maindoc.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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ý
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarter ended September 30, 2008
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OR
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q
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
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For
the transition period from _______ to _____
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Commission
file number 0-27887
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COLLECTORS
UNIVERSE, INC.
(Exact
name of Registrant as specified in its
charter)
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Delaware
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33-0846191
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or organization)
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1921
E. Alton Avenue, Santa Ana, California 92705
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(address of principal executive
offices and zip code)
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Registrant's
telephone number, including area code: (949)
567-1234
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Indicate by check mark whether the
registrant (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
ý No o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act, (Check one):
Large
accelerated filer o
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Accelerated
filer ý
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Non-accelerated
filer o
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Indicate
by check mark whether the Registrant is a shell company (as defined in
Securities Exchange Act Rule 12b-2).
YES [ ] NO x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
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Class
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Outstanding at October 31,
2008
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Common
Stock $.001 Par Value
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9,109,467
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COLLECTORS
UNIVERSE, INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED SEPTEMBER 30, 2008
TABLE
OF CONTENTS
PART
I
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Financial
Information
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Page
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1
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2
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3
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4
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14
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14
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14
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15
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15
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17
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17
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21
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22
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24
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24
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PART
II
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Other
Information
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25
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25
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25
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25
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S-1
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E-1
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EXHIBITS
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Exhibit 3.3
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Amended
and Restated Bylaws of Collectors Universe, Inc. as Adopted and Effective
September 26, 2008
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Exhibit 31.1
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Certifications
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
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Exhibit 31.2
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Certifications
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
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Exhibit 32.1
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Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
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Exhibit 32.2
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Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
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ITEM 1.
FINANCIAL STATEMENTS
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
(in
thousands, except per share data)
(Unaudited)
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|
September
30,
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June
30,
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ASSETS
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2008
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2008
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Current
assets:
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Cash and cash
equivalents
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|
$ |
22,952 |
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$ |
23,345 |
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Accounts receivable, net of
allowance of $88 at September 30, 2008 and $79 at
June 30, 2008
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1,309 |
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1,414 |
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Refundable income
taxes
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575 |
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575 |
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Inventories, net
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1,074 |
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983 |
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Prepaid expenses and other current
assets
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1,041 |
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1,029 |
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Customer notes receivable, net of
allowance of $31 at September 30, 2008 and June
30, 2008
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1,749 |
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2,062 |
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Net deferred income tax
asset
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486 |
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486 |
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Customer notes receivables held
for sale
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599 |
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3,579 |
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Receivables from sale of net
assets of discontinued operations
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92 |
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92 |
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Total current
assets
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29,877 |
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33,565 |
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Property and equipment,
net
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4,551 |
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4,482 |
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Goodwill
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3,974 |
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3,974 |
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Intangible assets,
net
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8,417 |
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8,494 |
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Net deferred income tax
asset
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909 |
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909 |
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Note receivable from sale of
discontinued operations
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115 |
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138 |
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Other assets
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463 |
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456 |
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$ |
48,306 |
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$ |
52,018 |
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts payable
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$ |
2,032 |
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$ |
1,870 |
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Accrued
liabilities
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1,508 |
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1,766 |
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Accrued compensation and
benefits
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1,254 |
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1,471 |
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Income taxes
payable
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360 |
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368 |
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Deferred revenue
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1,750 |
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2,084 |
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Current liabilities of
discontinued operations
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9 |
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9 |
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Total current
liabilities
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6,913 |
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7,568 |
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Deferred
rent and other long-term liabilities
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673 |
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620 |
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Commitments
and contingencies
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- |
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- |
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Stockholders’
equity:
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Preferred stock, $.001 par value;
5,000 shares authorized;
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No shares issued or
outstanding
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- |
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- |
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Common stock, $.001 par value;
45,000 shares authorized;
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shares outstanding: 9,189 at
September 30, 2008 (including 828 shares issued on November
3, 2008 as a stock dividend)
and
8,361 at June 30, 2008
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9 |
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8 |
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Additional paid-in
capital
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76,273 |
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75,996 |
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Accumulated
deficit
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(35,562 |
) |
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(32,174 |
) |
Total stockholders’
equity
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40,720 |
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43,830 |
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$ |
48,306 |
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$ |
52,018 |
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See
accompanying notes to condensed consolidated financial statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
(in
thousands, except per share data)
(unaudited)
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Three
Months Ended
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September
30,
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2008
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2007
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Net
revenues
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$ |
9,692 |
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$ |
10,825 |
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Cost
of revenues
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5,182 |
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5,200 |
