectrum Numismatics International, Inc.,
Kensington Associates L.L.C. and Greg Manning Direct, Inc. (the "Company") is
an eCommerce and collectibles company as well as a public auctioneer of
collectibles, including rare stamps, stamp collections and stocks, sports
trading cards and memorabilia, movie posters, fine art, coins, diamonds and
jewelry, comic books, and Hollywood and Rock and Roll memorabilia. The
Company conducts both in-person event auctions and electronic auctions via
the Internet and touch-tone telephone.
Liquidity
During the year ended June 30, 2001, the Company incurred a net loss
of $16,323 and as of June 30, 2001, the Company's has an accumulated deficit of
$18,282. Included in the current year net loss are the special charges in the
aggregate of $5,158, which Company has incurred pursuant to its action plan
(Note 18). In addition, as part of the overall plans to alleviate liquidity
concerns, the Company is currently seeking new bank debt and is considering
raising additional capital through the issuance of securities. Additionally, the
Company entered into a stock purchase agreement for an aggregate amount of
$2,000, of which $1,400 was received subsequent to June 30, 2001 (See Note 14).
Subsequent to June 30, 2001, the Company obtained a secured loan
from a privately held capital fund for a $1,600, which is due July 31, 2002.
This loan is collateralized by certain inventories and bears interest at a rate
of 10% per annum.
Management believes that the Company will have the liquidity
necessary to implement its plan and support its operations.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. Investments in equity-method
investees are accounted for under the equity method of accounting since the
Company can exercise significant influence, but less than majority owned and not
otherwise controlled by the Company.
Revenue Recognition
Revenue is recognized when the collectibles are sold at auction and
is represented by an auction commission received from the buyer and seller.
Auction commissions represent a percentage of the hammer price at auction sales
as paid by the buyer and the seller.
In addition to auction sales, the Company also sells via private
treaty. This occurs when an owner of property arranges with the Company to sell
such property to a third party at a privately negotiated price. In such a
transaction, the owner may set selling price parameters for the Company, or the
Company may solicit selling prices for the owner, and the owner may reserve the
right to reject any selling price. The Company does not guarantee a fixed price
to the owner, which would be payable regardless of the actual sales price
ultimately received. The Company recognizes as private treaty revenue an amount
equal to a percentage of the sales price.
The Company also sells its own inventory at auction, wholesale and
retail. Revenue with respect to inventory sold at auction is recognized when
sold at auction, and for wholesale or retail sales, revenues are recognized when
delivered or released to the customer for acceptance or to a common carrier for
delivery. Sales returns have not been material.
The Company does not provide any guarantee with respect to the
authenticity of property offered for sale at auction. Each lot is sold as
genuine and as described by the Company in the catalogue. When however, in the
opinion of a competent authority mutually acceptable to the Company and the
purchaser, a lot is declared otherwise, the purchase price will be refunded in
full if the lot is returned to the Company within a specified period. In such
event, the Company will return such lot to the consignor before a settlement
payment has been made to such consignor for the lot in question. To date,
returns have not been material. Large collections are generally sold on an "as
is" basis.
36
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
The Company accounts for revenue recognition in
accordance with Staff Accounting Bulletin No. 101, ("SAB 101"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements, and Emerging Issues Task Force Issue No. 99-19 ("EITF 99-19")
"Reporting Revenue Gross as a Principal vs. Net as an Agent" which provides
guidance on the recognition of revenue gross as a principal versus net as an
agent.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company frequently extends trade credit in connection with its
auction sales, which are held throughout the United States. The Company
evaluates each customer's creditworthiness on a case-by-case basis; generally
the customers who receive trade credit are professional dealers who have
regularly purchased property at the Company's auctions or whose reputation
within the industry is known and respected by the Company.
In situations where trade credit is extended, the purchaser generally
takes possession of the property before payment is made by the purchaser to the
Company, and the Company is liable to the consignor for the net sales proceeds
(auction hammer price less commission to the Company). The Company pays the
consignor generally not later than the 45th day after the sale, and when trade
credit is extended, the Company assumes all risk of loss associated with the
trade credit, and the responsibility of collection of the trade credit amount
from the purchaser. Losses to date under these situations have not been
material.
Certain significant sales of inventory owned by the Company are made
with extended payment terms (up to twelve months). The Company evaluates each
customer's credit worthiness on a case-by-case basis; generally these customers
are professional dealers or other individuals who have purchased property at the
Company's auctions or whose reputation within the industry is known and
respected by the Company. These significant receivables are collateralized by
certain assets held by the Company.
Cash Equivalents and Concentration of Cash
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company maintains
its cash in bank deposit accounts, which, at times may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost or market which
reflects management's estimates of net realizable value. In instances where bulk
purchases are made, the cost allocation is based on the relative market values
of the respective goods. The Company has agreements with certain suppliers to
share the net profits or losses attributable to the sale of specific items of
inventory. As of June 30, 2001 and 2000 the amount of inventories subject to
these arrangements was approximately $4,800 and $4,500, respectively, which is
included in current inventory in the accompanying consolidated balance sheets.
The Company periodically reviews the age and turnover of its
inventory to determine whether any inventory has declined in value and incurs a
charge to operations for such declines. Inventory, which is not expected to be
sold within one year, is classified with other Non-Current Assets in the
accompanying consolidated balance sheets.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts,
and any resulting gain or loss is recognized in results of operations for the
period. Leasehold improvements are amortized over the
37
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
shorter of the estimated useful lives or the remaining life of the lease, which
is generally 5 years. Equipment, furniture and fixtures, and vehicles are
amortized over a period of generally 5 years or less. Property under capital
leases are amortized over the life of the lease which is normally three to five
years. The cost of repairs and maintenance is charged to operations as incurred.
Web Site Development Costs
Web site development costs include expenses incurred by the Company
to maintain, monitor and manage the Company's website. The Company recognizes
the development costs in accordance with EITF Issue No. 00-02, "Accounting for
Website Development Costs". As such, the Company expenses all costs incurred
that relate to the planning and post implementation phases of development of its
website. Costs incurred in the development phase are capitalized and amortized
over its estimated useful life of three years. Costs associated with repair or
maintenance for the website or the development of website content are included
in general and administrative expenses in the accompanying consolidated
statement of operations.
Intangible Assets
Goodwill
Goodwill primarily includes the excess purchase price paid over
the fair value of the net assets acquired. Goodwill is being amortized on a
straight-line basis over periods ranging from five to twenty years.
Other Purchased Intangibles
Other purchased intangibles consisting of trademarks and customer
list, purchased as part of business acquisitions are presented net of related
accumulated amortization and are being amortized on a straight-line basis over a
20-year period for trademarks and a 5-year period for customer list.
The carrying value of intangible assets and other long-lived assets,
including equity method investments, are reviewed on a regular basis for the
existence of facts or circumstances, both internally and externally, that may
suggest impairment. To date no such impairment has been indicated. This
evaluation is based on historical and projected results of operations and gross
cash flow for the underlying business.
Investments in Marketable Securities
The Company accounts for marketable securities pursuant to the
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Under this Statement, the
Company's marketable securities with a readily determinable fair value have been
classified as available for sale and are carried at fair value with an
offsetting adjustment to Stockholders' Equity. Net unrealized gains and losses
on marketable securities are credited or charged to a separate component of
Stockholders' Equity, net of tax.
Financial Instruments
The carrying amounts of financial instruments, including cash and
cash equivalents, accounts receivable and accounts payable approximated fair
value as of June 30, 2001 and 2000 because of the relative short maturity of
these instruments. The carrying value of notes receivable, demand notes payable
to bank and loans payable approximated fair value at June 30, 2001 and 2000
based upon quoted market prices for the same or similar instruments.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
"Accounting for Stock Based Compensation" allows a company to adopt a fair value
based method of accounting for its stock-based compensation plans or continue to
follow the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees". The Company accounts for stock-based compensation in accordance with
the provisions of APB No. 25, FASB Interpretation No. 44 ("FIN 44") "Accounting
for Certain Transactions Involving Stock Compensation - an Interpretation of APB
25", and complies with the disclosure provisions of SFAS No. 123. Under APB No.
25, compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock.
38
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
The Company accounts for stock issued to non-employees in accordance
with the provisions of SFAS No. 123 and the EITF Issue No. 96-18, "Accounting
for Equity Instruments that are Issued to other than Employees for Acquiring, or
in Conjunction with Selling Goods or Services".
