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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to______
Commission file number 1-11988
GREG MANNING AUCTIONS, INC.
(Name of Registrant as specified in its Charter)
Delaware 22-2365834
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
775 Passaic Avenue
West Caldwell, New Jersey 07006
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (973) 882-0004
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
- ------------------- ----------------
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 24, 2002 (based on closing sale price of $1.50 per
share as reported on NASDAQ), was $7,729,095. 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, 2002, Issuer had 12,703,304 shares of its Common Stock
outstanding.
Portions of the Registrant's definitive proxy statement, which will be
filed within 120 days of June 30, 2002, are incorporated by reference into Part
III.
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THE REMAINDER OF THIS PAGE WAS PURPOSELY LEFT BLANK
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Greg Manning Auctions, Inc.
Index
Page
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PART I
Item 1 Description of Business.................................................4
Item 2 Description of Property................................................12
Item 3 Legal Proceedings......................................................12
Item 4 Submission of Matters to a Vote of Security Holders....................12
PART II
Item 5 Market For Common Equity and Related Shareholder Matters...............12
Item 6 Selected Consolidated Financial Data...................................13
Item 7 Management's Discussion and Analysis of Financial Condition
And Results of Operations..............................................16
Item 8 Financial Statements and Supplementary Data............................27
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................57
PART III
Item 10 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(A) of the Exchange Act.....................57
Item 11 Executive Compensation................................................59
Item 12 Security Ownership of Certain Beneficial Owners and Management........59
Item 13 Certain Relationships and Related Transactions........................59
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.......60
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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, 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, 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 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.
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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 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 2002, five stamp 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, 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.
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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 2002, the Company offered over 8,400
philatelic lots in its traditional auctions yielding over $ 11 million in
aggregate sales.
Internet Auctions
teletrade.com
The Company currently offers rare coins and sports trading cards in its
teletrade.com auctions. During fiscal year 2002, the Company held 138 coin
auctions comprising approximately 916 lots each and 107 sports trading card
auctions comprising approximately 642 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
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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.
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.
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 the entire 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.
D. WHOLESALE COIN SALES
The Company's wholly owned subsidiary Spectrum Numismatics International, Inc.
("Spectrum"), is 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 $67 million of coins per year.
E. DIRECT RESPONSE SALES
Through its wholly owned subsidiary, Greg Manning Direct, Inc. ("GMD"), the
Company has been engaged in the business of mass-marketing high interest
collectibles targeted to the beginning collector, in conjunction with Tristar
Products, Inc. Products marketed and sold to date have included the 50 State US
Quarter Map and coin set, 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.
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. The Company currently maintains a 45% ownership
interest in GMAI-Asia.com (on an undiluted basis).
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.
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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 Chinaregion 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 comany 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, exercisable 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.
Products are 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.
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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 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
10
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 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
During June 2002, the Company entered into a letter of intent with Afinsa Bienes
Tangibles, S.A. ("Afinsa"), relating to the sale of substantially all of
Afinsa's non-investment collectibles business, currently operated primarily
through Auctentia, S.A. ("Auctentia"), a wholly owned subsidiary of Afinsa, in
exchange for shares of GMAI's common stock. Auctentia currently owns
approximately 43% of the common stock of GMAI. If the transaction is completed,
the Company expects that Auctentia or an affiliate will own approximately 70% of
its common stock. It is currently anticipated that the businesses to be sold to
GMAI will include businesses focused on philatelic and numismatic collecting,
including, among others, Afinsa Auctions, Heinrich Kohler and de Rosa Group
International; businesses focused on the fine arts market, including, among
others, art galleries and Finarte Espana Auction; as well as the online
operations of Centrodearte, DooCollect and Mercart. If the deal is consummated,
the Company believes that the combined company will be one of the world's
largest collectibles companies. The impact of this transaction on financial
condition, results of operations, and earnings per share is not known at this
time. The letter of intent, which is non-binding, provides for the parties to
immediately start negotiating a definitive purchase agreement and complete the
due diligence process. This process is ongoing. It is expected that the
transaction will close by the quarter ended March 31, 2003. The purchase
agreement will contain usual and customary conditions to closing, including
obtaining shareholder approval of the transaction and any required regulatory
approvals. There can be no assurance that the proposed transaction will be
consummated, or if consummated, on the terms described above.
11
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.
EMPLOYEES
The Company presently has 54 full-time employees, including its President, Chief
Executive Officer and Chairman of the Board, Greg Manning 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.
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 $211,000 and an additional 2,168 square
feet for the California operations of its Teletrade subsidiary at an annual
rental of approximately $58,500. 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 90
and beneficial owners of record totaled 2,057 at June 30, 2002.
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, 2002, 2001 and 2000 are shown in the
following schedule:
For the years ended June 30,
--------------------------------------------------------------------------------------------
2002 2001 2000
------------------------ ------------------------- ---------------------------
(Quarter) High Low High Low High Low
- --------- --------- -------- --------- -------- --------- ---------
First $ 2.35 $ 1.26 $ 11.88 $ 7.69 $ 28.50 $ 10.88
Second $ 2.25 $ 1.30 $ 8.69 $ 1.75 $ 17.50 $ 9.31
Third $ 2.25 $ 1.40 $ 3.22 $ 1.78 $ 27.81 $ 12.88
Fourth $ 1.90 $ 1.25 $ 3.01 $ 1.25 $ 21.50 $ 9.53
The quotations shown above reflect inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions.
12
In addition, during fiscal year 2001 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 commencing June 15,
2001 and ending October 15, 2001. These payments have been made in full and the
stock has been issued.
In late January and early February 2000, GMAI issued in a private
placement to The Tail Wind Fund Ltd., LBI Group Inc., and Lombard Odier & Cie an
aggregate of 750,000 shares of the Company's common stock for approximately
$11,273, 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. Thereafter, on May 14, 2001, the Company entered
into an agreement with these 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 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.
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 June 30,
2002, Auctentia held 5,435,886 shares of common stock of the Company,
representing approximately 43% of the total number of shares outstanding as of
June 30, 2002, 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 June 20, 2002.
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, 2002, 2001, 2000, 1999 and 1998, are derived from, and
are qualified by reference to, the audited consolidated financial statements of
Greg Manning Auctions, Inc.
13
Greg Manning Auctions, Inc.
Years Ended June 30,
(In Thousands, except per share data)
Consolidated Statements of Operations Data: 2002 2001 2000 1999 (1) 1998 (1)
--------- -------- -------- -------- ---------
Net Revenues $ 80,777 $ 67,396 $ 62,379 $ 77,484 $ 8,690
Cost of merchandise sold 71,966 62,354 50,559 65,741 4,569
--------
Gross profit 8,811 5,042 11,820 11,743 4,121
Sales and marketing expenses 1,578 1,879 2,442 2,033 581
Depreciation and Amortization 1,416 1,564 1,010 739 374
Other Expense 6 340 -- -- --
Acquisition and merger costs -- 205 926 -- --
Intangible impairment 4,741 2,158 -- -- --
General, administrative, and all other
operating expenses 10,041 10,536 10,845 9,136 3,892
-------- -------- -------- -------- --------
Total operating expenses 17,782 16,682 15,223 11,908 4,847
-------- -------- -------- -------- --------
Income (loss) from operations (8,971) (11,640) (3,403) (165) (726)
Interest and other expense (net) (713) (1,136) (1,090) (1,201) (233)
Gain on sale of marketable securities and investments -- -- 14 2,555 672
Income (loss) from operations of investee (250) (4,951) (851) 95 --
-------- -------- -------- -------- --------
Income (loss) before income taxes (9,934) (17,727) (5,330) 1,284 (287)
Provision for (benefit from) income taxes 3,243 (1,404) (1,661) 461 (55)
-------- -------- -------- -------- --------
Net income (loss) $(13,177) $(16,323) $ (3,669) $ 823 $ (232)
======== ======== ======== ======== ========
Net income (loss) per share:
Basic $ (1.06) $ (1.58) $ (0.38) $ 0.11 $ (0.05)
======== ======== ======== ======== ========
Diluted $ (1.06) $ $ (1.58) $ (0.38) $ 0.11 $ (0.05)
======== ======== ======== ======== ========
Weighted average shares:
Basic 12,469 10,299 9,710 7,355 4,420
======== ======== ======== ======== ========
Diluted 12,469 10,299 9,710 7,799 4,420
======== ======== ======== ======== ========
Consolidated Balance Sheet Data:
Cash and cash equivalents $ 2,169 $ 2,158 $ 1,092 $ 811 $ 603
======== ======== ======== ======== ========
Total Current Assets 22,117 25,971 33,265 33,967 12,465
======== ======== ======== ======== ========
Total Assets 27,348 40,452 55,443 46,772 18,663
======== ======== ======== ======== ========
Total Current Liabilities $ 15,576 $ 16,885 $ 17,365 $ 22,840 $ 11,010
======== ======== ======== ======== ========
Total Long-Term Liabilities 116 168 111 3,605 118
======== ======== ======== ======== ========
Total Liabilities 15,692 17,053 17,476 26,445 11,128
======== ======== ======== ======== ========
Total Stockholders' Equity 11,656 23,399 37,967 20,327 7,536
======== ======== ======== ======== ========
Total Liabilities and Stockholders' Equity $ 27,348 $ 40,452 $ 55,443 $ 46,772 $ 18,663
======== ======== ======== ======== ========
(1) All 1999 amounts reflect the acquisition of Spectrum Numismatics
International, Inc., which was accounted of using the pooling of interests
method of accounting as if it had been acquired July 1, 1998, and also
include the operations Teledrade, Inc. and (which was accounted for using
the purchase method of accounting)
14
Greg Manning Auctions, Inc.