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Gross profit
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4,510 |
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5,625 |
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Selling
and marketing expenses
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1,730 |
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2,018 |
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General
and administrative expenses
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3,901 |
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3,948 |
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Amortization
of intangible assets
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310 |
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270 |
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Total operating
expenses
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5,941 |
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6,236 |
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Operating
loss
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(1,431 |
) |
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(611 |
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Interest
income, net
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125 |
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444 |
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Other
income
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10 |
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1 |
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Loss
before benefit for income taxes
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(1,296 |
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(166 |
) |
Income
tax benefit
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- |
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(66 |
) |
Loss
from continuing operations
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(1,296 |
) |
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(100 |
) |
Loss
from discontinued operations (net of income taxes)
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(1 |
) |
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(10 |
) |
Net
loss
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$ |
(1,297 |
) |
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$ |
(110 |
) |
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Net
loss per basic share:
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Loss
from continuing operations
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$ |
(0.14 |
) |
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$ |
(0.01 |
) |
loss from discontinued operations (net of income taxes)
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- |
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- |
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Net loss
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$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
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Net
loss per diluted share:
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loss from continuing operations
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$ |
(0.14 |
) |
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$ |
(0.01 |
) |
loss from discontinued operations (net of income taxes)
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- |
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- |
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Net loss
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$ |
(0.14 |
) |
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$ |
(0.01 |
) |
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Weighted
average shares outstanding:
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Basic
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9,150 |
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9,310 |
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Diluted
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9,150 |
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9,310 |
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Dividends declared per common
share
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$ |
0.25 |
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$ |
0.25 |
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
(in
thousands)
(unaudited)
|
|
Three
Months Ended
September
30,
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2008
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2007
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
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|
|
|
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Net
loss
|
|
$ |
(1,297 |
) |
|
$ |
(110 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation and
amortization
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650 |
|
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574 |
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Impairment of fixed
assets
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- |
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1 |
|
Stock-based compensation
expense
|
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|
278 |
|
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|
246 |
|
Interest on note
receivable
|
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|
- |
|
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|
(3 |
) |
Provision for inventory write
down
|
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|
12 |
|
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|
10 |
|
Discontinued
operations
|
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|
1 |
|
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|
10 |
|
Deferred income
taxes
|
|
|
- |
|
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19 |
|
Gain on sale of notes
receivable
|
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|
(10 |
) |
|
|
- |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(96 |
) |
|
|
(395 |
) |
Inventories
|
|
|
(103 |
) |
|
|
5 |
|
Prepaid expenses and other
current assets
|
|
|
189 |
|
|
|
(11 |
) |
Other assets
|
|
|
(11 |
) |
|
|
(8 |
) |
Income taxes
payable
|
|
|
(8 |
) |
|
|
10 |
|
Accounts
payable
|
|
|
163 |
|
|
|
(329 |
) |
Accrued
liabilities
|
|
|
(258 |
) |
|
|
(30 |
) |
Deferred rent and other
long-term liabilities
|
|
|
52 |
|
|
|
(13 |
) |
Accrued compensation and
benefits
|
|
|
(217 |
) |
|
|
(540 |
) |
Deferred
revenue
|
|
|
(335 |
) |
|
|
(344 |
) |
Net cash used in operating
activities
|
|
$ |
(990 |
) |
|
$ |
(908 |
) |
Net
cash (used in) provided by operating activities of discontinued
businesses
|
|
|
(1 |
) |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(406 |
) |
|
|
(361 |
) |
Collection
of receivables from sales of discontinued businesses
|
|
|
23 |
|
|
|
22 |
|
Advances
on customer notes receivables
|
|
|
(333 |
) |
|
|
(1,926 |
) |
Proceeds
from customer notes receivables
|
|
|
3,636 |
|
|
|
769 |
|
Capitalized
software
|
|
|
(232 |
) |
|
|
(361 |
) |
Net cash provided by (used in)
investing activities
|
|
|
2,688 |
|
|
|
(1,857 |
) |
|
|
|
|
|
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
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Proceeds
from exercise of stock options
|
|
|
- |
|
|
|
72 |
|
Dividends
paid to common stockholders
|
|
|
(2,090 |
) |
|
|
(2,129 |
) |
Net cash used in financing
activities
|
|
|
(2,090 |
) |
|
|
(2,057 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(393 |
) |
|
|
(4,809 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
23,345 |
|
|
|
42,386 |
|
Cash
and cash equivalents at end of period
|
|
$ |
22,952 |
|
|
$ |
37,577 |
|
|
|
|
|
|
|
|
|
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SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
2 |
|
|
$ |
- |
|
Income
taxes paid
|
|
$ |
8 |
|
|
$ |
- |
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying unaudited interim condensed consolidated financial statements
include the accounts of Collectors Universe, Inc. and its subsidiaries (the
“Company”). At September 30, 2008, such operating subsidiaries were
Collectors Finance Corporation, Certified Asset Exchange, Inc., Gem
Certification and Assurance Lab, Inc., Expos Unlimited, Inc., and American
Gemological Laboratories, Inc., all of which are 100% owned by Collectors
Universe, Inc. All intercompany transactions and accounts have been
eliminated.
Unaudited
Interim Financial Information
The
accompanying interim condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim financial
reporting. These interim condensed consolidated financial
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals) necessary
to present fairly the Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Operations, and Condensed Consolidated Statements of
Cash Flows for the periods presented in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”). Operating results for the three months ended September 30,
2008 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2009 or for any other interim period during such
year. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been omitted in
accordance with the rules and regulations of the SEC. These interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, as
filed with the SEC. Amounts related to disclosure of June 30, 2008
balances within these interim condensed consolidated financial statements were
derived from the aforementioned audited consolidated financial statements and
notes thereto included in that Annual Report on Form
10-K.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period
presentation.
Revenue
Recognition
Net
revenues consist primarily of fees generated from the authentication and grading
of coins, sportscards, autographs, currency, stamps, diamonds and colored
gemstones. Authentication and grading revenues are recognized when
those services have been performed by us and the item is shipped back to the
customer. Authentication and grading fees generally are prepaid,
although we offer open account privileges to larger dealers. Advance
payments received for grading services are deferred until the service is
performed and the graded item is shipped to the customer. In the case
of dealers to whom we have extended credit, we record revenues at the time the
item is shipped to the customer. With respect to our Expos trade show
business, we recognize revenue generated by the promotion, management and
operation of collectibles conventions and trade shows in the periods in which
the shows take place.
A portion
of our net revenues are comprised of subscription fees paid by customers for a
membership in our Collectors Club. Those memberships entitle members
access to our on-line and printed publications, and sometimes also to vouchers
for free grading services. We record revenue for this multi-element
service arrangement in accordance with EITF 00-21, Accounting for Revenue
Arrangements With Multiple Deliverables, by recognizing approximately 60%
of the subscription fee in the month following the membership purchase, on the
basis that Collectors Club members typically utilize their vouchers for free
grading services within 30 days of subscribing for memberships. The
balance of the membership fee is recognized as revenue over the life of the
membership, which can range from one to two years. We evaluate, at
least semi-annually, the relative fair values of the deliverables and the
percentage factors used to allocate the membership fee between the grading and
the publication services provided under this membership service.
We recognize product sales when items are shipped and the requirements of Staff
Accounting Bulletin No. 104, Revenue Recognition, issued
by the Securities and Exchange Commission (“SEC”), have been
satisfied. Product revenues consist primarily of collectible coins
that we purchased pursuant to our coin authentication and grading warranty
program and are not considered an integral part of the Company’s on-going
revenue generating activities.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP 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 dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates, and such differences could be material to the condensed consolidated
financial statements. Examples of such estimates that could be
material to the Condensed Consolidated Financial Statements include capitalized
software, the valuation of stock-based compensation awards, the amount of
goodwill and the existence or non-existence of goodwill and other long-lived
assets impairments, warranty reserves and income tax provisions. Each
of these estimates, and the material impairment adjustment we made to our
goodwill and certain long-lived assets of our jewelry reporting units as of June
30, 2008, are discussed in more detail in the Annual Report on Form 10-K for the
fiscal year ended June 30, 2008.