Advertising Costs
Advertising and catalogue costs are included in marketing costs and
are expensed as incurred, which occurs in the same quarter that the related
auction takes place. As a result, assets of the Company do not include any of
these costs. Advertising expenses for the years ended June 30, 2001, 2000 and
1999 were approximately $796, $846 and $1,006, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. The Company provides a
valuation allowance for deferred tax assets for which it does not consider
realization of such assets to be more likely than not.
Earnings (loss) per share
Basic earnings (loss) per share are computed by dividing income
(loss) available to common shareholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings (loss) per share is
computed by dividing income (loss) available to common shareholders by the
weighted-average number of common shares outstanding during the period increased
to include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been issued. The
dilutive effect of the outstanding options would be reflected in diluted
earnings per share (loss) by application of the treasury stock method.
Comprehensive income
Comprehensive income as defined includes all changes
in equity (net assets) during a period from non-owner sources. Accumulated other
comprehensive income, as presented on the accompanying consolidated balance
sheets consist of the net unrealized gains (losses) on securities, net of tax.
Segment Information
The Company operates principally in one segment consisting of various
collectibles. All of the Company's sales and identifiable assets are located in
the United States. No individual customer accounted for 10% or more of revenue
for the years ended June 30, 2001, 2000 and 1999.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. As amended by SFAS 138, SFAS No 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. During Fiscal 2001,
the Company adopted this statement. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. There was
no impact from the adoption of this statement.
In June 2001, the FASB issued Statement No. 141, "Business
Combinations", and Statement No. 142, "Goodwill and Other Intangible Assets".
Statement 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
will also require that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, if any, and reviewed for impairment in accordance with SFAS
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of".
39
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
The Company had not initiated any business combinations prior to July 1,
2001. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized and tested for impairment in
accordance with the appropriate pre-Statement 142 accounting requirements prior
to the adoption of Statement 142.
Statement 141 will require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combinations, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition apart from goodwill. Upon adoption of Statement 142, the Company
will be required to reassess the useful lives and residual values of all
intangible assets acquired, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with Statement 142's transitional goodwill impairment
evaluation, the Statement will require the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of the date of adoption. The Company will then have up to six
months from the date of adoption to determine the fair value of each reporting
unit and compare it to the reporting unit's carrying amount. To the extent a
reporting unit's carrying amount exceeds its fair value, an indication exists
that the reporting unit's goodwill may be impaired and the Company must perform
the second step of the transitional impairment test. In the second step, the
Company must compare the implied fair value of the reporting unit's goodwill,
determined by allocating the reporting unit's fair value to all of it assets
(recognized and unrecognized) and liabilities in a manner similar to a purchase
price allocation in accordance with Statement 141, to its carrying amount, both
of which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's statement
of earnings.
Due to the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.
Reclassifications
Certain reclassifications have been made to the prior years financial
statements in order to conform to the current year presentation.
(2) Acquisitions and Mergers
During 2000, the Company formed Greg Manning Direct, Inc. ("GMD") to
produce and market collectibles for the mass merchandising market. In connection
with this transaction, the Company signed a management agreement with Tristar
Products, Inc.("Tristar"), a privately owned company, to manage the operations
of GMD. Terms of the agreement include the collaboration of the Company and
Tristar to develop and market collectibles for the mass merchandising market.
Effective May 2000, GMD purchased certain assets of Tristar for an amount not to
exceed $12,000 payable in the Company's common stock over a specified period of
time. In conjunction with the acquisition, Tristar was issued warrants to
purchase 49% of GMD, exercisable for nominal cash consideration plus certain
remaining collectibles-related assets of Tristar, including computers and rights
under employment agreements and other matters as specified in the agreement. The
acquisition has been accounted for under the purchase method of accounting and
accordingly, the assets acquired and liabilities assumed have been recorded at
their estimated fair values. The excess of aggregate cost of approximately
$2,800 which represents common stock issued over the estimated fair value of net
assets acquired was allocated exclusively to goodwill, which will be amortized
over a five-year period.
40
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
Effective February 18, 2000, the Company acquired all of the capital stock
of Spectrum Numismatics International, Inc., ("Spectrum") a wholesaler of rare
coins based in Santa Ana, California, in exchange for $25 million in the
Company's common stock. The acquisition was recorded using the pooling of
interests method of accounting. Accordingly, all prior financial statement
information reflect the historical balances of Spectrum.
Separate results of operations for periods prior to the merger with
Spectrum are as follows:
Company Spectrum Combined
-----------------------------------------
Year ended June 30, 2000
Total Revenue $ 36,930 $ 25,448* $ 62,379
Net Loss
(3,230) (438)* (3,668)
Year ended June 30, 1999
Total Revenue $ 14,799 $ 62,684 $ 77,484
Net Income 580 242 822
* Historical results for the period July 1, 1999 through February 18, 2000, the
acquisition date.
On October 29, 1998, the Company completed the acquisition of all of the
common stock of Teletrade, Inc. The purchase price for the acquisition was
approximately $5,895 consisting of $1,875 in securities of the Company, $3,000
in cash, $675 in promissory notes, $75 in options to purchase the Company's
common stock and $270 in acquisition related expenses. The acquisition was
recorded using the purchase method of accounting. Substantially all of the
purchase price was allocated to goodwill and other acquired intangibles which
are being amortized over the estimated useful lives. The results of operations
of Teletrade are included from October 30, 1998.
On November 17, 2000, the Company, through Spectrum, completed the
acquisition of all of the capital stock of an ongoing coin company in which
Spectrum previously owned a minority interest. The purchase price for the
acquisition was approximately $1,038, consisting of cash and contributed
intangibles.
Acquisition and merger costs of approximately $205, $926 and $0 were
incurred and charged to expense during the years ended June 30, 2001, 2000 and
1999, respectively, for services rendered to facilitate the completion of these
transactions.
(3) Receivables
Advances to consignors represent advance payments, or loans, to the
consignor prior to the auction sale, collateralized by the items received and
held by the Company for the auction sale and the proceeds from such sale.
Interest on such amounts is generally charged at an annual rate of 12%. Such
advances generally are not outstanding for more than six months from the date of
the note.
As of June 30, 2001 and 2000, the allowance for doubtful accounts
included in auction receivables was approximately $845 and $826, respectively.
(4) Marketable Securities
Investments in available for sale marketable securities as of June 30,
2001 and 2000 is as follows:
41
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
Market Unrealized
Cost Value Gain (Loss)
---------- --------- ------------
Common Stock - 2001 $ 385 $ 147 $ (238)
========== ========= ==========
Common Stock - 2000 $ 385 $ 231 $ (154)
========== ========= ==========
The unrealized loss is classified as a separate component of stockholder's
equity, net of tax, as of June 30, 2001 and 2000, respectively. In connection
with its ownership of this common stock, the Company was granted stock options
for 21,000 shares of common stock under the terms of a nonqualified stock option
agreement. The options are exercisable on April 1, 2006 at $5 per share.
During the year ended June 30, 1999, the Company sold 2.3 million shares of a
stock, resulting in a pre-tax gain on the sale of marketable securities of
approximately $ 2,028.
5) Inventories
June 30, 2001
-------------
--------- ---------- --------
Current Non-Current Total
--------- ---------- --------
Stamps $ 1,151 $ 500 $ 1,651
Sports Collectibles 957 350 1,307
Coins 7,971 500 8,471
Art 312 - 312
Other 2,475 350 2,825
--------- ------- --------
$ 12,866 $ 1,700 $ 14,566
========= ======= ========
June 30, 2000
-------------
--------- ---------- --------
Current Non-Current Total
--------- ---------- --------
Stamps $ 3,609 $ 500 $ 4,109
Sports Collectibles 4,004 4,004
Coins 8,882 1,000 9,882
Art 315 315
Other 3,791 900 4,691
--------- ------- --------
20,601 2,400 23,001
========= ======= ========
The non-current inventory represents an estimate of total inventory, which is
not expected to be sold within one year. At June 30, 2001 and 2000, the above
inventory amounts reflect net realizable allowances of $2,902 and $514,
respectively.
42
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(6) Property and Equipment, net at June 30,
2001 2000
-------- ------
Equipment $3,029 $2,030
Furniture and fixtures 270 307
Vehicles 67 67
Property under capital leases (computers
and office equipment) 186 186
Leasehold improvements 503 491
-------- ------
4,055 3,081
Less accumulated depreciation and
amortization 2,633 2,153
-------- ------
Net property and equipment $ 1,422 $ 928
======== ======
Depreciation and amortization expense for the years ended June 30, 2001, 2000
and 1999 was approximately $480, $464 and $397 respectively. These amounts
include amortization of assets under capitalized leases of approximately $23,
$17 and $11, respectively for the years then ended.