Condensed Interim Financial Data
(unaudited)
(In Thousands except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
---------------------------------------------------------------------------------------------------------------------------------
2002
---------------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 18,680 $ 17,436 $ 22,053 $ 22,608 $ 80,777
Cost of merchandise sold 16,501 15,030 19,403 21,032 71,966
-------- -------- -------- -------- --------
Gross profit 2,179 2,406 2,650 1,576 8,811
Sales and marketing expenses 353 327 402 496 1,578
Depreciation and Amortization 362 341 343 370 1,416
Other Expense -- -- -- 6 6
Acquisition and merger costs -- -- -- -- --
Intangible Impairment -- -- -- 4,741 4,741
General, administrative, and all
other operating expenses 2,286 2,328 2,209 3,219 10,041
-------- -------- -------- -------- --------
Total operating expenses 3,001 2,996 2,954 8,832 17,782
-------- -------- -------- -------- --------
Income (loss) from operations (822) (590) (304) (7,256) (8,971)
Interest and other expense (net) (103) (188) (160) (262) (713)
Income (loss) from operations of --
investees -- (250) -- -- (250)
-------- -------- -------- -------- --------
Income (loss) before income taxes (925) (1,028) (464) (7,517) (9,934)
Provision for (benefit) income taxes -- -- 200 3,043 3,243
-------- -------- -------- -------- --------
Net income (loss) $ (925) $ (1,028) $ (664) $(10,560) $(13,177)
======== ======== ======== ======== ========
Net income (loss) per share:
Basic $ (0.08) $ (0.08) $ (0.05) $ (0.85) $ (1.06)
======== ======== ======== ======== ========
Diluted $ (0.08) $ (0.08) $ (0.05) $ (0.85) $ (1.06)
======== ======== ======== ======== ========
(In Thousands except per share amounts) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
---------------------------------------------------------------------------------------------------------------------------------
2001
---------------------------------------------------------------------------------------------------------------------------------
Net Revenues $ 14,407 $ 13,527 $ 17,836 $ 21,626 $ 67,396
Cost of merchandise sold 11,945 11,288 16,683 22,438 62,354
-------- -------- -------- -------- --------
Gross profit 2,462 2,239 1,153 (812) 5,042
--------
Sales and marketing expenses 616 461 306 496 1,879
Depreciation and Amortization 363 373 424 404 1,564
Other expenses 340 340
Acquisition and merger costs -- 205 -- -- 205
Intangible Impairment -- -- 300 1,858 2,158
General, administrative, and all
other operating expenses 2,356 2,542 2,665 2,974 10,536
-------- -------- -------- -------- --------
Total operating expenses 3,335 3,581 3,695 6,072 16,682
-------- -------- -------- -------- --------
Income (loss) from operations (873) (1,342) (2,541) (6,884) (11,640)
--------
Interest and other expense (net) (173) (265) (344) (353) (1,135)
Income (loss) from operations of --
investees (277) (432) (245) (3,997) (4,951)
-------- -------- -------- -------- --------
Income (loss) before income taxes (1,323) (2,039) (3,130) (11,234) (17,727)
Provision for (benefit) income taxes (423) (604) (977) 600 (1,404)
-------- -------- -------- -------- --------
Net income (loss) $ (900) $ (1,435) $ (2,153) $(11,834) $(16,323)
======== ======== ======== ======== ========
Net income (loss) per share:
Basic $ (0.09) $ (0.14) $ 0.21 $ (1.07) $ (1.58)
======== ======== ======== ======== ========
Diluted $ (0.09) $ (0.14) $ 0.21 $ (1.07) $ (1.58)
======== ======== ======== ======== ========
15
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 includes the balances from
Spectrum's financial statements as if the acquisition had been made as of July
1, 1999.
General
The Company has one segment consisting of various collectibles, which are
summarized, in the accompanying table.
For the Years Ended June 30,
-------------------------------------------------------------------
(In Thousands, except for percentages)
Percentages
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
Aggregate Sales $ 99,224 $ 96,489 $114,122 100% 100% 100%
======== ======== ========
By Source:
A. Auction 22,608 34,156 58,459 23% 35% 51%
B. Sales of Inventory 76,616 62,333 55,663 77% 65% 49%
-------- -------- -------- ----- ----- ----
$ 99,224 $ 96,489 $114,122 100% 100% 100%
======== ======== ======== ===== ===== ====
By Collectible Type:
A. Philatelics 12,239 15,192 14,125 12% 16% 12%
B. Numismatics 77,831 58,641 60,110 78% 61% 53%
C. Mass Market Collectibles 1,679 5,313 26,925 2% 6% 24%
D. Sports Collectibles 3,782 7,034 8,078 4% 7% 7%
E. Diamond -- 93 484 0% 0% 0%
F. Art 40 39 74 0% 0% 0%
G. Other Collectibles 3,653 10,177 4,326 4% 10% 4%
-------- -------- -------- ----- ----- ----
$ 99,224 $ 96,489 $114,122 100% 100% 100%
======== ======== ======== ===== ===== ====
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 table
above displays the aggregate sales for the Company for the years ended June 30,
2002, 2001 and 2000, and shows the comparisons for the respective years
subdivided by source and collectible type:
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.
16
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.
Amounts Stated In %s
Fiscal Year
2002 2001 2000
-----------------------------------------------------
Net Revenue 100.0 % 100.0 % 100.0 %
Gross Profit 10.9 7.5 18.9
Operating Expenses
General and Administrative 6.8 8.0 9.7
Depreciation and Amortization 1.8 2.3 1.6
Intangible Impairment 5.9 3.2 -
Other Expense - 0.5 -
Salaries and Wages 5.5 7.7 7.7
Acquisition and Merger Costs - 0.3 1.5
Marketing 2.0 2.8 3.9
-----------------------------------------------------
Total Operating Expenses 21.9 24.8 24.4
-----------------------------------------------------
Operating Income (Loss) (11.0) (17.3) (5.5)
Interest Income and Expense (net) (0.9) (1.7) (1.7)
Loss from operations of investee (0.3) (7.3) (1.4)
Gain on sale of marketable securities - - -
-----------------------------------------------------
Loss before income taxes (12.2) (9.0) (3.1)
-----------------------------------------------------
Provision for (Benefit from) income taxes 4.0 (2.1) (2.7)
Net Loss (16.2) % (24.2) % (5.9)%
=====================================================
Results of Operations Years ended June 30, 2002 and 2001 (Dollars in thousands
except as noted or per share information)
Revenues:
For the year ended June 30, 2002, operating revenues increased
approximately $13,381 (20%) to approximately $80,777 compared with
approximately $67,396 for the year ended June 30, 2001. This
increase is largely attributable to an increase in sales of owned
inventory of approximately $14,283 (23%). This increase was entirely
the result of higher sales of coins of approximately $22,500. The
increase in coin revenue was partially offset by a decrease in
commission revenue of approximately $ 900, a decrease of $4,700 due
to the sale of the comic and movie poster division in September 2001
and a decrease of $1,700 due to a softening of the sports market.
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 from approximately $5,042 for the year
ended June 30, 2001 to approximately $8,811 for the year ended June
30, 2002. This represents an increase of approximately $3,769 (75%).
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 $1,400, $2,400 and
$500 for the years ended June 30, 2002, 2001 and 2000, respectively.
The increased gross profit also reflects a
17
stronger inventory value resulting from management's aggressive
program to lower inventory balances of poorly performing inventory,
which was initiated in fiscal 2001.
Operating Expenses:
The increase in overall costs (7%), in combination with the
revenue increases (20%) had the effect of decreasing operating costs
as a percentage of operating revenue from 25% during the year ended
June 30, 2001 to 22% in the year ended June 30, 2002. The Company
recorded expenses relating to bad debt of $601 in fiscal 2002 and
$415 during fiscal 2001. Over the past five the average ratio of bad
debt to aggregate sales was less than 1%. The Company's aggregate
operating expenses, exclusive of cost of merchandise sold, for the
year ended June 30, 2002 totaled approximately $17,782 compared with
approximately $16,682 for the year ended June 30, 2001, representing
an increase of approximately $1,100 (or 7%). Included in the
operating loss for fiscal 2002 are expenses relating to intangible
impairments of $4,741 as compared to $2,158 in fiscal 2001 and
although this represents an increase of $2,583 it was offset by
reductions in all other expenses. The intangible impairment charges
were based on future discounted cash flows as further described in
the Company's Critical Accounting Policies. The primary decreases in
the operating expenses for the year ended June 30, 2002 from the
prior year were decreases in salaries and wages of approximately
$633 (12%), a decrease in acquisition and merger costs of $205
(100%) and other expenses decreasing $334 (98%).
Interest income and expense:
Interest expense decreased approximately $591 (41%) to
approximately $837 for the year ended June 30, 2002 as compared to
that of the previous year. This decrease was attributable to lower
average borrowings caused primarily by the repayment of loans as
well as a reduction of the loan guarantee fee paid to Greg Manning
from $191 in fiscal 2001 to $29 in fiscal 2002. Interest income
decreased during the year ended June 30, 2002 by approximately $168
(58%). 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, 2002 and 2001 were approximately 33% and (8%),
respectively. The difference relates to an increase in the valuation
allowance provided for all deferred tax asset attributes. 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,
2002 of approximately $13,177 compared to approximately $16,323 for
the year ended June 30, 2001 and reflected a decreased loss of
approximately $3,146 (19%) during this period. The increase in gross
profit of approximately $3,769 during the year ended June 30, 2002,
was the main contributing factor, the loss from operations of
investees decreased approximately $4,701 from fiscal 2001 but an
increase in the provision for income taxes (benefit) of
approximately $4,647 compared to the previous year offset each
other.
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 a 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
18
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 $15,222 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 (12%), 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 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 (7%) 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 $3,668 for
the year ended June 30, 2000 and reflected an increased loss of
approximately $12,655 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.
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.
19
The Company believes that its European financial and cash management
operations affected by the euro conversion have adequately been prepared for
its introduction. 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
Operating Activities
The Company experienced a negative cash flow from operating activities of
approximately $437 for the year ended June 30, 2002 as compared to a
positive cash flow of approximately $620 for fiscal 2001, a decrease of
approximately $1,057. This decrease in cash flow for the year ended June 30,
2002 was primarily attributable to a decline in the net change in inventory
of approximately $2,209 as compared to a decrease of $6,248 in year ended
June 30, 2001.
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's consignors of approximately $2,000
and a decrease in accounts payable to third party consignors of
approximately $1,243.
Contractual Obligations
Our contractual obligations related to non-cancelable
operating and capital leases at June 30, 2002 were as follows:
Payments due in: Operating Leases Capital Leases
---------------- ---------------- --------------
1 year $ 600 $ 67
2 years 505 72
3 years 453 35
4 years 242 9
5 years -- --
more than 5 years -- --
------ ------
1,800 183
====== ======
Commercial Commitments
Our commercial commitments at June 30, 2002 consist of a
remaining guarantee of $2,400 of indebtedness of China Everbright
Telecom-Land's Shanghai subsidiary. The guarantee was entered into as part
of the February 15,2000 acquisition of GMAI-Asia (See Note 8 to accompanying
consolidated financial statements). This commitment is expected to expire in
fiscal 2003.
Investing Activities
The Company had a negative cash flow from investing activities
of approximately $381 for year ended June 30, 2002 as compared to a negative
cash flow of $720 for year ended June 30, 2001 or an increase of $339. The
increase in cash flow in 2002 was attributable to a decline in capital
expenditures in the amount of approximately $858.
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 change in cash flows for the year
ended June 30, 2001 was primarily attributable to a decrease in equity
method investees.