Long-Lived
Assets
Management
regularly reviews property and equipment and other long-lived assets, including
certain identifiable intangibles and goodwill, for possible
impairment. This review occurs annually, or more frequently if events
or changes in circumstances indicate the carrying amount of the asset may not be
recoverable in full. If there is indication of impairment of property
and equipment or amortizable intangible assets, then management prepares an
estimate of future undiscounted cash flows expected to result from the use of
that asset and its eventual disposition. If these cash flows are less
than the carrying amount of the asset, an impairment loss is recognized to write
down the asset to its estimated fair value. The fair value is
estimated at the present value of the future cash flows discounted at a rate
commensurate with management’s estimates of the business risks.
Goodwill and Other Intangible
Assets.
In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, the Company is required to evaluate the carrying value of its
goodwill and certain indefinite-lived intangible assets at least annually for
impairment, or more frequently if facts and circumstances indicate that an
impairment has occurred. Management evaluates the carrying value of
its goodwill and other indefinite-lived intangible assets for impairment on the
anniversary date of each of the acquisitions that gave rise to the recording of
such assets. During the three months ended September 30, 2008, the Company
completed its annual review of the carrying values of the goodwill and other
indefinite-lived intangible assets acquired in the acquisitions of CoinFacts.com
(Coinfacts), Certified Coin Exchange (CCE), Expos Unlimited (Expos) and AGL, and
concluded that no impairments had occurred at any of these reporting
units. Intangible assets with definite lives, acquired by
acquisition, are subject to amortization over their remaining useful
lives.
Stock-Based
Compensation Expense
In
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
Share-Based Payment,
stock-based compensation cost is measured at the grant date of an award,
based on its fair value, and is recognized as expense over the employee’s
requisite service period, which is generally the vesting period. The
following table shows total stock-based compensation expense included in the
Condensed Consolidated Statements of Operations for the three months ended
September 30, 2008 and 2007:
|
|
Three
Months Ended
September
30,
(in
thousands)
|
|
|
|
2008
|
|
|
2007
|
|
Included
in:
|
|
|
|
|
|
|
Cost
of revenues
|
|
$ |
82 |
|
|
$ |
61 |
|
Selling
and marketing expenses
|
|
|
- |
|
|
|
(7 |
) |
General
and administrative expenses(1)
|
|
|
196 |
|
|
|
192 |
|
Pre-tax
stock-based compensation expense
|
|
$ |
278 |
|
|
$ |
246 |
|
|
(1)
|
Includes
$91,000 and $82,000 in the three months ended September 30, 2008 and 2007,
respectively, for amortization of compensation expense related to issuance
of restricted stock.
|
For the
three months ended September 30, 2008 and 2007, the Company estimated the rates
of forfeiture of outstanding non-vested stock-based compensation awards to be 5%
and 9%, respectively.
No
options were granted during the three months ended September 30,
2008. The following table presents information relative to the stock
options outstanding under all equity incentive plans as of and stock option
activity during the three months ended September 30, 2008, as adjusted to give
retroactive effect to the 10% stock dividend that was declared on September 26,
2008 and distributed on November 3, 2008 to all stockholders of record as of
October 20, 2008. The closing price of our common stock as of
September 30, 2008 was $8.45 and $7.37 at June 30, 2008.
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
Options:
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
927,200 |
|
|
$ |
12.54 |
|
5.5
yrs.
|
|
$ |
314,000 |
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Exercised
|
|
|
(100 |
) |
|
|
2.80 |
|
|
|
|
|
Forfeited
or cancelled
|
|
|
(35,800 |
) |
|
|
11.58 |
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
891,300 |
|
|
$ |
12.57 |
|
5.3
yrs.
|
|
$ |
483,000 |
Exercisable
at September 30, 2008
|
|
|
710,600 |
|
|
$ |
12.43 |
|
4.8
yrs.
|
|
$ |
483,000 |
Unvested
at September 30, 2008
|
|
|
180,700 |
|
|
$ |
13.13 |
|
7.0
yrs.
|
|
$ |
- |
Expect
to vest at September 30, 2008
|
|
|
170,900 |
|
|
$ |
13.15 |
|
6.9
yrs.
|
|
$ |
- |
The
aggregate intrinsic values of the options exercised during the three months
ended September 30, 2008 and 2007 were $465 and $249,000,
respectively.
The 170,900 options that were expected
to vest at September 30, 2008 are based on the current forfeiture rate of 5% and
the remaining vesting terms of the 180,700 unvested options at September 30,
2008.
During the three months ended September 30, 2008 and 2007, approximately 24,200
options were vested with an aggregate fair value of approximately
$146,000.
The
following table presents the non-vested status of the restricted shares for the
three months ended September 30, 2008 and the weighted average grant-date fair
values.
Non-Vested
Shares:
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair
Value
|
Non-vested
at June 30, 2008
|
|
|
50,359 |
|
|
$ |
12.60 |
Granted
|
|
|
- |
|
|
|
- |
Vested
|
|
|
(11,333 |
) |
|
|
12.58 |
Forfeited or
Cancelled
|
|
|
- |
|
|
|
- |
Non-vested
at September 30, 2008
|
|
|
39,026 |
|
|
$ |
12.60 |
The
following table sets forth total unrecognized compensation cost in the amount of
$806,000 related to non-vested stock-based awards expected to be recognized
through fiscal year 2012. That amount and time periods do not include
the cost or effect of the possible grant of any additional stock-based
compensation awards in the future or any change that may occur in the Company’s
forfeiture percentage.
Fiscal
Year Ending June 30,
|
|
Amount
|
2009
|
|
|
394,000 |
2010
|
|
|
271,000 |
2011
|
|
|
125,000 |
2012
|
|
|
16,000 |
|
|
$ |
806,000 |
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash equivalents, accounts receivable and
notes receivables.
Financial Instruments and
Cash Balances. At September 30, 2008, cash and cash
equivalents, totaling approximately $22,952,000, were comprised primarily of
money-market funds. At September 30, 2008, the Company had
approximately $1,500,000 in non-interest bearing bank accounts for general
day-to-day operations.