(7) Goodwill and Other Purchased Intangibles, net
Accumulated
Intangible Asset Gross Amortization Net
------------------------- ---------- ------------ ----------
June 30, 2001
-------------
Goodwill $ 8,452 $ 3,330 $ 5,122
Other intangible assets 4,105 1,083 3,022
June 30, 2000
-------------
Goodwill $ 7,457 $ 857 $ 6,601
Other intangible assets 3,400 378 3,022
Amortization expense, including intangible impairment, for the years
ended June 30, 2001, 2000 and 1999 was approximately $3,178, $548 and $342,
respectively. Based on the projected profitability and future discounted cash
flows associated with the Company's current product lines, it was determined
that the goodwill relating the these product lines were impaired. As a result,
the Company recorded a charge of approximately $2.2 million. (See Note 18.)
(8) Investment in Equity-Method Investees
On February 15, 2000, GMAI-Asia.com acquired from China Everbright
Technology Limited a 65% interest in China Everbright Telecom-Land Network
Limited (a British Virgin Islands company) for consideration of 30,000 Chinese
Renmimbi (approximately US$3,624, using a conversion rate of RMB 8.2788 to
US$1.00), payable in the Company's common stock, and GMAI-Asia.com, Inc.'s
guarantee of 40,000 Chinese Renmimbi (approximately US $4,832) of indebtedness
of China Everbright Telecom-Land's Shanghai subsidiary; entered into a
shareholders' agreement governing the management of China Everbright
Telecom-Land and its Shanghai subsidiary and provided GMAI-Asia.com, Inc.
certain rights to acquire the remaining 35% interest in China Everbright
Telecom-Land; entered into a management agreement with China Everbright
Telecommunication Products Limited (an unconsolidated affiliate); and received
an option to acquire a 65% interest in China Everbright Telecommunication
Products for nominal consideration and certain rights with respect to the
remaining 35% interest in China Everbright Telecommunication Products.
In addition, the Company has guaranteed performance by GMAI-Asia.com, Inc.
of certain obligations in these various transactions, and registered the shares
of the Company's stock that were issued to China Everbright Technology Limited.
China Everbright Telecom-Land and its Shanghai subsidiary are currently engaged
in the wholesale and retail sale
43
of consumer telecommunication and electronic products in China. These entities
sell their products through China Everbright Telecommunication Products' network
of retail stores. GMAI-Asia.com pledged its interest in China Everbright
Telecom-Land and its rights under the management agreement and the option
referred to above to China Everbright Group, Inc., an affiliate of China
Everbright Technology Limited.
At June 30, 2000, the Company's investment in this investee was
approximately $5,329 and the Company maintained an equity ownership percentage
(on an undiluted basis) in GMAI-Asia of 48%. Accumulated losses for GMAI-Asia at
June 30, 2001 were approximately $11,229. The Company's portion of that loss is
approximately $5,390. The investment in this investee has been reduced to $0 at
June 30, 2001. During May 2001, the Company sold 500,000 shares of its GMAI-Asia
common shares, which reduced the Company's investment from 48% to 45% (See Note
14).
The Company maintained a 20% ownership interest in a coin company through
its 100% ownership of Kensington Associates, L.L.C. (a holding company) through
August 2000. During the year ended June 30, 1999, Kensington Associates sold an
investment in a coin company in exchange for $300 in cash and 57,000 shares of
common stock of another corporation valued at $285 which resulted in a gain of
approximately $532.
Summarized balance sheet information of the Company's equity method investees as
of June 30, 2001 and 2000 is approximately as follows:
2001 2000
(unaudited) (unaudited)
------------------------------
Current Assets $ 5,203 $ 29,111
Non Current Assets 24,626 1,975
Current Liabilities 19,898 13,081
Non Current Liabilities 6,624 5,188
Summarized statements of operations information of the Company's
equity-method investees, calculated for the periods during which the Company had
investments in such investees, is approximately as follows:
For the years ended June 30,
(unaudited)
2001 2000 1999
--------- -------- -------
Net Sales $ 992 $ 24,648 $ 25,132
Gross Profit 18 5,167 4,221
Selling, General and
Administrative expense (280) (6,481) (3,683)
Goodwill amortization (2,294) - -
Write-off relating to Advances to Affiliates (4,347) - -
--------- -------- --------
Net Income (Loss) $ (6,903) $ (1,314) $ 538
========= ======== ========
(9) Income Taxes
Deferred tax attributes resulting from differences between financial
accounting amounts and tax basis of assets and liabilities at June 30, 2001 and
2000 are as follows:
Current assets and liabilities
2001 2000
------- -----
Allowance for doubtful accounts $ 364 $ 328
Inventory uniform capitalization 223 357
Accrued Expenses 183 -
Inventory valuation reserve 1,248 206
------- -----
Sub-total 2,018 891
Valuation allowance, provision
for income taxes (428) (67)
------- -----
Net current deferred tax asset $ 1,590 $ 824
======= =====
44
Noncurrent assets and liabilities
Intangible Impairment $ 472 $ -
Goodwill 7 (42)
Depreciation 322 179
Organizational costs - 42
Net federal and state operating loss
carryforward 4,279 1,813
Investments in equity-method investees 2,425 354
Investments in marketable securities 102 62
Other 20 20
------- -------
Sub-total 7,627 2,428
Valuation allowance, provision for
income taxes (5,034) (469)
Valuation allowance, equity (39) (39)
------- -------
Net noncurrent deferred tax asset $ 2,554 $1,920
======= =======
The Company believes uncertainty exists regarding the realizability of these
items, and accordingly, has established a valuation allowance, based on
management's estimates, against certain deferred tax assets. The valuation
allowance primarily consists of net operating loss carryforwards. The portion of
the valuation allowance which will affect equity and which will not be available
to offset future provisions of income tax is stated as "Valuation allowance,
equity". The valuation allowance increased by $4,908 and $253 in 2001 and 2000.
The change in valuation allowance in 2001 compared to 2000, resulted from
management's evaluation of the utilization of state and federal operating
carryforward tax losses. The realization of the above deferred tax assets is
dependent on generating sufficient taxable income in the future to offset the
deductibility of temporary differences generating the deferred tax assets. The
amount of the deferred tax asset considered realizable, however, could be
reduced if the estimates of future taxable income are reduced.
The provision for (benefit from) income taxes for the years ending June 30
consist of the following:
Years ended June 30,
--------------------------------------
2001 2000 1999
-------- ------ ------
Current tax expense benefit $ 13 $ (425) $ 764
Deferred tax benefit (6,325) (983) (278)
Net Change in valuation allowance 4,908 (253) (25)
-------- ------- ------
$ (1,404) $(1,661) $ 461
======== ======= ======
The current tax expense for the year ended June 30, 1999 has been reduced by
approximately $25 due to the utilization of state net operating losses.
Prior to February 18, 2000, Spectrum was taxed under the Subchapter S provisions
of the Internal Revenue Code ("IRC") whereby its profits and losses flowed
directly to its former shareholder for U.S. federal income tax purposes. Upon
acquisition of Spectrum by the Company, Spectrum no longer qualified under the
Subchapter S provisions of the IRC and became a taxable entity for federal and
state purposes. In connection with Spectrum's change in tax status , the Company
reduced its income tax benefit by approximately $59 for the year ended June 30,
2000.
The effective tax rate (benefit) varied from the statutory rate as follows:
Years ended June 30,
------------------------------
2001 2000 1999
-------- -------- ------
Statutory Federal income tax rate (34%) (34%) 34%
State income taxes, net of federal benefit (6%) (6%) 6%
Certain non-deductible expenses 5% 2% 7%
Non deductible acquisition costs - 8% -
Change in valuation allowance 28% 5% -
Other (1%) (6%) (3%)
-------- -------- ------
(8%) (31%) 44%
==== ===== ===
The Company has a federal net operating loss carryforward of approximately
$10,100 expiring at various times beginning the fiscal years ending 2019 through
fiscal year ended 2021. The utilization of these net operating loss
carryforwards may be
45
significantly limited in under the Internal Revenue Code as a result of
ownership changes due to the Company's stock and other equity offerings.