Financing Activities
The Company had positive cash flow from financing activities of
approximately $829 in year ended June 30, 2002 or a decrease of $337 from
fiscal year ended 2001. Part of the decrease in fiscal 2002 was due to a
total reduction in debt of $1,151 and a decrease of $361 in proceeds from
the sale of common stock. In 2002 there were no purchases of treasury stock
in as opposed to a purchase of $1,215 of treasury stock in 2001.
20
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.
During October 2001, the Company paid off its previous line of credit
facilities with Brown Brothers Harriman & Co. and Bank of America. This debt
was replaced with the following credit facilities:
During 2002 the Company entered into an agreement with Afinsa to which
Afinsa agreed to provide the Company with a revolving credit facility of up
to $2,000. Borrowings under this facility bear interest at an annual rate of
8%. The agreement also provides that any borrowings not repaid in accordance
with the terms of the agreement may be converted into GMAI stock at the
discretion of Afinsa. As of June 30, 2002, $1,400 and as of September 15,
2002, $2,000 had been borrowed under this agreement. The agreement expires
October 2002 and is expected to be renewed for an additional 6 months. The
Company also has a note with a privately held capital fund in the amount of
$4,000 at June 30, 2002. The loan is collateralized by inventory and has an
interest rate of 10% and is due December 31, 2003.
The Company has a note payable in the amount of $1,450, collateralized
by specific coin inventory with an interest rate of 9% with quarterly
payments of $500 commencing in April 2002 until the loan is repaid in June
2003. The balance of notes payable of $183 represents capital leases for the
purchase of equipment and they carry interest rates ranging from 13% to 21%.
During June 2002, the Company entered into a letter of intent with
Afinsa, relating to the sale of substantially all of Afinsa's non-investment
collectibles business, currently operated primarily through Auctentia, in
exchange for shares of GMAI's common stock. Auctentia currently owns
approximately 43% of the common stock of GMAI. If the transaction is
completed, the Company expects that Auctentia or an affiliate will own
approximately 70% of its common stock. It is currently anticipated that the
businesses to be sold to GMAI will include businesses focused on philatelic
and numismatic collecting, including, among others, Afinsa Auctions,
Heinrich Kohler and de Rosa Group International; businesses focused on the
fine arts market, including, among others, art galleries and Finarte Espana
Auction; as well as the online operations of Centrodearte, DooCollect and
Mercart. If the deal is consummated, the Company believes that the combined
company will be one of the world's largest collectibles companies. The
impact of this transaction on financial condition, results of operations,
and earnings per share is not known at this time. The letter of intent,
which is non-binding, provides for the parties immediately to start
negotiating a definitive purchase agreement and complete the due diligence
process. This process is ongoing. It is expected that the transaction will
close by the quarter ended March 31, 2003. The purchase agreement will
contain usual and customary conditions to closing, including obtaining
shareholder approval of the transaction and any required regulatory
approvals. There can be no assurance that the proposed transaction will be
consummated, or if consummated, on the terms described above.
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, 2002 and 2001, the
Company's expense relating to bad debt was approximately $601 and $415
respectively. For the years ended June 30, 2002 and 2001 the Company's
history of bad debts has been less than 1% of revenue.
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
21
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.
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.
Critical Accounting Policies
The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
("GAAP"). The preparation of consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
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.
The Company believes that the estimates, judgments and assumptions upon
which the Company relies are reasonable based upon information available to us
at the time that these estimates, judgments and assumptions are made. To the
extent there are material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be affected.
The significant accounting policies that the Company believes are the
most critical to aid in fully understanding and evaluating our reported
financial results include the following:
o Revenue Recognition
o Allowances for Doubtful Accounts and Sales Returns
o Inventory Valuation and Classification
o Goodwill and Intangible Assets
o Accounting for Income Taxes
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application. There are also areas in which management's judgment in selecting
among available alternatives would not produce a materially different result.
Our senior management has reviewed the Company's critical accounting policies
and related disclosures with our Audit Committee. See Notes to Consolidated
Financial Statements, which contain additional information regarding our
accounting policies and other disclosures required by GAAP.
22
Revenue Recognition
The Company derives revenues from two primary sources:
1. Auction Revenue:
Revenue is recognized when 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. Such
amounts of revenue are recorded on a net basis as commission
revenue.
The Company also sells its own inventory at auction. Revenue
of owned inventory is recognized when sold at auction. Such amounts
of revenue are recorded on a gross basis as sales of merchandise.
Additionally, the Company is entitled to auction commissions paid by
the buyer. Sales returns have not been material.
2. Private Treaty Sales:
Private treaty sales represent sales of consigned property and
sales of owned inventory.
Private treaty sales of consigned property occur when an owner
of property arranges with the Company to sell such consigned
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. Such amounts of revenue are
recorded on a net basis as commission revenue and are recognized
when sold.
Private treaty sales of owned inventory occur when the Company
sells its goods directly to a customer either wholesale or retail.
Revenue with respect to private treaty revenues is recognized when
delivered or released to the customer for acceptance or to a common
carrier for delivery. Such amounts of revenue are recorded on a
gross basis as sales of merchandise. 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.
Allowances for Doubtful Accounts and Sales Returns
The Company makes judgments as to our ability to collect outstanding
auction and consignor advances receivables and provides allowances for the
portion of receivables when collection becomes doubtful. Provisions are made
based upon a specific review of all significant outstanding invoices. For
those invoices not specifically reviewed, provisions are provided at
differing rates, based upon the age of the receivable. The Company
continuously monitors payments from it's customers and maintains allowances
for doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. When the Company evaluates the
adequacy of our allowances for doubtful accounts, it takes into account
various factors including accounts receivable aging, customer
credit-worthiness, historical bad debts, and geographic and political risk.
If the financial condition of our customers deteriorates, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
The Company also records a provision for estimated sales returns in the
same period as the related revenues are recorded. These estimates are based
used on historical sales returns, analysis of credit memo data and other
known factors. If the historical data the Company used to calculate these
estimates do not properly reflect future returns, then a change in the
allowances would be made in the period in which such a determination is made
and revenues in that period could be adversely affected. Sales returns have
not historically been material.
If the historical data the Company uses to calculate the allowance
provided for doubtful accounts does not reflect the future ability to collect
outstanding receivables, additional provisions for doubtful accounts may be
needed and the future results of operations could be materially affected.
23
Inventory Valuation and Classification
Inventories are stated at the lower of cost or market ("LCM"),
which reflects management's estimates of net realizable value. Inventories
are accounted for under the specific identification method. In instances
where bulk purchases are made, the cost allocation is based on the estimated
market values of the respective goods. 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. The
Company records write-downs based on two methodologies; specific write-downs
on certain items based on declines in the marketplace, and estimated
write-downs based on a percentage of the inventory aging by category type,
unless the Company implores a marketing strategy to sell goods over time. If
actual market conditions are less favorable than those projected by
management and the Company's estimates prove to be inaccurate, additional
write-downs or adjustments to recognize additional cost of sales may be
required.
In certain instances, the Company holds inventory for a period of time
in excess of one year, which is generally based on a marketing strategy to
sell collectibles over time in order to avoid flooding the marketplace.
Inventories, which are not expected to be sold within one year, are
classified with other Non-Current Assets in the Consolidated Balance Sheets
in the accompanying consolidated financial statements.
Goodwill and Intangible Assets
The Company records impairment losses on goodwill and other intangible
assets when events and circumstances indicate that such assets might be
impaired and the estimated fair value of the asset is less than its recorded
amount in accordance with Statement of Financial accounting Standards
("SFAS") No 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of." The Company reviews the value of its
long-lived assets, including goodwill, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives of these assets
are no longer appropriate. Conditions that would necessitate an impairment
assessment include material adverse changes in operations, significant
adverse differences in actual results in comparison with initial valuation
forecasts prepared at the time of acquisition, a decision to abandon certain
acquired products, services or marketplaces, or other significant adverse
changes that would indicate the carrying amount of the recorded asset might
not be recoverable.
The Company evaluates the recoverability of goodwill and intangible
assets using undiscounted cash flows whenever events or changes in
circumstances indicate that the carrying value of goodwill and other
purchased intangibles may not be recoverable. The amount of impairment, if
any, is measured based on discounted future cash flows using the Company's
average cost of funds. For the year ended June 30, 2002, the Company
performed this analysis with assistance from an independent valuation
expert. The tests the Company performed compared the expected future
discounted cash flows for a five-year period, to the carrying amount of the
long-lived assets resulting from purchase business combinations. In
performing these analyses, the Company uses the best information available
in the circumstances including reasonable and supportable assumptions and
projections. However, it is possible that the estimates and assumptions
used, such as future revenue and expense levels, in assessing that value may
need to be reevaluated in the case of continued market deterioration, which
could result in further impairment of these assets.
Effective July 1, 2002, the Company will adopt SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. SFAS 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.
Upon adoption, the Company will re-evaluate the future estimated
useful lives of its intangible assets that have an indefinite life.
Income Taxes
As part of the process of preparing consolidated financial statements,
the Company is required to estimate income taxes in each of the
jurisdictions in which it operates. Significant judgment is required in
determining the income tax expense provision. The Company recognize 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 assesses the likelihood of our
deferred tax assets being recovered from future taxable income. The Company
then provides a valuation allowance for deferred tax assets for which the
Company do not consider realization of such assets to be more likely than
not. While the Company has considered future taxable income and ongoing
prudent and feasible tax planning strategies in assessing the valuation
allowance, there is no assurance that the valuation allowance would not need
to be increased in the future to cover additional deferred tax assets that
may not be realizable. Any
24
increase in the valuation allowance could have a material adverse impact on
net income in the period in which such determination is made.
New Accounting Pronouncements
Refer to Note 1 in the accompanying consolidated financial statements.
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 $13,177 for the fiscal year ended
June 30, 2002. 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 There can be no assurance that the proposed transaction with Afinsa
will be consummated, or if consummated, on the terms described
above. If the transaction is not consummated, the Company will be
required to obtain new sources of financing to replace its current
credit facility, which expires shortly. If the Company 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 were not engaged.
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
25
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 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.
o 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.
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 accounting 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.
26
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, 2002 and 2001.........................30
Consolidated Statements of Operations - Years ended June 30, 2002,
2001 And 2000................................................................31
Consolidated Statement of Stockholders' Equity - Years ended
June 30, 2002, 2001 and 2000.................................................32
Consolidated Statements of Cash Flows - Years ended
June 30, 2002, 2001 and 2000 ...............................................35
Consolidated Statements of Comprehensive Loss - Years ended
June 30, 2002, 2001 and 2000 ................................................36
Notes to Consolidated Financial Statements ..................................37
27
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, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity, cash
flows and comprehensive loss for each of the three years in the period ended
June 30, 2002. 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 United 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, 2002 and 2001,
and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2002, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Amper, Politziner & Mattia P.C.
