GREG MANNING AUCTIONS, INC.
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Larry Crawford 775 Passaic Avenue
Chief Financial Officer West Caldwell, New Jersey 07006
Executive Vice President Phone 800-221-0243 - 973-882-0004
lcrawford@gregmanning.com Fax 973-882-2981
www.gregmanning.com
November 22, 2004
VIA EDGAR
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Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549
Attention: Deborah A. Wilson, Staff Accountant
Monica Brame, Staff Accountant
Re: Greg Manning Auctions, Inc.
10-K for the year ended June 30, 2004
File No. 1-11988
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Ladies and Gentlemen:
Greg Manning Auctions, Inc. (the "Company" or "GMAI") is providing its
responses to the comments from the staff of the Division of Corporation Finance
(the "Staff") of the Securities and Exchange Commission (the "SEC") with respect
to the Company's Annual Report on Form 10-K for the year ended June 30, 2004
(the "Form 10-K") which was filed with the SEC on September 10, 2004.
For the Staff's convenience, the Staff's comments have been stated below
in their entirety, with the responses to a particular comment set out
immediately under the comment or comments. Capitalized terms used herein are
intended to have the meanings ascribed to such terms in the Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations, p.14
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General
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1. Please expand your disclosure in future filings related to the
arrangement and transactions with Afinsa to include the information
required by FR-61 about the effects of transactions with related
parties. For example, discuss how the arrangements with Afinsa
differ from those that would likely be negotiated with clearly
independent parties. Describe the elements of the transactions that
are necessary for an understanding of the transactions' business
purpose and economic substance. Disclose how the transaction prices
were determined. Disclose any ongoing contractual or other
commitments as a result of the arrangement.
GMAI will expand its disclosure in future filings relating to transactions with
Afinsa to include the information required by FR-61 about the effects of
transactions with related parties, taking into account the specific issues
raised by the Staff.
Critical Accounting Policies, page 23-25
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2. Please note that the disclosure in the MD&A related to your critical
accounting policies should enhance and supplement the description of
the accounting policies in the Notes to the Consolidated Financial
Statements, and is not intended to be a duplication of the
disclosure included in the Notes. Please revise your disclosure in
future filings to present the Company's analysis of the
uncertainties involved in applying an accounting principle at a
given time or the variability that is reasonably likely to result
from its application over time. The revised disclosure should
include such items as how you arrived at the estimate, how accurate
your assumptions have been in the past, and any other disclosures
related to the estimates and assumptions involved in the application
of generally accepted accounting principles that impact your
reported financial condition and operating performance, or the
comparability of reported information over different reporting
periods. For example, disclose the assumptions, etc. that resulted
in an increase in your bad debt expense for the year ended June 30,
2004 compared to the year ended 2003. Please refer to the guidance
in FR-72.
GMAI will revise its future filings with respect to critical accounting policies
to include a discussion of the assumptions and uncertainties that underlie
critical accounting estimates. As appropriate, the Company will discuss the
sensitivity of reported results to changes in assumptions, judgments and
estimates.
Safe Harbor Statement, page 26
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3. Please revise your Safe Harbor Statement in future filings to only
reflect "forward looking" statements in accordance with Section 21
(E) of the Securities Exchange Act of 1934.
GMAI will revise its future filings to reflect only "forward looking" statements
in accordance with Section 21E of the Securities Exchange Act of 1934.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk, page 29
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4. We note: (1) that you have 55 employees located in Europe, or
approximately 39% of your total employees; (2) that you disclose
your accounting policy related to foreign currency translation and
transactions in your financial statements, (3) that 55% of your
revenues earned during the year ended June 30, 2004 were earned from
your foreign operations, and that (4) 56% of your property and
equipment is located in countries other than the U.S. Are these
foreign operations not material to your business? Please confirm to
us that you determined that your market risk exposures (e.g. foreign
currency exchange rate risk, etc.) were not material as to require
the quantitative and qualitative disclosures specified by Item 305
of Regulation S-K, and that your determination was made in
accordance with the guidance included in "Questions and Answers
About the New Market Risk Disclosure Rules" issued in July 1997.
Also, in future filings, and supplementally to us, please clarify
the last sentence in the first paragraph where you state that your
business is operated (emphasis added) primarily in the U.S.
Please note supplementally that for the year ended June 30, 2004, approximately
35% of our net revenues were earned from our foreign operations, while
approximately 55% of our net revenues were attributable to sales of goods
shipped to foreign customers. The Company will clarify this disclosure in future
filings. Please also note that in future filings, the Company will delete the
last sentence of the first paragraph which refers to our business being
"operated primarily in the U.S."
With respect to Item 7A, Quantitative and Qualitative Disclosures About Market
Risk, GMAI proposes to revise its future filings to include the following
disclosure:
Interest Rate Risks
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Interest rates on the Company's credit facilities with PNC Bank and Banco
Santander Central Hispano are market-based. (See "[Reference]" above.)
Accordingly, the Company is exposed to certain interest rate risks caused by
fluctuations in interest rates. If, for example, the LIBOR and the "prime" rates
were to increase by 1% for any given year, our interest expense would increase
interest expense by approximately $165,000 for the period (assuming that all
amounts available under such credit facilities - that is, $16,500,000 - are
drawn down.) There can be no assurance that interest rates will not increase
over the next fiscal year. However, because we do not believe that our exposure
to interest rate risk is significant, we have not undertaken specific steps to
reduce or eliminate this risk.