The Company has net operating loss carryforwards for state tax purposes of
approximately $16,600 expiring at various times beginning in the fiscal years
ending 2002 through 2008.
(10) Debt
Demand Notes Payable
June 30,
2001 2000
------- -------
The Company has a credit agreement with Brown Brothers
Harriman & Co. ("Brown Brothers") pursuant to which
Brown Brothers agreed to provide the Company with a
credit facility of up to $2,400. The Company plans to
repay all outstanding balances by October 31, 2001. The
Company pays an annual fee for the facility equal to
one quarter of one percent of the total amount of such
facility. Borrowings under this facility bear interest
at the rate of 2% above Brown Brothers base rate, which
was 7.75 % and 8.25% at June 30, 2001 and 2000,
respectively, and are repayable on demand. $ 2,400 $1,600
Spectrum has a revolving credit agreement with Bank of
America pursuant to which Bank of America agreed to
provide Spectrum with a credit facility of up to
$10,000, subject to adjustments as defined in the
agreement. The Company plans to repay all outstanding
balances under this facility by October 31, 2001. The
loan agreement allows for borrowings based on the
lesser of $10,000 or a percentage of eligible
inventories and accounts receivable or 50% of the
market value of GMAI stock pledged as collateral. The
Company pays an annual fee for the facility equal to
one quarter of one percent of the total amount of such
facility. Borrowings under this facility bear interest
at Bank of America base rate, which was 8.25 % and
7.25% at June 30, 2000 and 2001, respectively. The
credit facility is personally guaranteed by Greg
Manning who has pledged 700,000 shares of the Company
owned personally by Mr. Manning. Additionally, the line
is collateralized by all of the assets of Spectrum and
is guaranteed by GMAI. In connection with this
agreement, the Company pays Mr. Manning a guarantee
debt fee which is based on 3% per annum of the average
loan balance outstanding each month. 5,200 6,350
Advance from a consignor which was, upon settlement,
converted to a demand loan bearing an interest rate of
15% per annum. 440 -
------- -------
Total Demand Notes Payable $ 8,040 $ 7,950
======= =======
46
Other borrowings:
June 30,
2001 2000
---------------------
Notes payable to current shareholder
related to
Indebtedness of Teletrade prior to its $- $ 75
acquisition
Notes payable to former shareholders of
Teletrade
Related to indebtedness prior to its 19 88
acquisition
Various capital lease obligations, various
monthly
payments through 2006 224 130
---------------------
Less current 243 296
portion 75 182
---------------------
Notes payable - long-term $ 168 $111
portion ===== ====
The aggregate amount of all maturities for the years ending June 30 are as
follows:
2002 $ 75
2003 60
2004 72
2005 26
2006 10
------------------
$243
The Company's obligations to Brown Brothers under the above credit
loan facility is collateralized by the Company's accounts receivable, advances
to consignors, and inventory. For the year ended June 30, 2001, the Company was
not in compliance with guidelines in the loan agreement relating to the formula
of earnings before interest, depreciation and taxes to interest expense and
increases in tangible net worth (as defined in the agreement). As a result,
Brown Brothers has the right under the credit agreement to demand immediate
repayment of all amounts outstanding without the otherwise applicable 120-day
notice period. As of the date of this report, Brown Brothers had not demanded
such repayment.
The Company is currently seeking new sources of financing to replace
its current credit facilities.
(11) Leases
The Company conducts its business on premises leased in various
locations under leases that expire through the year 2006. The Company utilizes
property and equipment under both operating and capital leases. Future minimum
lease payments under noncancelable leases in effect at June 30, 2001 are set
forth below:
Operating Capital Total
----------------------------------
2002 $537 $58 $595
2003 494 67 561
2004 435 72 507
2005 381 35 416
2006 196 10 206
----------------------------------
Total future minimum lease $2,043 $ 242 $ 2,285
====== ===== ========
payments
Rent expense was approximately $439, $339 and $206 for 2001, 2000 and
1999, respectively.
Interest expense associated with these capital leases was
approximately $33, $24 and $17 for fiscal years 2001, 2000 and 1999,
respectively.
47
(12) Related-party Transactions
The Company accepts rare stamps and other collectibles for sale at auction
on a consignment basis from Collectibles Realty Management, Inc. ("CRM") which
is owned by Greg Manning. Such stamps and collectibles have been auctioned by
the Company or sold at private treaty under substantially the same terms as for
third party customers. The Company charges CRM a seller's commission. In the
case of auction, the hammer price of the sale, less the seller's commission (for
lots valued at under $100; no seller's commission is payable for lots valued at
over $100), is paid to CRM upon successful sale, and in the case of private
treaty, the net price after selling commissions is paid to CRM. For the years
ended June 30, 2001 and 2000, such auction and private treaty sales (net of
commission) were not material. Included in Accounts Receivable at June 30, 2001
and 2000 is approximately $41 and $31, respectively, which is due from CRM and
will be collected in the ordinary course of business.
Scott Rosenblum, a director of the Company, is a partner of the law
firm Kramer, Levin, Naftalis & Frankel, LLP, which provides legal services to
the Company. Anthony L. Bongiovanni, Jr., also a director of the Company, is
president of Micro Strategies, Incorporated, which provides computer services to
the Company. Richard Cohen, also a director of the Company, provided consulting
services for the Company. In relation to Kramer, Levin, Naftalis & Frankel, LLP,
expenditures for services rendered were approximately $326, $424 and $324
respectively of which, approximately $247, $371 and $129, was charged to
operations in fiscal 2001, 2000 and 1999. In relation to Micro Strategies,
Incorporated, expenditures for services rendered were approximately $769, $464
and $154, respectively, of which, approximately $175, $310 and $113 was charged
to operations in fiscal 2001, 2000 and 1999. In relation to Richard Cohen,
expenditures for services rendered were approximately $33, $40 and $0, all of
which was charged to operations.
For the years ended June 30, 2001, 2000 and 1999 sales of
approximately $353 (1% of revenues), $5,995 (9% of revenues) and $18,900 (24% of
revenues) were made to an equity method investee of the Company, former
stockholders of Spectrum and/or entities in which they had an ownership
interest, who are current stockholders of the Company. Payments made to these
entities approximated $6,302, $2,300 and $2,700 for the years ended June 30,
2001, 2000 and 1999, respectively.
Prior to the Spectrum acquisition, Spectrum was indebted to one of
their stockholders (a current stockholder of the Company) under the terms of
three secured notes which were due on demand and allowed for maximum borrowings
of approximately $5,000. These notes were paid in full during fiscal 2000.
Interest expense associated with these notes were approximately $242 and $498
for the years ended June 30, 2000 and 1999, respectively. Additionally, Spectrum
paid this individual approximately $95 and $746 for consulting and debt
guarantee fees for the years ended June 30, 2000 and 1999, respectively.
In the normal course of business, Afinsa consigned material to the
Company, which was auctioned during the fiscal year ended June 30, 1999 for a
total hammer price of $316 and purchased artwork totaling $850. In the normal
course of business, the Company sold to Afinsa consigned goods for a total of
$1,000. As of June 30, 2001 and June 30, 2000, Afinsa has outstanding accounts
receivable balances of approximately $71 and $614, respectively. During fiscal
2000, Afinsa purchased other product totaling approximately $254.
The Company acts as an agent of Afinsa regarding their stock
subscription agreement with GMAI-Asia.com, Inc. Under this agreement, the
Company receives funds from Afinsa and advances such funds to GMAI-Asia.com,
Inc. on an as-needed basis. There is no segregation of these funds. Such amount
liable to be paid to GMAI-Asia.com, Inc. is $90 and $2,421, respectively at June
30, 2001 and 2000 and is included in Advance from related party.
During the years ended June 30, 2001 and 2000, the Company paid Mr.
Manning approximately $188 and $68, respectively, of debt guarantee fees (see
Note 10).
48
(13) Commitments and Contingencies
As part of the purchase of the Ivy & Mader Philatelic Auctions, Inc.
(Ivy") in 1993, the Company is required to pay additional amounts for a period
of time through 2009 based on the financial performance of Ivy. These additional
amounts totaled approximately $54, $42 and $66 for the years ended June 30,
2001, 2000 and 1999, respectively, and are accounted for as an increase to
goodwill and amortized over the goodwill's remaining life.
(14) Stockholders' Equity
Common Stock
On February 18, 2000, the Company's shareholders approved an amendment to the
Company's restated Certificate of Incorporation to increase the number of
authorized shares of common stock from 20 million to 40 million.