September 16, 2002
Edison, New Jersey
28
Greg Manning Auctions, Inc.
775 Passaic Avenue
West Caldwell, New Jersey 07006
September 16, 2002
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
Chairman, President and Chief Financial Officer
Chief Executive Officer
29
GREG MANNING AUCTIONS, INC.
Consolidated Balance Sheets
June 30,
(In Thousands except Per Share Amounts)
2002 2001
-------- ---------
Assets
Current Assets
Cash and Cash Equivalents $ 2,169 $ 2,158
Accounts Receivable, net
Auctions and Trade Receivable 6,979 7,480
Advances to Consignors 1,164 853
Other -- 700
Inventory 11,425 12,866
Deferred Tax Asset -- 1,590
Prepaid Expenses 380 324
-------- --------
Total Current Assets 22,117 25,971
Property and Equipment, Net 948 1,422
Goodwill, Net 1,516 5,122
Other Purchased Intangibles, Net 1,065 3,022
Marketable Securities 76 147
Investment in Equity Method Investees -- --
Other Non-Current Assets
Deferred Tax Asset -- 2,554
Inventory 1,400 1,700
Advances to Consignors -- 358
Other 226 156
-------- --------
Total Assets $ 27,348 $ 40,452
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Demand Notes Payable - Related Party $ 1,400 $ --
Notes Payable and Capital Leases 5,657 8,115
Payable to Third Party Consignors 2,945 2,711
Accounts Payable 4,062 4,135
Advance from Related Party -- 90
Accrued Expenses 1,512 1,834
-------- --------
Total Current Liabilities 15,576 16,885
Notes Payable and Capital Leases - Long Term 116 168
-------- --------
Total Liabilities 15,692 17,053
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, 2002 - 13,072 shares
Issued June 30, 2001 - 11,987 shares 130 120
Additional paid in capital 45,842 44,252
Accumulated other comprehensive income:
Unrealized loss on marketable securities, net of tax (309) (143)
Accumulated Deficit (31,459) (18,282)
Treasury stock, at cost
368 shares at June 30, 2002 and 2001 (2,548) (2,548)
-------- --------
Total Stockholders' Equity 11,656 23,399
-------- --------
Total Liabilities and Stockholders' Equity $ 27,348 $ 40,452
======== ========
See accompanying notes to consolidated financial statements
30
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Operations
For the Years Ended June 30,
(In Thousands Except Per Share Amounts)
2002 2001 2000
--------- --------- --------
Operating Revenues
Sales of merchandise 76,616 62,333 55,663
Commissions earned 4,161 5,063 6,716
-------- -------- --------
Total Revenues 80,777 67,396 62,379
Cost of merchandise sold 71,966 62,354 50,559
-------- -------- --------
Gross profit 8,811 5,042 11,820
Operating Expenses
General and Administrative 5,511 5,373 6,024
Depreciation and Amortization 1,416 1,564 1,010
Intangible Impairment 4,741 2,158 --
Salaries and Wages 4,530 5,163 4,821
Marketing 1,578 1,879 2,442
Other Expense 6 340 --
Acquisition and Merger Costs -- 205 926
-------- -------- --------
Total Operating Expenses 17,782 16,682 15,223
-------- -------- --------
Operating Loss (8,971) (11,640) (3,403)
Other Income (expense)
Gain on sale of marketable securities
and investments -- -- 14
Interest Income 124 292 453
Interest Expense (837) (1,428) (1,543)
Minority Interest -- -- --
Loss from operations of
investee (250) (4,951) (851)
-------- -------- --------
Loss before income taxes (9,934) (17,727) (5,330)
Provision for (Benefit from) income taxes 3,243 (1,404) (1,661)
-------- -------- --------
Net Loss $(13,177) $(16,323) $ (3,669)
======== ======== ========
Basic Loss per Share:
Weighted average shares outstanding 12,469 10,299 9,710
Basic Loss per Share $ (1.06) $ (1.58) $ (0.38)
======== ======== ========
Diluted Loss per Share:
Weighted average shares outstanding 12,469 10,299 9,710
Diluted Loss per Share $ (1.06) $ (1.58) $ (0.38)
======== ======== ========
See accompanying notes to consolidated financial statements
31
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Stockholders' Equity
July 1, 1999 to June 30, 2002
(In Thousands)
Unrealized
Additional Gain (Loss) Total
Common Stock Paid-In on Marketable Accumulated Treasury Stockholders'
Shares $ Capital Securities Deficit Stock Equity
------- -------- ---------- ------------- ----------- -------- ------------
Balance July 1, 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
investment in equity method investee 168 2 3,612 3,614
Common shares issued relating
to acqisition 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
Net change in unrealized loss on
securities, net of income 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
See accompanying notes to consolidated financial statements
32
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Stockholders' Equity
July 1, 1999 to June 30, 2002
(In Thousands)
Unrealized
Additional Gain (Loss) Total
Common Stock Paid-In on Marketable Accumulated Treasury Stockholders'
Shares $ Capital Securities Deficit Stock Equity
------- -------- ---------- ------------- ----------- -------- ------------
Balance June 30, 2000 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 relating to
release of covenants 628 6 (6) --
Options issued relating to
professional services 90 90
Unrealized loss from
marketable securities, net of
taxes of (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 Stockholders' Equity
July 1, 1999 to June 30, 2002
(In Thousands)
Unrealized
Additional Gain (Loss) Total
Common Stock Paid-In on Marketable Accumulated Treasury Stockholders'
Shares $ Capital Securities Deficit Stock Equity
------- -------- ---------- ------------- ----------- -------- ------------
Balance June 30, 2001 11,987 $ 120 $ 44,252 $ (143) $(18,282) $ (2,548) $ 23,399
Common shares issued for services 110 1 208 209
Unrealized loss from marketable securities (71) (71)
Stock options issued for services 256 256
Deferred tax assets valuation allowance
(Note 9) (805) (95) (900)
Common shares sold for cash 975 9 1,931 1,940
Net loss - June 30, 2002 (13,177) (13,177)
________ ________ ________ ________ ________ ________ ________
Balance June 30, 2002 13,072 $ 130 $ 45,842 $ (309) $(31,459) $ (2,548) $ 11,656
======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
34
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Cash Flows
For the Years Ended June 30,
(In Thousands)
2002 2001 2000
-------- --------- --------
Cash flows from operating activities:
Net Income (Loss) $(13,177) $(16,323) $ (3,669)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 1,416 1,564 1,361
Intangible impairment 4,741 2,158
Provision for bad debts 601 415 524
Provision for inventory reserve (468) 2,388 290
Common Stock issued for services
208 -- --
Gain on sale of marketable securities and investments -- -- (14)
Equity in loss (income) of equity method investees 250 4,951 851
Deferred tax (benefit) expense 3,243 (1,346) (952)
Income tax benefit relating to exercise of stock options -- (58) (284)
(Increase) decrease in assets:
Auctions receivable 982 (286) 2,061
Advances to consignors (324) 2,000 131
Inventory 2,209 6,248 (6,104)
Prepaid expenses and deposits 200 202 (104)
Other assets (70) (502) (39)
Increase (decrease) in liabilities:
Payable to third-party consignors 235 1,243 (2,416)
Accounts payable (72) 119 (1,656)
Accrued expenses and other liabilities (321) 179 (41)
Advance from Related Party (90) (2,332) 2,422
------- -------- ---------
(437) 620 (7,639)
Cash flows from investing activities
Capital expenditures for property and equipment (131) (928) (650)
Additional goodwill and acquisition -- (332) (97)
Proceeds from sale of interest in equity method investee -- 500 --
Investment in equity method investee (250) 40 (2,060)
Distribution from investees -- -- 41
Proceeds from sale of marketable securities and investments -- -- 23
------- -------- ---------
(381) (720) (2,743)
Cash flows from financing activities:
Proceeds from demand notes payable - related party 1,400 -- --
Repayment of demand notes payable (7,900) -- (2,752)
Proceeds from issuance of notes payable 5,450 90 --
Repayment of notes payable and capital leases (61) (50) (4,526)
Proceeds from exercise of options -- 40 227
Proceeds from sale of common stock (net of expenses) 1,940 2,301 16,169
Dividend to Spectrum partners -- -- (160)
Investment by Spectrum partner -- -- 38
Payment for Treasury Stock -- (1,215) (1,333)
Proceeds from Stock Subscriptions Receivable -- -- 3,000
-------- -------- --------
829 1,166 10,663
Net change in cash and cash equivalents 11 1,066 281
Cash and cash equivalents:
Beginning of period 2,158 1,092 811
-------- -------- ---------
End of period $ 2,169 $ 2,158 $ 1,092
======== ======== ========
See accompanying notes to consolidated financial statements
35
GREG MANNING AUCTIONS, INC.
Consolidated Statements of Comprehensive Loss
For the Years Ended June 30, 2002
(In Thousands)
2002 2001 2000
-------- -------- --------
Net Loss $(13,177) $(16,323) $ (3,669)
Other Comprehensive Loss
Unrealized loss from
marketable securities, net of tax (166) (51) (92)
Less: reclassification adjustment for
gains included in net income, net of
tax -- -- --
-------- -------- --------
Comprehensive Loss $(13,343) $(16,374) $ (3,761)
======== ======== ========
See accompanying notes to consolidated financial statements
36
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, fine art and coins. 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, 2002, the Company incurred a net loss
of $13,177 and as of June 30, 2002, the Company's has an accumulated deficit of
$31,459. Included in the current year net loss are non-cash charges in the
aggregate of $9,385, which consists of Goodwill and Intangible Impairment of
$4,741, Deferred Income tax expense of $3,243 and Inventory lower of cost or
market adjustments of $1,401. Such charges are further described in Note 18. The
Company continued to modify and implement a plan, which was approved by the
Company's Board of Directors designed to improve the infrastructure of the
Company, reduce operating expenses, optimize profitability and align resources
with long-term business growth strategies. This plan includes work force
realignment, consolidation of facilities and restructuring of product line
focus. In addition, as part of the overall plans to alleviate liquidity
concerns, the Company is currently seeking new financing arrangements and is
considering raising additional capital through the issuance of securities.
During June 2002, the Company entered into a letter of intent with
Afinsa, relating to the sale of substantially all of Afinsa's non-investment
collectibles business, currently operated primarily through Auctentia, its
wholly owned subsidiary, in exchange for shares of GMAI's common stock.