Accounts
Receivable. A substantial portion of accounts receivable are
due from collectibles dealers. At September 30, 2008 two customers
accounted for approximately 22% of the total net accounts receivable balance of
$1,309,000 outstanding on that date; whereas, at June 30, 2008, three customers
accounted for approximately 37% of total net accounts receivable balances of
$1,414,000 outstanding on that date. The Company performs an analysis
of the expected collectibility of accounts receivable based on several factors,
including the age and extent of significant past due accounts and economic
conditions or trends that may adversely affect the ability of account debtors to
pay their account receivable balances. Based on that review, the
Company establishes an allowance for doubtful accounts, when
necessary. The allowance for doubtful accounts receivable was $88,000
at September 30, 2008 and $79,000 at June 30, 2008.
Customer Notes
Receivables. At September 30, 2008, the outstanding principal
amount of customer notes receivable, which evidenced short term advances made to
customers, totaled $2,348,000, net of a $31,000 allowance for uncollectible
amounts, of which $599,000 was classified as held for sale with the balance of
$1,749,000 representing notes receivable that will be collected upon
maturity. At September 30, 2008, two of those notes receivable, each
greater than 10% of the total notes receivable balances, represented 66% of the
total principal amounts outstanding. At June 30, 2008, three
customers’ loan balances, each greater than 10% of the total notes receivable
balances, represented 49% of the total principal balances
outstanding.
During
the three months ended September 30, 2008, the Company sold, without recourse,
certain of its CFC loans classified as held for sale at June 30, 2008 for
approximately $3,300,000. These loans were sold for an amount that
was about 0.7% over the aggregate of the principal amounts of those
loans.
Sources of
Revenues. The authentication, grading and sales of collectible
coins accounted for approximately 52% and 56% of our net revenues for the three
months ended September 30, 2008 and 2007, respectively.
Capitalized
Software
Through
September 30, 2008, the Company had capitalized an aggregate of approximately
$2,577,000 of software development costs, net of accumulated amortization of
approximately $995,000, in accordance with Statement of Position (“SOP”) 98-1,
Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use, and
EITF 00-02, Accounting
for Website Development Costs. In the three months ended September 30,
2008 and 2007, approximately $232,000 and $361,000 of such costs were
capitalized, respectively, and approximately $199,000 and $125,000 were
recognized as amortization expense, respectively. Planning, training,
support and maintenance costs incurred either prior to or following the
implementation phase of a software project are recognized as expense in the
period in which they occur. The Company evaluates the carrying values
of capitalized software to determine if the carrying values are impaired, and,
if necessary, an impairment loss is recorded in the period in which an
impairment occurs. Management believes that no such impairments have
occurred at September 30, 2008.
Warranty
Costs
We offer
a limited warranty covering the coins, sportscards, stamps and currency that we
authenticate and grade. Under the warranty, if any collectible that
was previously authenticated and graded by us is later submitted to us for
re-grading at any time and either (i) receives a lower grade upon that
re-submittal or (ii) is determined not to have been authentic, we will
offer to purchase the collectible or, at our option, pay the difference in value
of the item at its original grade as compared with its lower
grade. However, this warranty is voided if the collectible, upon
re-submittal to us, is not in the same tamper resistant holder in which it was
placed at the time we last graded it. To the extent that we purchase
an item under a warranty claim, we recognize as a reduction in our warranty
reserve the difference in value of the item at its original grade and its
re-graded estimated value. We include in our inventory the re-graded
estimated value of the item. We offer a similar limited warranty of
two years duration on the diamonds we grade. We accrue for estimated
warranty costs based on historical trends and related
experience. Management increased the warranty accrual rate effective
January 1, 2008. Increased future claims experience under our
warranty program could increase to levels higher than in the past which could
result in additional warranty accruals in anticipation of these claims, and our
ongoing warranty accrual rate could increase to cover potential higher claims in
the future, both of which could have a material adverse impact on our future
results of operations.
2. CASH
AND CASH EQUIVALENTS
At
September 30, 2008 and June 30, 2008, cash and cash equivalents consisted of
approximately $22,952,000 and $23,345,000, respectively, which was invested
primarily in money-market funds, which comprised of investments in
government-guaranteed securities.
3.
|
FAIR
VALUE MEASUREMENTS
|
|
In September 2006, the Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with U.S. GAAP, and
expands disclosures about fair value measurements, SFAS 157 is effective
for financial statements issued for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. In
February 2008, the FASB issued SFAS No. 157-2, Effective Date of FASB
Statement No. 157, which delays the effective date of SFAS 157 to
fiscal years beginning after November 15, 2008 for all nonfinancial assets
and nonfinancial liabilities, except for those that are recognized or
disclosed at fair value in the financial statements on a recurring
basis. The Company has adopted the provisions of SFAS 157 as of
July 1, 2008 for financial assets, including cash and cash equivalents,
and SFAS 157-2 will be adopted as of July 1, 2009 for nonfinancial assets
and nonfinancial liabilities.
|
SFAS 157
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers include:
Level 1-defined as observable inputs such as quoted prices in active
markets:
Level 2-defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and
Level 3-defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
As of
September 30, 2008, the Company held certain assets that are required to be
measured at fair value on a recurring basis. The Company measures the
following financial assets at fair value on a recurring basis. The
fair value of these financial assets was determined using the following inputs
at September 30, 2008:
|
|
(in
thousands)
|
|
|
|
Total
As
of
September
30, 2008
|
|
|
Quoted
Prices
in
Active
Markets
or
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
Cash
and cash equivalents
|
|
$ |
22,952 |
|
|
$ |
22,952 |
|
|
$ |
- |
|
|
$ |
- |
|
Total
|
|
$ |
22,952 |
|
|
$ |
22,952 |
|
|
$ |
- |
|
|
$ |
- |
|
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159 permits
companies to choose to measure at fair value certain financial instruments and
other items that are not currently required to be measured at fair
value. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company adopted SFAS No. 159 on July 1, 2008
and elected not to measure any additional financial instruments or other items
at fair value.
During
the three months ended September 30, 2008, the Company completed its annual
review of the carrying values of the goodwill and other indefinite-lived
intangible assets acquired in the acquisitions of CoinFacts.com, Certified Coin
Exchange, Expos Unlimited and American Gemological Laboratories, and concluded
that no impairments had occurred as of September 30, 2008 at any of these
reporting units.