Foreign Currency Risks
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Business transactions originating from our United States and Asian operations
are denominated in U.S. dollars. Transactions from our European operations,
which in fiscal 2004 accounted for approximately 35% of total net revenues, are
denominated in Euros.
The average Euro to dollar exchange rate during fiscal 2004 was $1.22 U.S.
dollar to $1.0 Euro. As a result of this exchange rate, the company enjoyed a
favorable exchange rate advantage equal to $1.3 million in fiscal 2004. A 5%
change in the Euro to dollar exchange rate would have had a effect on the
company's net profits in fiscal 2004 of $300,000.
The company does not believe it is exposed to material foreign currency risks.
As a result, we do not enter into any hedging activities to minimize such risk.
The Company will assess the significance of interest rate, exchange rate and
other market risks on a periodic basis and will implement strategies to manage
risk as appropriate.
Notes to Consolidated Financial Statements, page 37
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(1) Description of Business and Summary of Significant Accounting Policies
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Concentration of Credit Risk, page 38
5. We note from the last paragraph of this policy, that certain assets
held by the Company are collateral for the receivables resulting
from the Company's sale of its inventory with payment terms up to 12
months. Do you recognize both the receivable and the asset that is
collateral for the receivable in your balance sheet? If so, please
describe these transactions to us and support your policy, or revise
your disclosure in future filings for clarity. Or is the sold
inventory collateral for the related receivable until such time as
payment is received? If so, please advise us when you recognize
revenue from these transactions, and support your policy.
On certain limited transactions, we have granted extended payment terms and have
required certain collateral to secure the outstanding receivable. The collateral
may be the inventory sold or goods the customer owns of equivalent value.
Therefore, the assets held as collateral is not reflected on our balance sheet.
With regard to the accounting treatment for these transactions, the Company
records revenue on these transactions in accordance with the criteria of SAB No.
101.
Inventories, page 39
6. Since you account for inventories using the specific identification
method, please advise us why, on certain items, you estimate
write-downs of inventory based on a percentage of the inventory
aging by category type. Include support for using this method.
Generally, our inventory turns at least one time a year. If inventory marketed
and available for sale is not sold within a year, the Company generally reduces
the selling price in order to turn the inventory to generate cash flow. In
connection with the markdown in the selling price, the Company writes down the
related inventory to reflect the lower of cost or market. If we become aware of
an immediate decline in the marketplace, we write the inventory down to the
estimated market value, regardless of its aging.
7. Please advise us, and disclose in future filings, how you account
for inventories that the Company holds for a period in excess of one
year, and if your policy is to measure and recognize impairment of
these inventory items in accordance with SFAS 144.
The inventory held in excess of one year represents goods for which there is a
specific plan in place for their sale beyond one year after purchase. These
plans are entered into for the purpose of avoiding a "flood the marketplace"
situation with certain collectibles. The classification for this inventory is
based on the expected period in which we expect to sell this inventory (greater
than a year from the balance sheet date). Once the selling period is identified
the non-current amounts are reclassified to current. This inventory is valued at
the lower of cost or market which reflects our estimate of its net realizable
value. We did not consider FASB 144 because we do not believe these assets meet
the definition of "Long-lived Assets", that is, assets that cannot be readily
moved.
We will make appropriate disclosure in future filings.
8. Please advise us, and disclose in future filings, the method used to
account for transactions where the Company has agreed with certain
suppliers to share the net profits or losses attributable to the
sale of specific items of inventory. Do you report the profits or
losses allocated to the supplier as increases to, or reductions in,
revenue or cost of merchandise sold? Support your policy.
We report the profit or loss allocated to the suppliers as a component of costs
of goods sold based upon guidance from SAB 101 and EITF 99-19. We report the
sale of this inventory as revenue because we purchase this inventory from the
supplier and ultimately sell it to the end user. During this process the Company
acts as the principal in this transactions; in other words, we take title to the
inventory and bear all the risks and rewards, including all risks relating to
loss, collections, delivery and returns. We, and not the supplier, determine the
selling price to the end user. Upon our purchase of the inventory, the supplier
does not retain any of the risks and rewards of ownership and in substance is
treated on a commission basis.
We will make appropriate disclosure in future filings.
Segment Information, page 44
9. Please advise us how you determined that you had met the aggregation
criteria and quantitative thresholds of SFAS 131 in order to
disclose that you operate principally in one segment.
We believe that we operate in one segment consisting of collectibles, including
philatelics and numismatics. This determination was based upon aggregation
criteria as defined in SFAS 131 because of the similar economic characteristics
of our business. In addition we also consider the following areas:
o The nature of our products is collectibles
o There is no specific production process, all products are acquired
and processed in a similar manner.
o Collectors and/or investors are our customers
o The method used to distribute our products is through distributors
and/or wholesalers. The revenue generated through sales at auctions
is less than 10%.
o We do not operate in a regulatory environment.
Based upon the above criteria we have determined to be operating in one
reportable segment based upon our interpretation of SFAS 131. However if facts
and circumstances change we may revise future filings to include segment
reporting.
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Should you have any questions in regard to this response, please call me
at 973-882-0004.
Very truly yours,
/s/ Larry L. Crawford
cc: Mr. Greg Manning