Auctentia currently owns approximately 43% of the common stock of GMAI. If the
transaction is completed, the Company expects that Auctentia or an affiliate
will own approximately 70% of its common stock. It is currently anticipated that
the businesses to be sold to GMAI will include businesses focused on philatelic
and numismatic collecting, including, among others, Afinsa Auctions, Heinrich
Kohler and de Rosa Group International; businesses focused on the fine arts
market, including, among others, art galleries and Finarte Espana Auction; as
well as the online operations of Centrodearte, DooCollect and Mercart. If the
deal is consummated, the Company believes that the combined company will be one
of the world's largest collectibles companies. The letter of intent, which is
non-binding, provides for the parties immediately to start negotiating a
definitive purchase agreement and complete the due diligence process. This
process is ongoing. It is expected that the transaction will close by the
quarter ended March 31, 2003. The purchase agreement will contain usual and
customary conditions to closing, including obtaining shareholder approval of the
transaction and any required regulatory approvals. There can be no assurance
that the proposed transaction will be consummated, or if consummated, on the
terms described above.
The Company currently maintains a secured loan from a privately held
capital fund for $4,000, which is due December 31, 2003. This loan is
collateralized by certain inventories and bears interest at a rate of 10% per
annum.
The Company also maintains a credit facility with Afinsa to which
Afinsa agreed to provide the Company with a loan of up to $2,000. Borrowings
under this facility bear interest at an annual rate of 8%. The agreement expires
in October 2002 and is expected to be renewed for an additional six months.
Management believes that the Company will have the liquidity
necessary to implement its plan and support its operations.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. Investment in the
equity-method investee is accounted for under the equity method of accounting
since the Company owns more than 20% of the entity, but less than majority owned
and not otherwise controlled by the Company.
Revenue Recognition
The Company accounts for revenue recognition in accordance with Staff
Accounting Bulletin No. 101, ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements, and
Emerging Issues Task Force ("EITF") Issue No. 99-19 "Reporting Revenue Gross as
a Principal vs. Net as an Agent" which provides guidance on the recognition of
revenue gross as a principal versus net as an agent.
37
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
The Company derives revenues from two primary sources:
1. Auction Revenue:
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. Such amounts of revenue are recorded on a net basis
as commission revenue.
The Company also sells its own inventory at auction. Revenue of owned
inventory is recognized when sold at auction. Such amounts of revenue are
recorded on a gross basis as sales of merchandise. Additionally, the Company is
entitled to auction commissions paid by the buyer. Sales returns have not been
material.
2. Private Treaty Sales:
Private treaty sales represent sales of consigned property and sales of
owned inventory.
Private treaty sales of consigned property occur when an owner of property
arranges with the Company to sell such consigned 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.
Such amounts of revenue are recorded on a net basis as commission revenue and
are recognized when sold.
Private treaty sales of owned inventory occur when the Company sells its
goods directly to a customer either wholesale or retail. Revenue with respect to
private treaty revenues is recognized when delivered or released to the customer
for acceptance or to a common carrier for delivery. Such amounts of revenue are
recorded on a gross basis as sales of merchandise. 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.
Use of Estimates
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
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). Certain assets held by the Company
collateralize these significant receivables.
38
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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 ("LCM"), which
reflects management's estimates of net realizable value. Inventories are
accounted for under the specific identification method. In instances where bulk
purchases are made, the cost allocation is based on the estimated market values
of the respective goods. 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. The Company records write-downs
based on two methodologies; specific write-downs on certain items based on
declines in the marketplace, and estimated write-downs based on a percentage of
the inventory aging by category type, unless the Company implores a marketing
strategy to sell goods over time. If actual market conditions are less favorable
than those projected by management and the Company's estimates prove to be
inaccurate, additional write-downs or adjustments to recognize additional cost
of sales may be required.
In certain instances, the Company holds inventory for a period of time
in excess of one year, which is generally based on a marketing strategy to sell
collectibles over time in order to avoid flooding the marketplace. Inventories,
which are not expected to be sold within one year, are classified with other
Non-Current Assets in the Consolidated Balance Sheets in the accompanying
consolidated financial statements.
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, 2002 and 2001 the amount of inventories subject to these arrangements
was approximately $7,900 and $4,800, respectively, which is included in
Inventory 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 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. Properties under capital leases are amortized over
the life of the lease, which are 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 Company records impairment losses on goodwill and other intangible
assets when events and circumstances indicate that such assets might be impaired
and the estimated fair value of the asset is less than its recorded amount.
Conditions that would necessitate an impairment assessment include material
adverse changes in operations, significant adverse differences
39
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
in actual results in comparison with initial valuation forecasts prepared at the
time of acquisition, a decision to abandon certain acquired products, services
or marketplaces, or other significant adverse changes that would indicate the
carrying amount of the recorded asset might not be recoverable.
The Company evaluates the recoverability of goodwill and intangible
assets using undiscounted cash flows whenever events or changes in circumstances
indicate that the carrying value of goodwill and other purchased intangibles may
not be recoverable. The amount of impairment, if any, is measured based on
discounted future cash flows using the Company's average cost of funds. For the
year ended June 30, 2002, the Company performed this analysis with assistance
from an independent valuation expert. The tests the Company performed compared
the expected future discounted cash flows for a five-year period, to the
carrying amount of the long-lived assets resulting from purchase business
combinations. In performing these analyses, the Company uses the best
information available in the circumstances including reasonable and supportable
assumptions and projections. However, it is possible that the estimates and
assumptions used, such as future revenue and expense levels, in assessing that
value may need to be reevaluated in the case of continued market deterioration,
which could result in further impairment of these assets.
Effective July 1, 2002, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. In
accordance with this statement, goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually and 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 (See Note 7). Upon adoption, the Company will
re-evaluate the future estimated useful lives of its intangible assets that have
an indefinite life.
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, 2002 and 2001 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, 2002 and 2001 based
upon quoted market prices for the same or similar instruments.
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 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.
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, 2002, 2001 and
2000 were approximately $1,370, $796 and $846, respectively.
40
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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. There were two major customers, who accounted for
22% of the revenue for the year ended June 30, 2002, however there were no major
customers for the year ended June 30, 2001. The Company considers major
customers to be those who account for more than 10% of revenue.
New Accounting Pronouncements
In July 2001, FASB issued SFAS No. 141 Statement 141 requires that
the purchase method of accounting be used for all business combinations
completed after June 30, 2001 and specifies criteria for the recognition and
reporting of intangible assets apart from goodwill. There was no impact from the
adoption of this statement.
In July 2001, the FASB issued and SFAS No. 142, "Goodwill and
Other Intangible Assets". This statement is effective for the Company on
July 1, 2002 (See Note 7).
In August 2001, the FASB issued No. 143, "Accounting for Asset
Retirement Obligations," which is effective for financial statements issued for
fiscal years beginning after June 15, 2002. The Company does not believe that
the adoption of SFAS 143 will have a significant impact on its financial
statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment Or Disposal of Long Lived Assets," which is effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
Company is currently evaluating the provisions of SFAS 144. The financial
statement impact of the adoption of SFAS 144 has not yet been determined.
In April 2002, the FASB issued SFAS No. 145, "rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS No. 145 provides guidance for income statement classification
of gains and losses of debt and accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS No.
145 requires that gains and losses from extinguishment of debt be classified as
extraordinary items only if they meet the criteria in Accounting Principles
Board Opinion No. 30 ("Opinion No. 30"). SFAS No. 145 is effective for years
beginning after December 15, 2002. The Company is evaluating the impact of SFAS
No. 145.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes EITF Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under Issue 94-3, a liability for an exit cost as defined
in EITF 94-3 was recognized at the date of an entity's commitment to an exit
plan. SFAS 146 also establishes that the liability should initially be measured
and recorded at fair value. SFAS No. 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. The Company is
evaluating the impact of SFAS No. 146.
41
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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 November 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.
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 the acquisition was
approximately $2,850 and the carrying value at June 30, 2002 is zero.
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.
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 $ 36,931 $ 25,448* $ 62,379
Net Loss (3,230) (439)* (3,669)
* Historical results for the period July 1, 1999 through February 18, 2000, the
acquisition date.
Acquisition and merger costs of approximately $0, $205 and $926 were
incurred and charged to expense during the years ended June 30, 2002, 2001 and
2000, respectively.
(3) Accounts Receivable
Accounts receivable consists of auction or trade receivables and
consignor advances.
Auction or trade receivables represent sales made to customers for
which short-term credit extensions are granted, which generally are not extended
beyond 90 days.
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, 2002 and 2001, the allowance for doubtful accounts
included in auction receivables was approximately $1,077 and $845, respectively.
42
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(4) Marketable Securities
Investments in available for sale marketable securities as of June 30, 2002
and 2001 is as follows:
Market Unrealized
Cost Value Gain (Loss)
--------- -------- ----------
Common Stock - 2002 $ 385 $ 76 $ (309)
========= ======== =========
Common Stock - 2001 $ 385 $ 147 $ (238)
========= ======== =========
The unrealized loss is classified as a separate component of stockholder's
equity, net of tax, as of June 30, 2002 and 2001, 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.
5) Inventories
June 30, 2002
Current Non-Current Total
------- ----------- -----
Stamps $ 692 $ 100 $ 792
Sports Collectibles 1,208 500 1,708
Coins 9,438 350 9,788
Art 50 250 300
Other 37 200 237
------- ------- -------
$11,425 $ 1,400 $12,825
======= ======= =======
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
======= ======= =======
The non-current inventory represents an estimate of total inventory,
which is not expected to be sold within one year. At June 30, 2002 and 2001, the
above inventory amounts reflect net realizable (LCM) allowances of $2,432 and
$2,902, respectively.
Amounts charged to operations relating to LCM adjustments for the
years ended June 30, 2002 and 2001 were approximately $1,400 and $2,400. Such
amounts are further described in Note 18.
43
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(6) Property and Equipment
June 30,
2002 2001
------- ------
Equipment $3,159 $3,029
Furniture and fixtures 272 270
Vehicles 67 67
Property under capital leases
(computers and office equipment) 186 186
Leasehold improvements 503 503
------ ------
4,187 4,055
Less accumulated depreciation and amortization 3,239 2,633
------ ------
Net property and equipment $ 948 $1,422
====== ======
Depreciation and amortization expense for the years ended June 30,
2002, 2001 and 2000 was approximately $605, $480 and $464 respectively. These
amounts include amortization of assets under capitalized leases of approximately
$20, $25 and $36, respectively for the years then ended.