Inventories
consist of the following:
|
|
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
Coins
|
|
$ |
813 |
|
|
$ |
751 |
|
Other
collectibles
|
|
|
28 |
|
|
|
28 |
|
Grading
raw materials consumable inventory
|
|
|
336 |
|
|
|
295 |
|
|
|
|
1,177 |
|
|
|
1,074 |
|
Less
inventory
reserve
|
|
|
(103 |
) |
|
|
(91 |
) |
Inventories,
net
|
|
$ |
1,074 |
|
|
$ |
983 |
|
5. PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following:
|
|
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
Coins
and stamp grading reference sets
|
|
$ |
614 |
|
|
$ |
610 |
|
Computer
hardware and equipment
|
|
|
1,554 |
|
|
|
1,876 |
|
Computer
software
|
|
|
1,035 |
|
|
|
1,035 |
|
Equipment
|
|
|
4,216 |
|
|
|
4,206 |
|
Furniture
and office
equipment
|
|
|
1,124 |
|
|
|
1,117 |
|
Leasehold
improvements
|
|
|
1,964 |
|
|
|
1,598 |
|
Trading
card reference
library
|
|
|
52 |
|
|
|
52 |
|
|
|
|
10,559 |
|
|
|
10,494 |
|
Less
accumulated depreciation and amortization
|
|
|
(6,008 |
) |
|
|
(6,012 |
) |
Property
and equipment, net
|
|
$ |
4,551 |
|
|
$ |
4,482 |
|
6. ACCRUED
LIABILITIES
Accrued
liabilities consist of the following:
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2008
|
|
Warranty
costs
|
|
$ |
658 |
|
|
$ |
687 |
|
Professional
fees
|
|
|
258 |
|
|
|
125 |
|
Other
|
|
|
592 |
|
|
|
954 |
|
|
|
$ |
1,508 |
|
|
$ |
1,766 |
|
The
following table presents the changes in the Company’s warranty reserve during
the three months ended September 30, 2008 and 2007:
|
|
(in
thousands)
|
|
|
|
Three
Months
Ended
September
30,
|
|
|
Three
Months
Ended
September
30,
|
|
|
|
2007
|
|
|
2008
|
|
Warranty
reserve, beginning of
period
|
|
$ |
687 |
|
|
$ |
735 |
|
Charged
to cost of
revenue
|
|
|
133 |
|
|
|
107 |
|
Payments
|
|
|
(162 |
) |
|
|
(79 |
) |
Warranty
reserve, end of
period
|
|
$ |
658 |
|
|
$ |
763 |
|
7.
|
DISCONTINUED
OPERATIONS
|
As
previously disclosed, on March 4, 2003, the Company’s Board of Directors
authorized management to implement a plan to focus the Company’s financial and
management resources, and collectibles expertise, on the operations and growth
of its grading and authentication businesses, by divesting the Company’s
collectibles auctions and direct sales businesses.
The
operating results of the discontinued collectibles sales businesses that are
included in the accompanying Condensed Consolidated Balance Sheets and
Statements of Operations are deemed to be immaterial to warrant additional
disclosure.
No income
tax benefit has been recognized for the three months ended September 30, 2008
due to the Company establishing a valuation allowance against the related
deferred tax asset because of uncertainty of realization. As of June
30, 2008 and September 30, 2008, the Company has established a valuation
allowance against certain deferred tax assets due to the length of time and the
extent of taxable income required to fully realize those deferred tax
assets. The effective tax rate was 0% and 40% in the three months
ended September 30, 2008 and 2007, respectively.
At
September 30, 2008, the liability for income taxes associated with uncertain tax
positions continued to be $380,000. The Company does not expect such
balance to change significantly over the next year.
Net loss
per share is determined in accordance with SFAS No. 128, Earnings Per
Share. Net loss per share for the three months ended September
30, 2008 and 2007, respectively, are computed as follows:
|
|
(In
thousands,
except
per share data)
|
|
|
|
Three
Months Ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Loss
from continuing operations
|
|
$ |
(1,296 |
) |
|
$ |
(100 |
) |
Loss
from discontinued operations (net of income taxes)
|
|
|
(1 |
) |
|
|
(10 |
) |
Net
loss
|
|
$ |
(1,297 |
) |
|
$ |
(110 |
) |
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE – BASIC:
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
Loss from discontinued
operations (net of income taxes)
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE – DILUTED:
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
Loss from discontinued
operations (net of income taxes)
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
(0.14 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,150 |
|
|
|
9,310 |
|
Effect of dilutive
shares
|
|
|
- |
|
|
|
- |
|
Diluted
|
|
|
9,150 |
|
|
|
9,310 |
|
The
number of shares used in the computation of the loss per shares gives
retroactive effect to a 10% stock dividend that was distributed on November 3,
2008 to stockholders of record as of October 20, 2008 (see note
12).
Options
and warrants to purchase shares of common stock and non-vested restricted shares
of common stock in the aggregate of approximately 1,115,400 and 1,197,000
for the three months ended September 30, 2008 and 2007, respectively, were
excluded from the computation of diluted loss per share as they would have been
anti-dilutive in the calculation of diluted earnings per share.
Operating
segments are defined as the components or “segments” of an enterprise for which
separate financial information is available that is evaluated regularly by the
Company’s chief operating decision maker, or decision-making group, in deciding
how to allocate resources to and in assessing performance of those components or
“segments.” The Company’s chief operating decision-maker is its Chief
Executive Officer. The operating segments of the Company are
organized based on the respective services that they offer to customers of the
Company. Similar operating segments have been aggregated to
reportable operating segments based on having similar services, types of
customers, and other criteria that are set forth in SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information.
For our
continuing operations, we operate principally in four reportable service
segments: coins, sportscards, jewelry and other high-end
collectibles. Services provided by these segments include
authentication, grading, publication advertising and subscription-based
revenues. The other collectibles segment is comprised of autographs,
stamps, currency, the CCE subscription business and our collectibles conventions
business.