Private Placement Equity Transactions
On May 14, 2001, the Company entered into an agreement with The Tail Wind
Fund Ltd., LBI Group Inc., and Lombard Odier & Cie which amended certain
provisions of the original purchase agreement between the Company and such
investors, dated January 25, 2000. Under the amendment, the investors waived
rights to receive additional stock of the Company pursuant to the terms of the
original agreement, (which they received as anti-dilution protection) in
exchange for the issuance to the investors of an aggregate of 627,500 shares of
the Company's common stock, par value $.01 per share, and subject to certain
other conditions. In addition, on that date, the Company entered into a purchase
agreement with The Tail Wind Fund Ltd. pursuant to which the Company sold an
aggregate of 500,000 shares of common stock of GMAI-Asia.com, Inc., par value
$1.00 per share, owned by it to such investor.
In addition, during the fourth quarter the Company entered into two stock
purchase agreements with Auctentia, S.A. ("Auctentia"), a wholly owned
subsidiary of Afinsa Bienes Tangibles, S.A. ("Afinsa"). Under the first
agreement, dated as of May 16, 2001, the Company issued to Auctentia 1,000,000
shares of the Company's common stock, for an aggregate purchase price of $2
million. Under the second agreement, dated as of May 23, 2001, the Company
agreed to issue an additional 1,000,000 shares of the Company' common stock for
an aggregate purchase of $2 million, in five installments (which vary in amount)
commencing June 15, 2001 and ending October 15, 2001. Subsequent to June 30,
2001, Afinsa has paid $1,400 for 700,000 shares.
In late January and early February 2000, GMAI issued in a private
placement to certain investors an aggregate of 750,000 shares of the Company's
common stock for approximately $ 11,273,000, net of expenses, In connection with
this transaction, warrants to acquire 142,500 shares of the Company's common
stock were issued to these investors and their advisors. The warrants are
immediately exercisable at prices ranging from $18.85 to $24.52 per share.
On January 31, 2000, the Company issued in a private placement to
Amazon.com, Inc. 285,551 shares of the Company's common stock, together with a
warrant to acquire 25,000 shares of the Company's common stock at an exercise
price per share of $20.19. The warrant is immediately exercisable.
During the year ended June 30, 1999, the Company entered into a stock
purchase agreement with Afinsa whereby Afinsa agreed to purchase 475,624 shares
of the Company's Common Stock for an aggregate purchase price of $5 million.
During the year ended June 30, 1999, the Company received $2 million from Afinsa
and issued 172,251 shares of common stock , 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.
Common Stock Repurchases
During April 2000, the Company's Board of Directors ("the Board")
authorized a plan to buy back in the open market up to 500,000 shares of common
stock based upon the Board's discretion. The shares will be purchased on the
open market and will pay an amount not to exceed the highest independent bid or
independent sales price on the Nasdaq National market, whichever is higher.
However, on any given day, the Company will not repurchase more than 25% of the
average daily trading volume for the Company's common stock the four weeks
preceding the week in which the purchase was made, excluding block trades.
During the year ended June 30, 2000 the Company repurchased 99,900 shares for
$1,333. The Company repurchased an additional 268,100 shares for approximately
$1,215 during the period July 1, 2000 to June 30, 2001. A brokerage firm is
holding the repurchased shares.
49
Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan") and 1997 Stock
Option Plan, (the "1997 Plan"), are administered by the Board of Directors or a
Stock Option Committee thereof (hereinafter, the "Committee") and provides for
the grant of options to purchase shares of common stock to such officers,
directors and employees of the Company, consultants to the Company, and other
persons or entities as the Committee may select. A total of 1,750,000 shares of
common stock has been reserved for issuance pursuant to the plans as amended by
the stockholders on February 18, 2000. In addition, the February 18, 2000
amendment increased from 100,000 to 200,000 the total number of shares that the
Company may issue to an individual in any given year. The Committee does not
intend to make any further awards under the 1993 plan. The option exercise price
is determined by the Committee in its sole discretion; provided, however, that
generally, the exercise price of an option shall be not be less than the fair
market value (as defined) of a share of common stock on the date of grant
Options granted have a maximum ten year term and vest over periods up to four
years. All options granted through June 30, 2001 have been granted with exercise
price equal to market value on the date of grant.
The following table summarizes information about options outstanding and
exercisable as of June 30, 1999, 2000 and 2001:
1999 2000 2001
------------------------- ------------------ ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------- -------- ------- -------- --------- --------
Outstanding - beginning of year 601,500 1.43 658,125 5.08 1,340,625 11.68
Granted through stock option plan 277,000 4.28 684,500 14.16 371,500 3.34
Granted outside of stock option plan 175,000 8.82 167,500 20.07 -- --
Repurchased (60,000) 3.00 -- -- -- --
Exercised (335,375) 1.42 (122,875) 1.92 (25,500) 1.58
Forfeited -- (46,625) 9.50 (138,625) 8.08
----------- -------- ---------
Outstanding - end of year 658,125 5.08 1,340,625 11.68 1,548,000 10.19
Exercisable - end of year 280,000 5.24 481,625 10.77 656,625 11.40
=========== ========= =========
The weighted average fair value of options granted during 1999, 2000 and 2001
was $4.28 and $14.16 and $3.34, respectively.
Following is a summary of the status of stock options outstanding at
June 30, 2001:
Options Outstanding Options Exercisable
----------------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Ranges Number of Remaining Average Number of Average
----------------- Shares Contractual Exercise Shares Exercise
From To Outstanding Life(1) Price Exercisable Price
----------------------------------------------------------- ------------------------
$1.00 $5.00 522,625 7.39 $2.50 190,625 1.74
5.01 10.00 128,375 8.48 7.76 27,375 6.72
10.01 15.00 709,500 7.33 13.72 266,125 13.21
15.01 20.00 132,500 8.61 18.79 117,500 18.83
20.01 25.00 55,000 8.60 22.55 55,000 22.55
--------- -------
1,548,000 656,625
========= =======
----------
(1) in remaining years
Pro Forma Disclosure
The Company follows the intrinsic value method relating to its accounting
treatment for its stock options. Proforma information regarding net income and
earnings per share is required by SFAS 123, and has been determined as if the
Company
50
had accounted for its employee stock options under the fair value method of that
statement. Had compensation cost been recognized based on the fair value at the
date of grant for all options granted during 2001, 2000 and 1999 would have been
as follows:
2001 2000 1999
--------- --------- ------
Proforma net income (loss) $ (18,001) $ (4,222) $ 752
Proforma earnings (loss) per share
Basic (1.57) (.42) .10
Diluted (1.57) (.42) .10
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2001, 2000 and 1999, respectively; risk-free interest rates of
5.8%, 5.7% and 5.1%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 82%; and weighted-average expected
life of the option of five years for 2001, 2000 and 1999.
There was no compensation expense recorded from stock options for the
years ended June 30, 2001, 2000 and 1999.
During the year ended June 30, 1999, the Company issued stock options
to vendors in exchange for services. These options were valued at the fair
market value in the amount of $150 which was amortized over the life of the
contracts, one year. These options are fully amortized as of June 30, 2001. As
of June 30, 2000, the Company granted stock options to consultants in exchange
for services. The value of these options is approximately $245 and are being
amortized over their respective period of service. These options are fully
amortized as of June 30, 2001.
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation and by-laws contain
certain anti-takeover provisions that could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company without negotiating with its Board
of Directors. Such provisions could limit the price that certain investors might
be willing to pay in the future for the Company's securities. Certain of such
provisions provide for a Board of Directors with staggered terms, allow the
Company to issue preferred stock with rights senior to those of the common
stock, or impose various procedural and other requirements which could make it
more difficult for stockholders to effect certain corporate actions.
Earnings (loss) per share
The following table sets forth the computations of basic earnings (loss) per
share and diluted earnings (loss) per share:
51
2001 2000 1999
---------- -------- ---------
Years ended June 30,
Numerator:
Net Income (Loss) $ (16,323) $ (3,669) $ 823
--------- -------- -------
Denominator:
Weighted average common
shares outstanding 10,299 9,710 7,355
--------- -------- -------
Basic Earnings (loss) per share $ (1.58) $ (0.38) $ 0.11
========= ======== =======
Denominator:
Weighted average common
shares outstanding 10,299 9,710 7,355
Common share equivalents of
outstanding stock options and
warrants. - - 444
--------- -------- -------
Total Shares 10,299 9,710 7,799
Diluted Earnings (loss) per share $ (1.58) $ (0.38) $ 0.11
========= ======== =======
(15) Significant Agreements
Employment Agreements
The Company has entered into an employment agreement with Mr. Greg
Manning, Chief Executive Officer of the Company through June 2002. The agreement
with Mr. Manning, as amended, provides for Mr. Manning's services as President
and Chief Executive Officer of the Company, with an annual salary of $350 and an
annual bonus of no less than $50.