(7) Goodwill and Other Purchase Intangibles, net
Intangible Assets Gross Amortization Net
- ------------------------------------------- -------- ------------ -------
June 30, 2002
Goodwill $8,452 $6,936 $1,516
======
Other intangible assets $4,105 $3,040 $1,065
======
June 30, 2001
Goodwill $8,452 $3,330 $5,122
======
Other intangible assets $4,105 $1,083 $3,022
======
Amortization expense, including intangible impairment, for the years
ended June 30, 2002, 2001 and 2000 was approximately $5,562, $3,178 and $548,
respectively.
The Company evaluated the recoverability of goodwill and intangible
assets using undiscounted cash flows which determined that the carrying value of
goodwill and other intangibles were impaired. The amount of impairment is
measured based on discounted future cash flows using the Company's average cost
of funds. For the year ended June 30, 2002, the Company performed this analysis
with assistance from an independent valuation expert. The tests the Company
performed compared the expected future discounted cash flows for a five-year
period, to the carrying amount of the long-lived assets resulting from purchase
business combinations. In performing these analyses, the Company uses the best
information available in the circumstances including reasonable and supportable
assumptions and projections.
The analysis indicated that goodwill and intangible assets were
impaired by an amount totaling $4.7 million as of June 30, 2002. Accordingly,
the Company recorded an impairment write-down, for which $3.0 million related to
goodwill and $1.7 million related to other intangibles. The components of this
impairment charge by corporate entity were as follows: Teletrade $3,000; Ivy &
Mader $510; Greg Manning Direct $714; Greg Manning Galleries $323; and a wholly
owned subsidiary of Kensington Associates $194.
44
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
During fiscal 2001, The Company's analysis indicated that goodwill was
impaired by an amount totaling $2,158 as of June 30, 2001. By corporate entity,
the components were as follows: Greg Manning Direct $1,300; and a wholly-owned
subsidiary of Kensington Associates $858.
These impairment charges were the result of continued unfavorable
economic conditions (See Note 18).
Effective July 1, 2002, the Company will adopt SFAS No. 142, "Goodwill
and Other Intangible Assets". SFAS 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead 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". Statement 142 will also require
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment. Upon adoption, the Company will re-evaluate the future
estimated useful lives of its intangible assets that have an indefinite life.
( 8 ) Investment in Equity-Method Investees
In March 1999, the Company, 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. The Company currently
maintains a 45% ownership interest in GMAI-Asia.com (on an undiluted basis).
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").
The core operations of GMAI-Asia were established on February 15,
2000, at which time GMAI-Asia acquired certain companies. GMAI-Asia acquired
from China Everbright Technology Limited a 65% interest in China Everbright
Telecom-Land Network Limited, a British Virgin Islands company ("Everbright")
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. The results of operations of Everbright are consolidated into
GMAI-Asia.com.
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 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 $5,300 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 $11,200. The Company's portion of these
accumulated losses exceeded its total investment. Such amounts are included in
the accompanying Statement of Operations as Loss from operations of Investee. As
a result, 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).
During 2002, the Company increased its investment by $250 by issuing
additional GMAI common stock. Since the Company's portion of this entity's
accumulated losses exceeds its total investment, the amount is therefore
reflected in the accompanying Statement of Operations as Loss from operations of
Investee.
45
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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.
Summarized balance sheet information of the Company's equity method investee as
of June 30, 2002 and 2001 is approximately as follows:
2002 2001
(unaudited) (unaudited)
--------- ---------
Current assets $ 3,273 $ 5,203
Non current assets 20,545 24,626
Current liabilities 9,602 19,898
Non current liabilities 12,612 6,624
Summarized statements of operations information of the Company's
equity-method investees, calculated for periods during which the Company had
investments in such investees, is approximately as follows:
For the years ended June 30,
(unaudited)
2002 2001 2000
-------- -------- --------
Net Sales $ 2,238 $ 992 $ 24,648
-------- -------- --------
Gross Profit $ 45 $ 18 $ 5,167
Selling, General and Administration expense (685) (280) (6,481)
Goodwill amortization (2,415) (2,294) --
Write-off relating to Advances to Afiliates 0 (4,347) --
-------- -------- --------
Net Income (Loss) $ (3,055) $ (6,903) $ (1,314)
======== ======== ========
(9) Income Taxes
Deferred tax attributes resulting from differences between financial
accounting amounts and tax basis of assets and liabilities at June 30, 2002 and
2001 are as follows:
Current assets and liabilities
2002 2001
-------- --------
Allowance for doubtful accounts $ 431 $ 364
Inventory uniform capitalization 179 223
Accrued expenses 106 183
Inventory valuation reserve 973 1,248
-------- --------
Sub-total 1,689 2,018
Valuation allowance, provision for income taxes (1,689) (428)
-------- --------
Net current deferred tax asset $ -- $ 1,590
======== ========
Non-current assets and liabilities
Goodwill and intangible amortization and impairment $ 2,488 $ 479
Depreciation 128 322
Net federal and state operating loss carryforward 5,917 4,279
Investments in equity-method investees 2,356 2,425
Investments in marketable securities 124 102
Other -- 20
-------- --------
Sub-total 11,013 7,627
Valuation allowance, provision for income taxes (10,113) (5,034)
Valuation allowance, equity (900) (39)
-------- --------
Net non-current deferred tax asset $ -- $ 2,554
======== ========
46
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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 Company believes uncertainty exists regarding the realizability of these
items, and accordingly, has established a valuation allowance, based on
management's estimates, against all deferred tax assets. 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 $7,201 and $4,908 in 2002 and
2001. The change in valuation allowance in 2002 compared to 2001 resulted from
an increase in the valuation allowance against all deferred tax attributes. As a
result of the increase in the valuation allowance, approximately $3,200 was
charged to deferred tax expense in the accompanying Statement of Operations and
$900 was applied as reduction of Stockholder's Equity. This reduction of
Stockholder's Equity consists of deferred tax assets previously recorded
relating to net operating losses generated from to the exercise of employee
stock options and cumulative unrealized losses of marketable securities. Such
amounts are further discussed in Note 18.
The provision for (benefit from) income taxes for the years ending June 30
consist of the following:
2002 2001 2000
------- -------- --------
Current tax expense (benefit) $ -- $ 13 $ (425)
Deferred tax benefit (3,958) (6,325) (983)
Net Change in valuation allowance 7,201 4,908 (253)
------- ------- -------
$ 3,243 $(1,404) $(1,661)
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,
-------------------------------
2002 2001 2000
--------- -------- ----------
Statutory federal income tax rate (34%) (34%) (34%)
State income taxes, net of federal benefit (6%) (6%) (6%)
Certain non-deductible expenses 5% 5% 2%
Non deductible acquisition costs -- -- 8%
Change in valuation allowance 70% 28% 5%
Other (2%) (1%) (6%)
--------- -------- ---------
33% (8%) (31%)
=== === ===
The Company has a federal net operating loss carryforward of approximately
$15,000 expiring at various times beginning the fiscal years ending 2019 through
fiscal year ended 2022. The utilization of these net operating loss
carryforwards may be 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 $21,000 expiring at various times beginning in the fiscal years
ending 2003 through 2009.
47
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(10) Debt
Demand Notes Payable - Related Party
June 30,
2002 2001
------- ------
The Company has a revolving credit agreement with Auctentia,
S.A., a wholly owned subsidiary of Afinsa to provide the
Company with a credit facility of up to $2,000. Borrowings
under this facility bear interest at an annual rate of 8%.
The agreement also provides that any borrowings not repaid
in accordance with the terms of the agreement may be
converted into GMAI stock at the discretion of Afinsa. The
agreement expires in October 2002 and is expected to be
renewed for an additional six months. $1,400 $ --
====== ====
Notes Payable and Capital Leases
The Company had 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 repaid all outstanding
balances by October 31, 2001. The Company paid an annual fee
for the facility equal to one quarter of one percent of the
total amount of such facility. Borrowings under this
facility bore interest at the rate of 2% above Brown
Brothers base rate, which was 7.75 % at June 30, 2001 and
the debt was repayable on demand. $ -- $2,400
The Company had 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 repaid
all outstanding balances under this facility by October 31,
2001. The loan agreement allowed 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 paid an annual fee
for the facility equal to one quarter of one percent of the
total amount of such facility. Borrowings under this
facility bore interest at Bank of America base rate, which
was 7.25% at June 30, 2001. Greg Manning who had pledged
700,000 shares his Company owned stock personally guaranteed
the credit facility. Additionally, the line was
collateralized by all of the assets of Spectrum and was
guaranteed by GMAI. In connection with this agreement, the
Company paid Mr. Manning a guarantee debt fee, which was
based on 3% per annum of the average loan balance
outstanding each month. $ -- $5,200
The Company has a note payable collateralized by specific
coin inventory with an interest rate of 9% with quarterly
payments of $500 commencing April 2002 until the loan is
repaid in June 2003. $1,450 $ --
During the year ended June 30, 2002, the Company obtained a
secured loan from a privately held capital fund for $4,000,
which is due December 31, 2003. This loan is collateralized
by certain inventories and bears interest at a rate of 10%
per annum. $4,000 $ -
48
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
June 30,
2002 2001
------ ------
Advance from a consignor, which was, upon settlement,
converted, to a demand loan bearing an interest rate of 8%
per annum 140 440
Notes payable to former shareholders of Teletrade
Related to indebtedness prior to its acquisition -- 19
Various capital lease obligations, various monthly
payments through 2006 183 224
------ ------
$5,773 $8,283
Less current portion 5,657 8,115
------ ------
Notes payable and capital leases -
long-term portion $ 116 $ 168
====== ======
The aggregate amount of all maturities for the years
ending June 30 are as follows:
2003 $5,657
2004 72
2005 35
2006 9
------
$5,773
======
(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, 2002 are set
forth below:
Operating Capital Total
--------------------------------
2003 $600 $67 $667
2004 505 72 577
2005 453 35 488
2006 242 9 251
------ ----- -------
Total future minimum lease $1,800 $ 183 $ 1,983
payments ====== ===== ========
Rent expense was approximately $547, $439 and $339 for 2002, 2001 and 2000,
respectively.
Interest expense associated with these capital leases was
approximately $25, $33 and $24 for fiscal years 2002, 2001 and 2000,
respectively.
(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 $100), is paid to CRM upon successful sale, and
in the case of private treaty, the net price after selling commissions is paid
to CRM. For the years ended June 30, 2002 and 2001,
49
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
such auction and private treaty sales (net of commission) were not material.
Included in accounts receivable at June 30, 2002 and 2001 is approximately $41
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, a former director of the Company, had previously
provided consulting services to the Company. In relation to Kramer, Levin,
Naftalis & Frankel, LLP, expenditures for services rendered were approximately
$308, $326 and $424 respectively of which, approximately $306, $247 and $371,
was charged to operations in fiscal 2002, 2001 and 2000. In relation to Micro
Strategies, Incorporated, expenditures for services rendered were approximately
$281, $769 and $464, respectively, of which, approximately $239, $175 and $310
was charged to operations in fiscal 2002, 2001 and 2000. In relation to Richard
Cohen, expenditures for services rendered were approximately $0, $33 and $40,
all of which was charged to operations.