We
allocate operating expenses to each service segment based upon each segment’s
activity level. The following tables set forth on a business segment
basis, including reconciliation with the Condensed Consolidated Financial
Statements, (i) external revenues, (ii) amortization and depreciation, (iii)
stock-based compensation expense as a significant other non-cash transaction,
and (iv) operating income for the three months ended September 30, 2008 and
2007. Net identifiable assets are provided by business segment as of September
30, 2008 and June 30, 2008. All of our sales and identifiable assets are located
in the United States.
|
|
(in
thousands)
|
|
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Net
revenues from external customers
|
|
|
|
|
|
|
Coins
|
|
$ |
4,995 |
|
|
$ |
6,038 |
|
Sportscards
|
|
|
2,189 |
|
|
|
2,292 |
|
Jewelry
|
|
|
435 |
|
|
|
380 |
|
Other
|
|
|
2,073 |
|
|
|
2,115 |
|
Total revenue
|
|
$ |
9,692 |
|
|
$ |
10,825 |
|
Amortization
and depreciation
|
|
|
|
|
|
|
|
|
Coins
|
|
$ |
75 |
|
|
$ |
56 |
|
Sportscards
|
|
|
49 |
|
|
|
23 |
|
Jewelry
|
|
|
318 |
|
|
|
314 |
|
Other
|
|
|
120 |
|
|
|
98 |
|
Total
|
|
|
562 |
|
|
|
491 |
|
Unallocated amortization and
depreciation
|
|
|
88 |
|
|
|
83 |
|
Consolidated amortization and
depreciation
|
|
$ |
650 |
|
|
$ |
574 |
|
Stock-based
compensation
|
|
|
|
|
|
|
|
|
Coins
|
|
$ |
33 |
|
|
$ |
34 |
|
Sportscards
|
|
|
- |
|
|
|
5 |
|
Jewelry
|
|
|
3 |
|
|
|
3 |
|
Other
|
|
|
53 |
|
|
|
28 |
|
Total
|
|
|
89 |
|
|
|
70 |
|
Unallocated stock-based
compensation
|
|
|
189 |
|
|
|
176 |
|
Consolidated stock-based
compensation
|
|
$ |
278 |
|
|
$ |
246 |
|
Operating
loss before unallocated expenses
|
|
|
|
|
|
|
|
|
Coins
|
|
$ |
1,801 |
|
|
$ |
2,484 |
|
Sportscards
|
|
|
345 |
|
|
|
518 |
|
Jewelry
|
|
|
(1,630 |
) |
|
|
(1,810 |
) |
Other
|
|
|
19 |
|
|
|
310 |
|
Total
|
|
|
535 |
|
|
|
1,502 |
|
Unallocated operating
expenses
|
|
|
(1,966 |
) |
|
|
(2,113 |
) |
Consolidated operating
loss
|
|
$ |
(1,431 |
) |
|
$ |
(611 |
) |
|
|
(in
thousands)
|
|
|
|
At
September 30,
|
|
|
At
June 30,
|
|
Identifiable
Assets
|
|
2008
|
|
|
2008
|
|
Coins
|
|
$ |
3,212 |
|
|
$ |
3,346 |
|
Sportscards
|
|
|
996 |
|
|
|
1,035 |
|
Jewelry
|
|
|
9,240 |
|
|
|
9,061 |
|
Other
|
|
|
7,654 |
|
|
|
11,055 |
|
Total
|
|
|
21,102 |
|
|
|
24,497 |
|
Unallocated
assets
|
|
|
27,204 |
|
|
|
27,521 |
|
Consolidated
assets
|
|
$ |
48,306 |
|
|
$ |
52,018 |
|
|
|
(in
thousands)
|
|
|
|
September
30,
|
|
|
June
30,
|
|
Goodwill:
|
|
2008
|
|
|
2008
|
|
Coins
|
|
$ |
515 |
|
|
$ |
515 |
|
Jewelry
|
|
|
1,348 |
|
|
|
1,348 |
|
Other
|
|
|
2,111 |
|
|
|
2,111 |
|
Consolidated
assets
|
|
$ |
3,974 |
|
|
$ |
3,974 |
|
Bill Miller vs. Collectors Universe,
Inc. Effective as of October 14, 2008, William Miller and
the Company executed a settlement and release agreement which provides for a
complete release by each party of all known and unknown claims it has or may
have against the other relating to or arising out of the subject matter of the
lawsuit that Miller had brought against the Company in 2004 in which he sought
alleged statutory damages from the Company of up to approximately $10.5 million
based on a claim that the Company had used his name, allegedly without his
consent, on Company authentication certificates. The released claims
include pending claims brought by each party seeking to recover its legal fees
and expenses in that lawsuit from the other party. The Company was not required
to make any payments to Miller in exchange for the release.
Dividends
On
September 26, 2008, the Board of Directors determined that, due to market and
economic conditions, including the liquidity crisis in the United States, the
prudent course of action would be to suspend the payment of cash dividends in
order to preserve the Company's cash resources. At the same time, the
Board of Directors declared a 10% stock dividend on the Company's outstanding
shares, to be distributed on November 3, 2008 to all stockholders of record
as of October 20, 2008. The 10% stock dividend was recorded in the
accompanying Condensed Consolidated Balance Sheet as of the declaration date of
September 26, 2008 and all shares outstanding, stock option grants outstanding
and the weighted average number of shares used in the computation of the loss
per share for the three months ended September 30, 2008 and 2007 were
retroactively adjusted for the stock dividend as of the record date of October
20, 2008 (see note 1 under the heading Stock-Based Compensation
Expense and note 9 Net
Loss Per Share).
Stock Buyback Program
At
September 30, 2008, the Company continued to have approximately $4.2 million
remaining under its buyback program. Subsequent to September 30, 2008, the
Company repurchased approximately 80,000 shares under this program due to an
involuntary sale of shares by its Chief Executive Officer, at a cost of
approximately $320,000.
The
discussion in this Item 2 and in Item 3 of this Quarterly Report (“Report”) on
Form 10-Q includes “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “1934
Act”). Those Sections of the 1933 Act and 1934 Act provide a “safe
harbor” for forward-looking statements to encourage companies to provide
prospective information about their financial performance so long as they
provide meaningful, cautionary statements identifying important factors that
could cause actual results to differ from projected or anticipated
results. Other than statements of historical fact, all statements in
this Report and, in particular, any projections of or statements as to our
expectations or beliefs concerning our future financial performance or financial
condition or as to trends in our business or in our markets, are forward-looking
statements. Forward-looking statements often include the words
"believe," "expect," "anticipate," "intend," "plan," "estimate," "project," or
words of similar meaning, or future or conditional verbs such as "will,"
"would," "should," "could," or "may." Our actual financial
performance in future periods may differ significantly from the currently
expected financial performance set forth in the forward-looking statements
contained in this Report. The sections below entitled “Factors That
Can Affect our Financial Position and Operating Results” and “Risks and
Uncertainties That Could Affect our Future Financial Performance” describe some,
but not all, of the factors and the risks and uncertainties that could cause
these differences, and readers of this Report are urged to read those sections
of this Report in their entirety and to review certain additional risk factors
that are described in Item 1A of our Annual Report on Form 10-K, as filed
by us with the Securities and Exchange Commission (the “SEC”), for the fiscal
year ended June 30, 2008.