The Company also maintains employment agreements with various other
key management personnel.
The Company currently maintains term life insurance policies on the
lives of certain key employees of the Company. These policies allow for coverage
of up to an aggregate amount of $7,000 with the benefits payable to the Company.
(16) Retirement Plans
The Company maintains an employee savings plan under the Internal
Revenue Code Section 401(k). Employees are eligible to participate in the plan
after six months of service and become fully vested after five years of service.
Employee contributions are discretionary to a maximum of 15% of compensation.
For all plan members, the Company contributed 10% of all eligible employees
contributions to a maximum annual contribution of $500 per employee. The
Company's total contribution was approximately $14, $10 and $6 for the years
ended June 30, 2001, 2000 and 1999, respectively.
52
(17) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Years Ended
June 30,
(In Thousands)
2001 2000 1999
-------- ------- -------
Interest paid $ 1,437 $ 1,539 $ 1,645
Income taxes paid 1 1 2
Summary of significant non-cash transactions:
Issuance of shares related to the acquisition of GMD. 532 2,278 -
Issuance of shares related to the acquisition of Subsidiaries - 25,000 1,875
Issuance of shares related to GMAI-Asia purchase of
Everbright Technologies - 3,614 -
Issuance of 200,000 options relating to the financing of
the acquisition of Teletrade - - 200
Issuance of notes payable to former shareholders of Teletrade
as part of the acquisition - - 675
Contribution to GMAI-Asia committed but not yet paid - - 159
Stock Subscription Receivable from Afinsa for 285,373 shares
of the Company's Common Stock - - 3,000
Common stock received from sale of investment - - 285
Options issued relating to professional services 90 245 150
(18) Fourth Quarter Adjustments - Special Charges and Asset Impairments
As a result of unfavorable economic conditions and changes in the
collectibles marketplace/industry, in the last fiscal year the Company's Board
of Directors approved a plan designed to improve the infrastructure of the
Company, reduce operating expenses, optimize profitability and align resources
with long-term business growth strategies. This plan is likely to include work
force realignment, consolidation of facilities and restructuring of product line
focus.
Among the actions relating to this plan, the Company has performed
impairment assessments of identifiable goodwill and other purchased intangibles.
Based on the projected profitability and future discounted cash flows associated
with the Company's current product lines, it was determined that the goodwill
relating the these product lines were impaired. As a result, the Company
recorded a pre-tax charge of approximately $2.2 million or $0.20 per share -
diluted for the year ended June 30, 2001 which is reflected in operating
expenses in the accompanying consolidated statement of operations.
Furthermore, as part of the plan, the Company has implemented an inventory
reduction program to generate working capital. The Company adjusted the
inventory cost value to reflect management's estimate of net realizable value
recorded a pre-tax charge of $2.4 million or $0.23 per share for the year ended
June 30, 2001 which is reflected in cost of merchandise in the accompanying
consolidated statement of operations.
53
Deferred tax asset utilization was also re-evaluated, specifically the
ability to utilize net operating loss carryforwards resulting in a charge
relating the valuation allowance of $600 or $0.06 per share which is recorded in
the Benefit from provision for income taxes in the consolidated statement of
operations.
(19) Subsequent Events
During September, 2001, the Company was considering an offer to purchase
substantially all of the assets comprising its comics division, including
comics, comic books, certain Hollywood and "rock `n' roll" memorabilia and movie
posters. This proposal is still being discussed and there can be no assurance
that the transaction will be consummated.
(20) Selected Quarterly Financial Data (unaudited)
(in thousands except for per share data)
--------------------------------------------
2001 2000
--------------------------------------------- ------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------------------------------------------- -------------------------------------------
Net Revenues $ 14,407 $ 13,527 $ 17,836 $ 21,626 $ 15,208 $ 12,981 $ 18,050 $ 16,140
Gross profit 2,462 2,239 1,153 (812) 2,345 2,063 4,715 2,697
Income (Loss) from operations (873) (1,342) (2,542) (6,883) (674) (2,039) 1,194 (1,884)
Net income (loss) attributable to
common stockholders (900) (1,435) (2,154) (11,834) (488) (1,533) 502 (2,150)
Net income (loss) per share,
basic and diluted (0.09) (0.14) (0.21) (1.07) (0.06) (0.18) 0.05 (0.19)
54
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following persons are all of the directors and executive officers
of the Company:
Greg Manning, age 56, has been Chairman of the Board of the Company since its
inception in 1981 and Chief Executive Officer since December 8, 1992. Mr.
Manning was the Company's President from 1981 until August 12, 1993 and from
March 8, 1995 to the present. Mr. Manning also has been Chairman of the Board
and President of CRM since its inception, which he founded as "Greg Manning
Company, Inc." in 1961.
Thomas A. Davanzo, age 50, is Chief Operating Officer of the Company. Mr.
Davanzo joined the Company in March 2000 as head of Marketing. He is currently
responsible for the Company's operations and marketing & sales strategies. Mr.
Davanzo has developed sales strategies for catalog and direct sales companies,
and managed multi location retail sales forces. Prior to joining the Company,
Mr. Davanzo was head of marketing and sales for Pinnacle Services, an
international software development company.
Larry Crawford, age 53, has been Chief Financial Officer since April 23, 2001.
Mr. Crawford served as Chief Financial Officer of Arzee Holdings, Inc. from 1996
to 2001 and as Vice President of Finance and Chief Financial Officer of Talon,
Inc., a subsidiary of Coats Viyella plc from 1987 to 1996. Mr. Crawford is a
certified public accountant and received his B.A. from Pennsylvania State
University and his M.B.A. from the Lubin School of Business of Pace University.
James A. Reiman, age 47, has served as GMAI's Executive Vice President,
Strategic Development/Investor Relations since May 2000. Mr. Reiman was
appointed as Executive Vice President of e-Commerce Business Development of GMAI
in April 1999. Prior thereto, Mr. Reiman founded and operating TOB Consulting, a
firm providing direct marketing and eCommerce consulting services. Since 1980,
Mr. Reiman also has been engaged in the practice of law, both independently and
with the firm of Barnes & Thurnberg, where he headed the Direct Marketing
practice group.
Scott S. Rosenblum, age 53, has been a director of the Company since December 8,
1992. Mr. Rosenblum has been a partner (since 1991) in the law firm of Kramer
Levin Naftalis & Frankel LLP, and previously (from 1984 to 1991) was a partner
in the law firm of Stroock & Stroock & Lavan. Mr. Rosenblum received his J.D.
degree from the University of Pennsylvania.
Anthony L. Bongiovanni, Jr., age 43, is President of Micro Strategies,
Incorporated, a leading developer and supplier of microcomputer based business
applications throughout the New York, New Jersey and Pennsylvania areas, which
he founded in 1983. Mr. Bongiovanni has a B.S. in mechanical engineering from
Rensellaer Polytechnical Institute.
Albertino de Figueiredo, age 71, was appointed as a director of the Company on
September 10, 1997. In 1980, Mr. De Figueiredo founded AFINSA, S.A, a company
engaged in the business of Philatelics and numismatics, and is currently
Chairman of the Board of AFINSA, S.A. and its subsidiaries. Mr. De Figueiredo is
also Vice-Chairman of the Board of Directors of FINARTE ESPANA, an art auction
house, and a member of the Executive Board of ASCAT, the International
Association of the Stamp Catalog and Philatelic Publishers.
Richard Cohen, age 51, a director since December, 1999, has been the managing
principal of Richard M. Cohen Consultants since 1996. From 1992 to 1995, he
served as President of General Media, Inc., a public company with interests in
magazines, cable, licensing and the Internet. He holds a BS from the University
of Pennsylvania and an MBA from Stanford University. He is also a Certified
Public Accountant in the State of New York. Mr. Cohen is also a director of
National Auto Credit, Deyco Acquisition Corp., Symposium Telecom and Directrix,
Inc.