On June 17, 2002, the Company entered into an employment agreement
with Mr. Roberts, a director of the Company. In connection with the employment
agreement, the Company made available to Mr. Roberts a non-interest bearing loan
in the amount of $600. The loan is required to be repaid on an annual basis in
three equal installments commencing February 18, 2006; provided that if Mr.
Roberts is employed by the Company on the date that an installment is due, that
installment payment will be forgiven, and that if his employment is terminated
for death, disability, without cause or with good reason (as defined), then the
entire loan will be forgiven at the date of termination. If Mr. Roberts'
employment terminates for cause or without good reason, then the outstanding
amount of the loan will accelerate and be due and payable within 30 days of the
date of termination. An aggregate of $200 has been disbursed under the loan
agreement through the date of this report.
During March 2002, the Company made a loan to Mr. Roberts in the
amount of $50, bearing interest at the rate of 7% per annum. The Board of
Directors subsequently determined to forgive the repayment of this loan (and all
accrued interest) and to allow Mr. Roberts to retain the proceeds as additional
compensation. The Company also paid Mr. Roberts a loan guarantee fee of $9.
For the years ended June 30, 2002, 2001 and 2000 sales of
approximately $54 (less than 1% of revenues), $353 (1% of revenues) and $5,995
(9% 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. Purchases made to these
entities approximated $6,180, $6,302 and $2,300 for the years ended June 30,
2002, 2001 and 2000, respectively. Additionally consulting fees in the amount of
$175 and $25 were paid to this party in the years ended June 30, 2002 and 2001,
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 was approximately $242 for the year
ended June 30, 2000. Additionally, Spectrum paid this individual approximately
$95 for consulting and debt guarantee fees for the years ended June 30, 2000.
Afinsa/Auctentia a 43% shareholder of the Company as of June 30, 2002
and June 30, 2001 had outstanding accounts receivable balances of approximately
$0 and $71, respectively. During fiscal 2000, Afinsa purchased other product
totaling approximately $254.
The Company acted as an agent of Afinsa regarding their stock
subscription agreement with GMAI-Asia.com, Inc. Under this agreement, the
Company received funds from Afinsa and advanced such funds to GMAI-Asia.com,
Inc. on an as-needed basis. There was no segregation of these funds. Such amount
liable to be paid to GMAI-Asia.com, Inc. was $0 and $90, respectively at June
30, 2002 and 2001 and is included in Advance from related party.
During the years ended June 30, 2002, 2001 and 2000, the Company paid
Mr. Manning approximately $32, $188 and $68, respectively, of debt guarantee
fees (see Note 10).
50
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(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 $19, $54 and $42 for the years ended June 30,
2002, 2001 and 2000, respectively, and were accounted for as an increase to
goodwill.
(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
The Company entered into two stock purchase agreements with Auctentia,
S.A., a wholly owned subsidiary of 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. All
proceeds from this agreement were received in the year ended June 30, 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. During fiscal 2001 and 2002 Afinsa has paid
$300 and $1,700 for 150,000 and 850,000 shares, respectively.
During the year ended June 30, 2002, the Company entered into a private
placement agreement with Afinsa for the sale of 125,000 shares of the Company's
common stock, for an aggregate of $250.
In late January and early February 2000, GMAI issued in a private
placement to The Tail Wind Fund Ltd., LBI Group Inc., and Lombard Odier & Cie an
aggregate of 750,000 shares of the Company's common stock for approximately
$11,273, 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. Thereafter, on May 14, 2001, the Company entered
into an agreement with these investors which amended certain provisions of the
original purchase agreement. Under the amendment, the investors waived rights to
receive additional stock 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.
The warrants to acquire 142,500 shares were also cancelled. In addition, on that
same 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.
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
Pursuant to its Repurchase Plan, the Company repurchased 99,900 shares of
its common stock on the open market for $1,333 during the year ended June 20,
2000, and 268,100 shares for approximately $1,215 during the year ended June 30,
2001.
Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan") and 1997 Stock
Option Plan, (the "1997 Plan"), are administered by the Board of Directors or a
Stock Option Committee thereof (hereinafter, the "Committee") and provides for
the grant of options to purchase shares of common stock to such officers,
directors and employees of the Company, consultants to the Company, and other
persons or entities as the Committee may select. A total of 2,250,000 shares of
common stock have been reserved for issuance pursuant to the plans as amended by
the stockholders on February 18, 2000 and December 12, 2001. During June 2002,
the Board approved an amendment to the plan (subject to stockholder's approval)
to increase the amount of common stock reserved for issuance to 3,500,000 and
increase the total number of shares that the Company may grant to an
51
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
individual in any given year from 200,000 to 500,000. 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, 2002 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, 2000, 2001 and 2002;
2000 2001 2002
------------------------ ------------------------ --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding - beginning of year 658,125 5.08 1,340,625 11.68 1,548,000 10.19
Granted through stock option plan 684,500 14.16 371,500 3.34 928,000 1.87
Granted outside of stock option plan 167,500 20.07 -- -- 145,000 1.77
Repurchased -- -- -- -- -- --
Exercised (122,875) 1.92 (25,500) 1.58 -- --
Forfeited (46,625) 9.5 (138,625) 8.08 (111,250) 8.7
Outstanding - end of year 1,340,625 11.68 1,548,000 10.19 2,509,750 6.92
Exercisable - end of year 481,625 10.77 656,625 11.4 1,048,250 18.34
The weighted average fair value of options granted during 2000, 2001 and 2002
was $14.16, $3.34 and $1.87, respectively.
Following is a summary of the status of stock options outstanding at June 30,
2002:
----------------------------------------------------------------- ----------------------------
Options Outstanding Options Exercisable
----------------------------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Exercise Price Number of Remaining Average Number of Average
Ranges Shares Contractual Exercise Shares Exercise
From To Outstanding Life(1) Price Exercisable Price
----------------------------------------------------------------- -----------------------------
$ 1.00 $ 5.00 1,550,125 8.6 $ 2.09 419,500 $ 1.95
5.01 10.00 77,125 7.0 7.33 46,250 6.98
10.01 15.00 695,000 7.4 13.71 405,000 13.48
15.01 20.00 132,500 3.4 18.83 122,500 18.84
20.01 25.00 55,000 1.5 22.55 55,000 22.55
---------- ---------
2,509,750 1,048,250
========== =========
( In remaining years
52
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
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 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 2002, 2001
and 2000 would have been as follows:
2002 2001 2000
----------- ---------- ---------
Proforma net income(loss) $ (15,175) $ (18,001) $ (4,222)
Proforma earnings (loss) per share
Basic (1.22) (1.75) (.43)
Diluted (1.22) (1.75) (.43)
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 2002, 2001 and 2000, respectively; risk-free interest rates of
5.1%, 5.8% and 5.7%; 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 2002, 2001 and 2000.
There was no compensation expense recorded from stock options for the
years ended June 30, 2002, 2001 and 2000.
Stock Option Exchange Offer
On July 2, 2002, the Company commenced a tender offer to certain
eligible employees to exchange outstanding options to purchase shares of the
Company's common stock granted under the GMAI 1997 Stock Incentive Plan that had
an exercise price of $2.00 or more, for new options to purchase shares of the
Company's common stock to be granted under the 1997 Plan on or about February 4,
2003. The offer expired on July 30, 2002. Pursuant to the terms and conditions
of the offer, the Company accepted for exchange on July 31, 2002 tendered old
options exercisable for a total of 1,380,375 shares of common stock and canceled
all such old options. Subject to the terms and conditions of the offer, the
Company expects to grant new options to purchase a total of 1,380,375 shares of
common stock on or about February 4, 2003. The exercise price of the new options
will be the closing price of the Company's common stock as reported on the
NASDAQ National Market on the date of grant.
Certain Anti-Takeover Provisions
The Company's Certificate of Incorporation and by-laws contain
certain anti-takeover provisions that could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company without negotiating with its Board
of Directors. Such provisions could limit the price that certain investors might
be willing to pay in the future for the Company's securities. Certain of such
provisions provide for a Board of Directors with staggered terms, allow the
Company to issue preferred stock with rights senior to those of the common
stock, or impose various procedural and other requirements which could make it
more difficult for stockholders to effect certain corporate actions.
53
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
Earnings (loss) per share
The following table sets forth the computations of basic earnings
(loss) per share and diluted earnings (loss) per share:
2002 2001 2000
-------- -------- --------
Years ended June 30,
Numerator:
Net Loss $(13,177) $(16,323) $ (3,669)
======== ======== ========
Denominator:
Weighted average common
shares outstanding 12,469 10,299 9,710
Basic Loss per share $ (1.06) $ (1.58) $ (0.38)
======== ======== ========
Denominator:
Weighted average common
shares outstanding 12,469 10,299 9,710
Common share equivalents of
outstanding stock options and warrants -- -- --
-------- -------- --------
Total Shares 12,469 10,299 9,710
-------- -------- --------
Diluted Loss per share $ (1.06) $ (1.58) $ (0.38)
======== ======== ========
(15) Significant Agreements
Employment Agreements
The Company had entered into an employment agreement with Mr. Greg
Manning, Chief Executive Officer of the Company, which expired June 2002. Mr.
Manning is continuing to perform under the terms of his old contract and the
parties expect a new agreement to be entered into shortly.
The Company has entered into an amendment to the employment agreement
with Mr. Roberts. Under the terms of the amendment, the employment term has been
extended for an additional three years, to February 18, 2008; Mr. Roberts is
entitled to receive a salary of $500 for the sixth year, $550 for the seventh
year, and $600 for the eighth year; and Mr. Roberts was granted an additional
500,000 stock options, which are exercisable at $2.00 per share and vest over
four years. Mr. Roberts also received a loan in the amount of $600, the
repayment of which can be forgiven under certain circumstances (See Note 12).
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 $7,000 with the benefits payable to the Company.
54
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(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 $13, $14 and $10 for the years
ended June 30, 2002, 2001 and 2000, respectively.