Due to
these and other possible uncertainties and risks, readers are cautioned not to
place undue reliance on the forward-looking statements contained in this Report,
which speak only as of the date of this Report, or to make predictions about
future performance based solely on historical financial
performance. We also disclaim any obligation to update
forward-looking statements contained in this Report or in our Annual Report on
Form 10-K or any other prior filings with the SEC.
Collectors
Universe, Inc. (the “Company”) provides grading and authentication services to
dealers and collectors of high-value coins, sportscards, autographs, stamps, and
U.S. currency notes and to sellers and purchasers of diamonds and colored
gemstones. We believe that our authentication and grading services
add value to these collectibles and to diamonds and colored gemstones by
enhancing their marketability and, thereby, providing increased liquidity to the
dealers, collectors and consumers that own, buy and sell them.
We
principally generate revenues from the fees paid for our authentication and
grading services. To a much lesser extent, we generate revenues from
other related services consisting of: (i) the sale of
advertising on our websites; (ii) the sale of printed publications and
collectibles price guides and advertising in such publications and on our
website; (iii) the sale of Collectors Club membership subscriptions;
(iv) the sale of subscriptions to our CCE dealer-to-dealer Internet bid-ask
market for certified coins; (v) the collectibles trade show conventions
that we conduct; and (vi) the sale of our collectibles inventory, which is
comprised primarily of collectible coins that we have purchased under our coin
grading warranty program.
Discontinued
Operations. As previously disclosed, the remaining activities
resulting from our divestiture of our collectibles auctions and sales businesses
have been classified as discontinued operations and the discussion that follows
focuses almost entirely on our authentication and grading businesses, which
comprise substantially all of our continuing operations. The
remaining activities in our discontinued operations are
insignificant.
The
following table sets forth certain financial data, expressed as a percentage of
net revenues, derived from our interim Condensed Consolidated Statements of
Operations (included earlier in this Report) for the respective periods
indicated below:
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Net
revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of revenues
|
|
|
53.5 |
% |
|
|
48.0 |
% |
Gross
profit
|
|
|
46.5 |
% |
|
|
52.0 |
% |
Operating
expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing
expenses
|
|
|
17.9 |
% |
|
|
18.7 |
% |
General and administrative
expenses
|
|
|
40.2 |
% |
|
|
36.4 |
% |
Amortization of
intangibles
|
|
|
3.2 |
% |
|
|
2.5 |
% |
Total operating
expenses
|
|
|
61.3 |
% |
|
|
57.6 |
% |
Operating
loss
|
|
|
(14.8 |
)% |
|
|
(5.6 |
)% |
Interest
income, net
|
|
|
1.3 |
% |
|
|
4.1 |
% |
Other
income
|
|
|
0.1 |
% |
|
|
- |
|
Loss
before income tax benefit
|
|
|
(13.4 |
)% |
|
|
(1.5 |
)% |
Income
tax benefit
|
|
|
- |
|
|
|
(0.6 |
)% |
Loss
from continuing operations
|
|
|
(13.4 |
)% |
|
|
(0.9 |
)% |
Loss
from discontinued operations (net of income taxes)
|
|
|
- |
|
|
|
(0.1 |
)% |
Net
loss
|
|
|
(13.4 |
)% |
|
|
(1.0 |
)% |
Revenues
decreased by $1,133,000 or 10.5% in the three months ended September 30, 2008,
compared to the same period of the prior fiscal year, primarily as a result of a
decrease of $1,011,000 or 11.3%, in authentication and grading service fees and
a decrease totaling $122,000 or 6.6%, in our other related
services. The decrease in authentication and grading service fees was
due primarily to a decrease in the revenues of our coin grading and
authentication business that was attributable primarily to declines in
(i) higher margin coin grading submissions at trade shows (which we believe
was the result of the continued high price and a high level of volatility in the
price of gold during this year’s first quarter) and (ii) modern coin
submissions and the average service fee on those
submissions. Although total costs of revenue in this year’s first
quarter were approximately the same in dollar amounts as in the corresponding
quarter last year, the decrease and the change in the mix in net revenues caused
gross profits in this year’s first quarter to decline by $1,115,000, or 19.8%,
as compared to the same quarter of fiscal 2008. As a result, although
we were able to reduce operating expenses by $295,000 in this year’s first
quarter, we incurred an operating loss of $1,431,000 in the three months ended
September 30, 2008, as compared to an operating loss of $611,000 in the same
three months of 2007. These, as well as other factors affecting our
operating results in the first quarter of 2008 are described in more detail
below.
Factors that Can Affect our
Revenues. Our authentication and grading revenues, which
accounted for approximately 82% of our total net revenues in the three months
ended September 30, 2008, are primarily affected by (i) the volume and mix,
among coins, sportscards and other collectibles and high value assets, of
authentication and grading submissions; (ii) in the case of coins and
sportscards, the “turn-around” times requested by our customers, because we
charge higher fees for faster service times; and (iii) the mix of
authentication and grading submissions between vintage or “classic” coins and
sportscards, on the one hand, and modern coins and sportscards, on the other
hand, because dealers generally request faster turn-around times for vintage or
classic coins and sports cards than they do for modern submissions, as vintage
or classic collectibles are of significantly higher value and are more saleable
by dealers than modern coins and sportscards.
Our
revenues are also impacted by the level of grading submissions and revenue
earned from such submissions at collectibles trade shows where we provide
on-site grading and authentication services to show attendees who typically
request same-day turn-around. The level of such revenues can vary
depending upon a number of factors, including the timing of the shows or
short-term decisions made by dealers during shows. In addition, the
level of our revenues can be impacted by short-term changes in the price of gold
that may occur around the time of the show, which can affect the volume of coin
transactions at the shows and, therefore, also the volume of submissions to us
for on-site grading and same-day turn-around at shows.
Six of
our coin authentication and grading customers accounted, in the aggregate, for
approximately 12% of our total net revenues in the three months ended September
30, 2008, as compared to 10% in the year ended June 30, 2008. As a
result, the loss of any of those customers, or a decrease in the volume of
grading submissions from any of them to us, would cause our net revenues to
decline and, therefore, could adversely affect the profitability of our grading
and authentication operations.