Greg Roberts, age 39, a director since February, 2000, has been the President of
Spectrum Numismatics since the early 1990s, following 9 years with Hannes
Tulving in Newport Beach, CA. He has spent the last 24 years honing his skills
to such an
55
extent that he was able to successfully purchase such rare coins as the King of
Siam proof set, the 1861 Pacquet Liberty Gold Coins-$1MM, and the
Eliasberg-Stickney 1804 Silver Dollar-$1.8MM. He is also a lifetime member of
the Professional Numismatics Guild.
James M. Davin, age 55, a director since February, 2000, has since 1993 been
President of Davin Capital Corporation, a private investment company and Davin
Capital, L.P., a private investment partnership. Mr. Davin is also a trustee and
a member of the Finance Committee of Blair Academy, an independent school in
Blairstown, New Jersey and a former member of the Advisory Board of the
Georgetown University School of Business, from which he graduated in 1967. Mr.
Davin's investment career started in 1969 at First Boston, from which he
departed in 1988 as Managing Director to join Drexel Burnham Lambert Group, Inc.
in 1990. Mr. Davin left Drexel as Executive Vice President, Senior Trading
Official, a position mandated by the SEC under the company's agreement with the
US District Attorney's office, after which he joined Lehman Brothers. Mr. Davin
departed Lehman Brothers in 1993 as Managing Director to serve as Vice Chairman
of Craig Drill Capital, a private investment fund in New York. Mr. Davin has
been an active member of the National Association of Securities Dealers, for
which he was Chairman and Vice President of Governors in 1987 as well as a board
member from 1985 until 1988.
Mark B. Segall, age 40, a director since December, 1999, was a partner at Kramer
Levin Naftalis & Frankel, a New York law firm, from 1995 through 1999. In
October, 1999, he became a Senior Vice President and General Counsel for
Investec Ernst & Company.
Esteban Perez, age 59, has been a director of GMAI since January 2001. Mr. Perez
was Chairman of Tubacex S.A., a listed company in the Spanish Stock Exchange,
from which he departed in 1993, and now is Chairman of Auctentia, S.A. Mr. Perez
is also Director of the Board of Finarte Espana, an art auction house in Madrid,
and also Director of Brohan-Design, an art and design service company in New
York. Mr. Perez represents Afinsa S.A. in the Board of Trustees of the
Guggenheim Bilbao Museum. Mr. Perez is graduated in Economics and Laws by the
Deusto University.
The Company's directors are elected at the annual meeting of stockholders. The
Certificate of Incorporation provides that the members of the Board of Directors
be divided into three classes, as nearly equal in size as possible, with the
term of office of one class expiring each year. Accordingly, only those
directors of a single class can be changed in any one year and it would take
elections in three consecutive years to change the entire Board. Messrs. De
Figueiredo and Manning have been elected, and Mr. Davin has been appointed, to
serve until the 2001 annual meeting of stockholders. Messrs. Segall and Cohen
have been elected, and Mr. Roberts has been appointed, to serve until the 2002
annual meeting of stockholders. Messrs. Bongiovanni and Rosenblum have been
elected to serve until the 2003 annual meeting of stockholders. The Certificate
of Incorporation also provides that directors may be removed only for cause and
that any such removal must be approved by the affirmative vote of at least a
majority of the outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors. While the Company believes that the
foregoing provisions are in the best interests of the Company and its
stockholders, such requirements may have the effect of protecting management
against outside interests and in retaining its position.
Each of the directors and executive officers of the Company is delinquent in
filing the forms required by Section 16(a) of the Exchange Act.
There are no family relationships among any of the directors or executive
officers of the Company.
Advisory Committee
The Company has an advisory committee (the "Advisory Committee") that
includes prominent collectors and other individuals involved in the philatelic
and collectibles business, with whom Mr. Manning has developed relationships
over the years. The members of the Advisory Committee individually meet from
time to time with the Company's Chairman and Chief Executive Officer to discuss
current trends or developments in the collectibles market. Members of the
Advisory Committee receive no compensation for their services, and their
availability is subject to their personal schedules and other time commitments.
The Company reimburses members for their reasonable out-of-pocket expenses in
serving on the Advisory Committee.
The Company believes that the members of the Advisory Committee have
no fiduciary or other duties, obligations or responsibilities to the Company or
its stockholders, and they will not acquire any such duty, obligation or
responsibility as a result of any meeting or consultation they may have with
management of the Company. Each member of the Advisory Committee has entered
into an agreement with the Company which, among other things, confirms that the
member has no such duty,
56
obligation or responsibility, but also commits the member to keep confidential
and not disclose (or in any manner use for personal benefit or attempt to profit
from) any non-public information relating to the Company that the member
receives in such capacity, except to the extent that disclosure is required by
applicable law or legal process or to the extent the information becomes public
other than as a result of a breach of any member's confidentiality agreement.
The members serve at will and may resign, or be asked to discontinue their
services, at any time.
The members of the current Advisory Committee and their principal
occupations are as follows:
Sir Ronald Brierley, age 64, is Founder/President of Brierley Investments,
Limited, a publicly held New Zealand investment company. Sir Ronald is also
Chairman of GPG P/C, an investment company based in London, England. Sir Ronald
serves on the boards of Advance Bank, Australia, Ltd., Adriadne Australia Ltd.,
Australia Oil & Gas Corporation, Ltd., and the Australian Gaslight Company, and
he is also a trustee of Sydney Cricket and Sports Ground Trust. Sir Ronald has
had a life-long interest in stamps, beginning as a schoolboy, when he formed
Kiwi Stamp Company and acquired a dealer's certificate from the New Zealand
Stamp Dealers Federation. Sir Ronald has been selling and collecting stamps
since that time.
Robert G. Driscoll, age 70, has been Chief Executive Officer (since 1981) of
Barrett & Worthen, Inc. and the Brookman Stamp Company of Bedford, New
Hampshire, both of which are engaged in the business of buying and selling
stamps. Mr. Driscoll served as Vice President of H.E. Harris Company, a
subsidiary of General Mills from 1978 to 1981, after having founded R&R Stamp
Company in 1958 and serving as its President until it was sold in 1978 to
General Mills. Mr. Driscoll is a past President of the American Stamp Dealers
Association (from 1977 to 1978) and is a lifetime member of the American First
Day Cover Society. He has been a member of the American Philatelic Society for
over 45 years.
Herbert LaTuchie, age 83, was Chairman of the Board and Chief Executive Officer
(from 1954 to 1986) of Modern Builders Supply Company, Inc. and Modern
Manufacturing, Inc., the latter of which is one of the ten leading distributors
of building products in the United States. Mr. LaTuchie has been a life-long
collector of rare stamps, and he also collects sheet music and other paper
collectibles.
Joseph Levy, Jr., age 76, is president of Levy Venture Management, Inc., a real
estate development company specializing in automotive retailing real estate.
Prior to forming Levy Venture Management, Mr. Levy was President of Walton
Chrysler-Plymouth (from 1953 to 1960), the world's largest Chrysler dealership
during his tenure as president of the company, and Carol Buick (from 1961 to
1984), the world's largest Buick dealership during his tenure as president. Mr.
Levy currently serves on the board of directors of CDW Computer Centers, Inc.
(NASDAQ: CDWC), and has served as a director of several banks, including NBD
Evanston. He currently sits on the boards of directors/trustees of the following
charitable and not for profit corporations: the Chicago Historical Society,
Culver Educational Foundation, Evanston Hospital, and the Levy Senior Centers.
Mr. Levy is a collector of stamps, coins, watches and other collectibles.
Hector D. Wiltshire, age 60, is President and CEO of Wiltshire Technologies,
Inc., a high technology venture capital and consulting group, and is an
experienced collector of rare stamps. Mr. Wiltshire is a member of the
Association of Certified and Corporate Accountants (A.C.C.A) and the British
Computer Society (M.B.C.S.). Mr. Wiltshire holds degrees in Executive Business
Administration and marketing.
Item 11. EXECUTIVE COMPENSATION
Information regarding Executive Compensation will be in the definitive
proxy statement of the Company to be filed within 120 days of June 30, 2001 and
is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding Security Ownership of Certain Beneficial Owners
and Management will be in the definitive proxy statement of the Company to be
filed within 120 days of June 30, 2001 and is incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Transactions will be
in the definitive proxy statement of the Company to be filed within 120 days of
June 30, 2001 and is incorporated by reference.