(17) Supplementary Cash Flow Information
Following is a summary of supplementary cash flow information:
Years Ended
June 30,
(In Thousands)
2002 2001 2000
-------- -------------- --------
Interest paid $ 837 $ 1,437 $ 1,539
Income taxes paid 1 1
Summary of significant non-cash transactions:
Issuance of shares related to the acquisition of GMD 209 532 2,278
Issuance of shares related to the acquisition
of Subsidiaries -- -- 25,000
Issuance of shares related to GMAI-Asia
purchase of Everbright Technologies -- -- 3,614
Options issued relating to professional services 256 90 245
(18) Fourth Quarter Adjustments - Special Charges and Asset Impairments
As a result of continued unfavorable economic conditions and changes in
the collectibles marketplace/industry the Company in the fourth quarter
performed impairment assessments of goodwill and other purchased intangibles. As
a result of significant losses in the fourth quarter, the Company assessed
future discounted cash flows and recorded a impairment pre-tax charge of
approximately $4.7 million or $0.38 per share - diluted for the year ended June
30, 2002, and $2.2 million or $0.21 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 as a result of an
analysis of inventory, adjusted the inventory cost value to reflect management's
estimate of net realizable value, recorded a pre-tax charge of $1.4 million or
$0.11 per share for the year ended June 30, 2002 and $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.
As a result of significant losses in the fourth quarter and cumulative
losses in recent years, the Company has reevaluated its ability to realize the
future benefit of its net deferred tax assets held in light of the historical
operating losses. Accordingly, the Company recorded a valuation allowance
against its deferred tax assets of approximately $3.0 million or $0.24 per share
for the year ended June 30, 2002 and $600 or $0.06 per share for the year ended
June 30, 2001 which is recorded in the Provision for income taxes in the
accompanying Consolidated Statement of Operations.
55
Greg Manning Auctions, Inc.
Notes to Consolidated Financial Statements
($ in Thousands Except for Per Share Amounts or as noted)
(19) Selected Quarterly financial Data (unaudited)
2002
-----------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------------
Net Revenues $ 18,680 $ 17,436 $ 22,053 $ 22,608 $ 80,777
Gross Profit 2,179 2,406 2,650 1,576 8,811
Loss from operations (822) (590) (304) (7,255) (8,971)
Net Loss (925) (1,028) (664) (10,561) (13,177)
Net Loss per share, basic
and diluted (0.08) (0.08) (0.05) (0.85) (1.06)
2001
-----------------------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
-----------------------------------------------------------------------------
Net Revenues $ 14,407 $ 13,527 $ 17,836 $ 21,626 $ 67,396
Gross Profit 2,462 2,239 1,153 (812) 5,042
Loss from operations (873) (1,342) (2,541) (6,884) (11,640)
Net Loss (900) (1,435) (2,153) (11,834) (16,323)
Net Loss per share, basic
and diluted (0.09) (0.14) (0.21) (1.07) (1.58)
See Note 18, which discusses fourth quarter adjustments.
56
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.
Larry Crawford, age 54, 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 48, 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 private law firms, including the firm of Barnes & Thurnberg, where he
headed the Direct Marketing practice group.
Scott S. Rosenblum, age 54, 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 72, 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.
Greg Roberts, age 40, 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 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 56, 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 41, a director since December 1999, was a partner at Kramer
Levin Naftalis & Frankel, a New York law firm, from 1995 through 1999. Mr.
Segall is currently President and Chief Executive Officer of Investec, Inc., the
U.S. Investment Banking arm of The Investec Group. Mr. Segall serves on Board of
Directors of Investec, Inc., Investec Ernst & Company, and Investec USA
Holdings. He also serves on the Board of Directors of Siliconix incorporated,
Integrated Asset Management, and Trident Rowan Group, Inc.
57
Esteban Perez, age 60, 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. 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, and Mr. Esteban Perez has been appointed, to serve until the 2003
annual meeting of stockholders. Messrs. Davin, De Figueiredo and Manning have
been elected to serve until the 2004 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.
To the best of the Company's knowledge, based solely on a review of the
applicable filings, none 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, 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 65, 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 71, 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 84, 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
58
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 77, 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 61, 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, 2002 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, 2002 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, 2002 and is incorporated
by reference.
59
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, 2002, 2001 and 2000 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 June 18, 2002, relating to the
letter of intent between the Company and Afinsa Bienes
Tangibles, S.A.
(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. Incorporated by reference to
Exhibit 10.4 to Form 10-K of the Company for the period ended June
30, 2001.
10.5 Fourth Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 2000. Incorporated by reference to
Exhibit 10.5 to Form 10-K of the Company for the period ended June
30, 2001.
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 Amendment to Employment Agreement between the Company, Spectrum
Numismatics International, Inc. and Gregory N. Roberts. *
10.8 1997 Stock Option Plan, as amended. Incorporated by reference to
Exhibit A to the Proxy Statement of the Company dated October 28,
1997, to the Proxy Statement of the Company dated January 14, 2000
and to the Proxy Statement of the Company dated October 26, 2001.
60
10.9 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.
10.10 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum
Numismatics International, Inc.
10.11 Continuing Guaranty dated February 18, 2000 between Bank of
America, NA and Greg Manning.
10.12 Pledge Agreement dated February 18, 2000 between Bank of America,
NA and Greg Manning
10.13 Agreement, dated October 25, 2001 between Afinsa Bienes Tangibles ,
S.A. and Greg Manning Auctions, Inc. *
23.1 Consent of Independent Accountants. *
* Filed herewith
******************************************************************************
61
SIGNATURES
Dated: September 25, 2002
/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.
Dated: September 25, 2002
/s/ Greg Manning
-----------------------------------
Greg Manning
Chairman of the Board
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Larry Crawford
------------------------------------
Larry Crawford
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Anthony Bongiovanni
------------------------------------
Anthony Bongiovanni
Director
/s/ Scott Rosenblum
------------------------------------
Scott Rosenblum
Director
/s/ Greg Roberts
------------------------------------
Greg Roberts
Director
/s/ James Davin
------------------------------------
James Davin
Director
_____________________________________
Mark Segall
Director
_____________________________________
Albertino de Figueiredo
Director
/s/ Esteban Perez
-------------------------------------
Esteban Perez
Director
62
GREG MANNING AUCTIONS, INC.
SARBANES-OXLEY ACT SECTION 302(a) CERTIFICATION
I, Greg Manning, certify that:
1. I have reviewed this annual report on Form 10-K of Greg Manning
Auctions, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
Dated: September 25, 2002
/s/ Greg Manning
---------------------------------
Greg Manning, President and Chief
Executive Officer
I, Larry Crawford, certify that:
1. I have reviewed this annual report on Form 10-K of Greg Manning
Auctions, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Dated: September 25, 2002
/s/ Larry Crawford
---------------------------------
Larry Crawford, Executive Vice
President and Chief Financial Officer
63
GREG MANNING AUCTIONS, INC.
SARBANES-OXLEY ACT SECTION 906 CERTIFICATION
In connection with this annual report on Form 10-K of Greg Manning Auctions,
Inc. for the period ended June 30, 2002, I, Greg Manning, Chairman and Chief
Executive Officer of Greg Manning Auctions, Inc., hereby certify pursuant to 18
U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002,
that:
1. this Form 10-K for the period ended June 30, 2002 fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. the information contained in this Form 10-K for the period ended June
30, 2002 fairly presents, in all material respects, the financial
condition and results of operations of Greg Manning Auctions, Inc.
Dated: September 25, 2002
/s/ Greg Manning
--------------------------------
Greg Manning, President and Chief
Executive Officer
In connection with this annual report on Form 10-K of Greg Manning Auctions,
Inc. for the period ended June 30, 2002, I, Larry Crawford, Executive Vice
President and Chief Financial Officer of Greg Manning Auctions, Inc, hereby
certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
1. this Form 10-K for the period ended June 30, 2002 fully complies with
the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
2. the information contained in this Form 10-K for the period ended June
30, 2002 fairly presents, in all material respects, the financial
condition and results of operations of Greg Manning Auctions, Inc.
Dated: September 25, 2002
/s/ Larry Crawford
----------------------------------
Larry Crawford, Executive Vice
President and Chief Financial Officer
64
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, 2002, 2001 and 2000, and for each of the
three years in the period ended June 30, 2002 and have issued our report thereon
dated September 16, 2002; 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.C.
September 16, 2002
Edison, New Jersey
65
SCHEDULE II
Greg Manning Auctions, Inc.
Valuation and Qualifing Accounts
(in thousands)
Balance at Balance at
Beginning of End of
Year Additions Write-offs Year
------------ --------- ---------- ----------
Allowance for sales returns and
doubtful accounts Years Ended June 30,
2000 $ 162 $ 664 $ -- $ 826
2001 826 19 -- 845
2002 845 353 121 1,077
Valuation allowance for deferred tax
asset Years Ended June 30,
2000 216 359 -- 575
2001 575 4,926 -- 5,501
2002 5,501 7,201 -- 12,702
Realizable value allowance for
inventory Years Ended June 30,
2000 364 150 -- 514
2001 514 2,388 -- 2,902
2002 2,902 1,401 1,871 2,432
66
EXHIBIT INDEX
Exhibit No. Description
- --------------------------------------------------------------------------------
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. Incorporated by reference to
Exhibit 10.4 to Form 10-K of the Company for the period ended June
30, 2001.
10.5 Fourth Amendment to Employment Agreement between Greg Manning and
Company, effective as of July 1, 2000. Incorporated by reference to
Exhibit 10.5 to Form 10-K of the Company for the period ended June
30, 2001.
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 Amendment to Employment Agreement between the Company, Spectrum
Numismatics International, Inc. and Gregory N. Roberts. *
10.8 1997 Stock Option Plan, as amended. Incorporated by reference to
Exhibit A to the Proxy Statement of the Company dated October 28,
1997, to the Proxy Statement of the Company dated January 14, 2000
and to the Proxy Statement of the Company dated October 26, 2001.
10.9 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.
10.10 Amended and Restated Secured Business Loan Agreement dated as of
February 18, 2000 between Bank of America, NA and Spectrum
Numismatics International, Inc.
10.11 Continuing Guaranty dated February 18, 2000 between Bank of America,
NA and Greg Manning.
10.12 Pledge Agreement dated February 18, 2000 between Bank of America, NA
and Greg Manning
10.13 Agreement, dated October 25, 2001 between Afinsa Bienes Tangibles ,
S.A. and Greg Manning Auctions, Inc. *
23.1 Consent of Independent Accountants. *
* Filed herewith
*******************************************************************************
67
EXHIBIT 21
SUBSIDIARIES OF GREG MANNING AUCTIONS, INC.
The subsidiaries of Greg Manning Auctions, Inc., which are wholly owned
except where indicated, are as follows:
Name Jurisdiction of Incorporation
- ---- -----------------------------
Spectrum Numismatics International, Inc. California
Teletrade, Inc. Delaware
Ivy & Mader Philatelic Auctions, Inc. Texas
Greg Manning Direct, Inc. Delaware
Greg Manning Galleries, Inc. New York
Kensington Associates, LLC California
68