October 30, 1998
GREG MANNING AUCTIONS INC (GMAI)
Quarterly Report (SEC form 10QSB)
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of Operations
General
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 special high value properties). During the
three month period ended September 30, 1998, the Company earned a commission of 10% to 15%
from the buyers.
The Company's operating expenses consist of the cost of sales of the Company's inventory and
general and administrative expenses and marketing expenses for the three months ended September
30, 1997 and 1998. General and administrative expenses are incurred to pay employees and to
provide support and services to those employees, including the physical facilities and data
processing. Marketing expenses are incurred to promote the services of the Company to sellers and
buyers of collectibles through advertising and public relations, producing and distributing its
auction catalogs and conducting auctions.
Three months ended September 30, 1998 Compared with the three months ended September 30,
1997
The Company recorded a decrease in revenues of $791,784 (33%), from $2,389,862 for the three
months ended September 30, 1997 to $1,598,078 for the three months ended September 30, 1998.
This decrease was primarily attributable to the decreases in revenues from the sale of the
Company's inventories of $863,727 (46%) for the three month period ended September 30, 1998
compared to the prior year. This decrease was primarily caused by a more selective inventory
purchase program in an effort to improve our gross profit margin. This program was successful as
shown by our improved margins from 16% in 1997 to 27% in 1998 (see below).
Gross margins on the sales of the Company's inventory decreased by $ 30,383 (10%) in the three
months ended September 30, 1998 compared to the three months ended September 30, 1997. The
overall gross margin increased to 27% on inventory sales during the three months ended September
30, 1998 from 16% for the comparable period in the prior year. The stamp area had an increase in
gross margins to 45% during the three months ended September 30, 1998 compared to 15% for the
prior year comparable period. During the quarter ended September 30, 1997 the Company
sustained a loss on a large lot that had the effect of reducing gross margins in the stamp area by
approximately 6%.
The Company's operating expenses decreased by $285,760 (22%) during the three months ended
September 30, 1998 compared to the same period in the prior year. These costs resulted in
operating costs of 62% of operating revenues for the three months ended September 30, 1998
compared to 53% for the comparable period in the prior year. The primary cost decreases were
attributable to a decrease of approximately $97,000 in payroll costs , approximately $53,000 from
leases and contracts which expired during fiscal 1998 and approximately $60,000 in saved expenses
relating to the relocation of Ivy & Mader from New York to our West Caldwell office.
Interest income decreased by $1,209 substantially due to a lower level of outstanding interest
bearing advances to consignors during the quarter ended September 30, 1998 as compared to the
three months ended September 30, 1997. This was offset by an decrease in interest expense of
$70,463 during the three months ended September 30, 1998 as compared to the comparable period
of the prior year due primarily to reduced overall borrowings.
Net Income: The Company's increase in operating profits of $502,686 during the three months
ended September 30, 1998 as compared to the same period of the prior year and the gain on sale of
PICK stock of $556,817 were the primary components of the net income of $209,621 for the three
months ended September 30, 1998 compared to the net loss of $293,065 during the three months
ended September 30, 1997.
The Company is aware of the Year 2000 issue and has commenced a program to identify,
remediate, test and develop contingency plans for the Year 2000 issue (the "Y2K Program"), to be
substantially completed by the summer of 1999. The Company has retained a consultant who will
assist in the management of the Y2K Program as it relates to (1) the software and systems used in
the Company's internal business; and (2) third party vendors, manufacturers and suppliers. The
Company currently does not anticipate that the cost of the Y2K Program will be material to its
financial condition or results of operations. Nevertheless, satisfactorily addressing the Year 2000
issue is dependent on many factors, some of which are not completely within the Company's
control. Should the Company's internal systems or the internal systems of one or more significant
vendors or suppliers fail to achieve Year 2000 compliance, the Company's business and its results of
operations could be adversely affected.
Liquidity and Capital Resources
At September 30, 1998, the Company's working capital position was $1,537,850, compared to
$1,455,028 as of June 30, 1998. This increase of $ 82,822 was primarily due to decreases in
auctions receivable ($2,413,724) and advances to consignors ($635,277). These decreases to
working capital were offset by a decrease in payables to third party consignors ($2,333,433) and
accounts payable and accrued expenses ($231,944). These items were the material cause of the
negative cash flow from operating activities of $155,143.
The Company experienced an increase in cash flow from investing activities for the three months
ended September 30, 1998 of $573,017. This was primarily attributable to the sale of PICK stock.
The Company experienced a decrease in cash flow from financing activities for the three months
ended September 30, 1998 of $828,070. This was attributable to the Company reducing its notes
payable and term loans by $147,070 and payments made on its term loans of $738,000.
The Company's need for liquidity and working capital is expected to increase as a result of any
proposed business expansion activities. In addition to the need for such capital, and to enhance the
Company's ability to offer cash advances to a larger number of potential consignors of property
(which management believes is an important aspect of the marketing of an auction business). In
addition, the Company will likely require additional working capital in the future in order to
further expand its sports trading card and sports memorabilia auction business as well as to acquire
collectibles for sale in the Company's business.
Management believes that the Company's cash flow from ongoing operations supplemented by the
Company's working capital credit facilities will be adequate to fund the Company's working capital
requirements for the next 12 months. However, to complete any of the Company's proposed
expansion activities or to make any significant acquisitions, the Company may consider exploring
financing alternatives including increasing its working capital credit facilities or raising additional
debt or equity capital.
The decision to expand, the desired rate of expansion, and the areas of expansion will be determined
by management and the Board of Directors only after careful consideration of all relevant factors.
This will include the Company's financial resources and working capital needs, and the necessity of
continuing its growth and position in its core business area of stamp auctions.
Subsequent Events
The Company is presently involved in purchase negotiations for a company. No definitive
agreement has yet been reached. The impact on the Company could be significant.
GREG MANNING AUCTIONS, INC.
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