57
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Exhibit No. Description
-------------------------------------------------------------------------------
(a) (1) All Financial Statements of the Company for the years
ended June 30, 2001, 2000 and 1999 are filed herewith.
See Item 8 of this Report for a list of such financial
statements.
(2) Financial Statement Schedules:
Report of Independent Accountants
Schedule:
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
(3) Exhibits -- See response to paragraph (c) below.
(b) Reports on Form 8-K
(1) Report on Form 8-K filed on February 27, 2001, relating to the
reincorporation of the Company from New York to Delaware.
(2) Report on Form 8-K filed on June 25, 2001, relating to certain
issuances of stock by the Company.
(c) Exhibits
3.1 Restated Certificate of Incorporation of Registrant, as amended.
Incorporated by reference to Exhibit 3(a) to the Company's Form
SB-2, Registration Number 33-55792-NY, dated May 14, 1993 (the "1993
Form SB-2"); as amended by the Certificate of Amendment filed with
the Secretary of State of New York on March 3, 2000.*
3.2 By-laws, as amended, of Registrant. Incorporated by reference to
Exhibit 3(b)to the 1993 Form SB-2.
10.1 1993 Stock Option Plan. Incorporated by reference to Exhibit 10(a)
to the 1993 Form SB-2 and incorporated by reference to Exhibit A to
the Proxy Statement of the Company dated January 31, 1994.
10.2 Employment Agreement between Greg Manning and Registrant dated as of
May 14, 1993. Incorporated by reference to Exhibit 10(b) to the Form
SB-2 and incorporated by reference to Exhibit 4.1 to Form 10-QSB of
the Company for the period ended December 31,1995, dated February
13, 1996, as amended.
10.3 Second Amendment to Employment Agreement between Greg Manning and
Registrant, dated as of September 11, 1997. Incorporated by
reference to Exhibit 10.3 to Form 10-KSB of the Company for the
period ended June 30, 1997.
10.4 Third Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 1999.*
10.5 Fourth Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 2000.*
10.6 Employment Agreement between the Company, Spectrum Numismatics
International, Inc. and Gregory N. Roberts. Incorporated by
reference to the Company's Proxy Statement dated January 14, 2000.
10.7 1997 Stock Option Plan, as amended. Incorporated by reference to
Exhibit A to the Proxy Statement of the Company dated October 28,
1997 and to the Proxy Statement of the Company dated January 14,
2000.
58
10.8 Merger Agreement dated December 8, 1999, between the Company,
Spectrum Acquisition, Inc., Spectrum Numismatics International,
Inc., Warren Trepp, as trustee, Gregory Roberts, Sharon Roberts and
Elaine Dinges. Incorporated by reference to Annex B of the Proxy
Statement of the Company dated January 14, 2000.
10.13 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum
Numismatics International, Inc.
10.14 Continuing Guaranty dated February 18, 2000 between Bank of America,
NA and Greg Manning.
10.15 Pledge Agreement dated February 18, 2000 between Bank of America, NA
and Greg Manning.
23.1 Consent of Independent Accountants.*
* Filed herewith
*************************************************************************
59
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GREG MANNING AUCTIONS, INC.
Date: September 27, 2001
/s/ Greg Manning
---------------------------------
Greg Manning
Chairman of the Board
Chief Executive Officer & Director
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
Date: September 27, 2001
/s/ Greg Manning .
---------------------------------
Greg Manning
Chairman of the Board
Chief Executive Officer & Director
/s/ Larry Crawford .
---------------------------------
Larry Crawford
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Anthony Bongiovanni .
---------------------------------
Anthony Bongiovanni
Director
/s/ Scott Rosenblum ,
---------------------------------
Scott Rosenblum
Director
/s/ Richard Cohen ,
---------------------------------
Richard Cohen
Director
/s/ Greg Roberts ,
---------------------------------
Greg Roberts
Director
/s/ James Davin ,
---------------------------------
James Davin
Director
,
---------------------------------
Mark Segall
Director
60
,
---------------------------------
Albertino de Figueiredo
Director
,
---------------------------------
Esteban Perez
Director
61
Report of Independent Accountants
To the Board of Directors and
Stockholders of Greg Manning Auctions, Inc.
We have audited the consolidated financial statements of Greg Manning Auctions,
Inc., and subsidiaries as of June 30, 2001 and 2000, and for each of the three
years in the period ended June 30, 2001 and have issued our report thereon dated
September 14, 2001; such consolidated financial statements and report are
included elsewhere in this Form 10-K. Our audits also included the consolidated
financial statement schedule of Greg Manning Auctions, Inc. and subsidiaries
listed in Item 14 (a) 2. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Amper, Politziner & Mattia P.A.
-----------------------------------
September 14, 2001
Edison, New Jersey
62
SCHEDULE II
Greg Manning Auctions, Inc.
Valuation and Qualifying Accounts
(in thousands)
Balance at Balance
Beginning at End
of Year Additions Write-offs of Year
--------- --------- ---------- -------
Allowance for sales returns and
doubtful accounts
Years Ended June 30, 1999 $ 150 $ 12 $ - $ 162
2000 162 664 - 826
2001 826 19 - 845
Valuation allowance for deferred tax asset
Years Ended June 30, 1999 76 155 15 216
2000 216 359 - 575
2001 575 4,926 - 5,501
Realizable value allowance for inventory
Years Ended June 30, 1999 68 296 - 364
2000 364 150 - 514
2001 514 2,388 - 2,902
63
EXHIBIT INDEX
Exhibit No. Description
-------------------------------------------------------------------------------
(a) (1) All Financial Statements of the Company for the years
ended June 30, 2001, 2000 and 1999 are filed herewith.
See Item 8 of this Report for a list of such financial
statements.
(2) Financial Statement Schedules:
Report of Independent Accountants
Schedule:
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
(3) Exhibits -- See response to paragraph (c) below.
(b) Reports on Form 8-K
(3) Report on Form 8-K filed on February 27, 2001, relating to the
reincorporation of the Company from New York to Delaware.
(4) Report on Form 8-K filed on June 25, 2001, relating to certain
issuances of stock by the Company.
(c) Exhibits
3.1 Restated Certificate of Incorporation of Registrant, as amended.
Incorporated by reference to Exhibit 3(a) to the Company's Form
SB-2, Registration Number 33-55792-NY, dated May 14, 1993 (the "1993
Form SB-2"); as amended by the Certificate of Amendment filed with
the Secretary of State of New York on March 3, 2000.*
3.2
By-laws, as amended, of Registrant. Incorporated by reference to
Exhibit 3(b)to the 1993 Form SB-2.
10.1 1993 Stock Option Plan. Incorporated by reference to Exhibit 10(a)
to the 1993 Form SB-2 and incorporated by reference to Exhibit A to
the Proxy Statement of the Company dated January 31, 1994.
10.2 Employment Agreement between Greg Manning and Registrant dated as of
May 14, 1993. Incorporated by reference to Exhibit 10(b) to the Form
SB-2 and incorporated by reference to Exhibit 4.1 to Form 10-QSB of
the Company for the period ended December 31,1995, dated February
13, 1996, as amended.
10.3 Second Amendment to Employment Agreement between Greg Manning and
Registrant, dated as of September 11, 1997. Incorporated by
reference to Exhibit 10.3 to Form 10-KSB of the Company for the
period ended June 30, 1997.
10.4 Third Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 1999.*
10.5 Fourth Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 2000.*
10.7 Employment Agreement between the Company, Spectrum Numismatics
International, Inc. and Gregory N. Roberts. Incorporated by
reference to the Company's Proxy Statement dated January 14, 2000.
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10.9 1997 Stock Option Plan, as amended. Incorporated by reference to
Exhibit A to the Proxy Statement of the Company dated October 28,
1997 and to the Proxy Statement of the Company dated January 14,
2000.
10.10 Merger Agreement dated December 8, 1999, between the Company,
Spectrum Acquisition, Inc., Spectrum Numismatics International,
Inc., Warren Trepp, as trustee, Gregory Roberts, Sharon Roberts and
Elaine Dinges. Incorporated by reference to Annex B of the Proxy
Statement of the Company dated January 14, 2000.
10.16 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum
Numismatics International, Inc.
10.17 Continuing Guaranty dated February 18, 2000 between Bank of America,
NA and Greg Manning.
10.18 Pledge Agreement dated February 18, 2000 between Bank of America, NA
and Greg Manning.
23.1 Consent of Independent Accountants.*
* Filed herewith
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