Factors Affecting our Gross Profit
Margins. The gross profit margins on authentication and
grading submissions also are primarily affected by (i) the volume and mix,
among coins, sportscards and other collectibles and high value assets, of
authentication and grading submissions, because we generally realize higher
margins on coin submissions than on submissions of other collectibles and
high-value assets; (ii) in the case of coins and sportscards, the
“turn-around” times requested by our customers, because we charge higher fees
for faster service times, (iii) the mix of authentication and grading
submissions between vintage or “classic” coins and sportscards, on the one hand,
and modern coins and sportscards, on the other hand, because dealers generally
request faster turn-around times for vintage or classic coins and sports cards
than they do for modern submissions, and (iv) the stage of development and
the seasonality of our newer businesses. Furthermore, because a
significant proportion of our direct costs are generally fixed in nature, our
gross profit is also affected by the overall volume of collectibles
authenticated and graded in any period.
Impact of Economic Conditions on
Financial Performance. We generate substantially all of our
revenues from the collectibles and the diamond and colored gemstone
markets. Accordingly, our operating results are affected by the
financial performance of those markets, which depends to a great extent on
(i) discretionary consumer spending and, hence, on the availability of
disposable income, (ii) on other economic conditions, including prevailing
interest and inflation rates, which affect consumer confidence, (iii) the
availability and cost of financing that collectibles dealers and consumers need
to fund their purchases of collectibles or diamonds and colored gemstones, and
(iv) the performance and volatility of the gold and other precious metals
markets and the stock markets. These conditions primarily affect the
volume of purchases and sales of collectibles and high value assets which, in
turn, affects the volume of authentication and grading submissions to us,
because our services facilitate commerce in
collectibles. Accordingly, factors such as improving economic
conditions which usually result in increases in disposable income and consumer
confidence, and volatility in and declines in the prices of stocks and a
weakening in the value of the U.S. Dollar, which often lead investors to
increase their purchases of precious metals, such as gold bullion and other
coins and collectibles, may result in increases in submissions of collectibles
for our services. By contrast, the volume of collectibles sales and
purchases and, therefore, the volume of authentication and grading submissions,
may decline during periods characterized by recessionary economic conditions,
declines in disposable income and consumer confidence, reductions in the
availability or increases in the costs of financing, or by increasing stock
prices and relative stability in the stock markets.
The
following tables provide information regarding the respective numbers of coins,
sportscards, autographs, currency, diamonds and colored gemstones that were
graded or authenticated by us in the three months ended September 30, 2008 and
2007 and their estimated values, which are the amounts at which those coins,
sportscards and stamps and other high value assets were insured by the dealers
and collectors who submitted them to us for grading and
authentication.
|
|
Units
Processed
Three
Months Ended September 30,
|
|
|
Declared
Value (000)
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coins
|
|
|
328,100 |
|
|
|
46.4 |
% |
|
|
367,100 |
|
|
|
47.0 |
% |
|
$ |
302,722 |
|
|
|
73.6 |
% |
|
$ |
333,351 |
|
|
|
80.0 |
% |
Sportscards
|
|
|
301,600 |
|
|
|
42.7 |
% |
|
|
338,500 |
|
|
|
43.0 |
% |
|
|
26,562 |
|
|
|
6.5 |
% |
|
|
20,534 |
|
|
|
5.0 |
% |
Autographs
|
|
|
41,600 |
|
|
|
5.9 |
% |
|
|
44,800 |
|
|
|
6.0 |
% |
|
|
4,854 |
|
|
|
1.2 |
% |
|
|
5,811 |
|
|
|
1.0 |
% |
Stamps
|
|
|
7,300 |
|
|
|
1.0 |
% |
|
|
19,700 |
|
|
|
2.0 |
% |
|
|
5,071 |
|
|
|
1.2 |
% |
|
|
4,351 |
|
|
|
1.0 |
% |
Currency
|
|
|
16,800 |
|
|
|
2.4 |
% |
|
|
11,000 |
|
|
|
1.0 |
% |
|
|
8,092 |
|
|
|
2.0 |
% |
|
|
9,349 |
|
|
|
2.0 |
% |
Diamonds
|
|
|
9,800 |
|
|
|
1.4 |
% |
|
|
7,700 |
|
|
|
1.0 |
% |
|
|
35,065 |
|
|
|
8.5 |
% |
|
|
31,963 |
|
|
|
8.0 |
% |
Colored
Gemstones
|
|
|
1,400 |
|
|
|
0.2 |
% |
|
|
900 |
|
|
|
- |
|
|
|
28,804 |
|
|
|
7.0 |
% |
|
|
10,986 |
|
|
|
3.0 |
% |
Total
|
|
|
706,600 |
|
|
|
100.0 |
% |
|
|
789,700 |
|
|
|
100.0 |
% |
|
$ |
411,170 |
|
|
|
100.0 |
% |
|
$ |
416,345 |
|
|
|
100.0 |
% |
During
the quarter ended September 30, 2008, there were no changes in the critical
accounting policies or estimates that were described in Item 7 of our Annual
Report on Form 10-K, filed with the SEC, for the fiscal year ended June 30,
2008. Readers of this report are urged to read that Section of that
Annual Report for a more complete understanding of our critical accounting
policies and estimates.
Net
Revenues
Net
revenues consist primarily of fees that we generate from the authentication and
grading of high-value collectibles, including coins, sportscards, autographs,
stamps and currency, and high-value assets consisting of diamonds and colored
gemstones. To a lesser extent, we generate collectibles related
service revenues (referred to as “other related revenues”) from sales of
collectibles club memberships and advertising on our websites and in printed
publications and collectibles price guides; subscription-based revenues
primarily related to our CCE dealer-to-dealer Internet bid-ask market for coins
authenticated and graded by us; and fees earned from promoting, managing and
operating collectibles conventions. Net revenues also include, to a
significantly lesser extent, revenues from the sales of products, consisting
primarily of coins that we purchase under our warranty policy.
The
following tables breakout the total net revenues for the three months ended
September 30, 2008 and 2007 between grading and authentication services
revenues, and other related services revenues:
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
|
(Dollars
in thousands)
|
|
Grading
and authentication fees
|
|
$ |
7,960 |
|
|
|
82.1 |
% |
|
$ |
8,971 |
|
|
|
82.9 |
% |
|
$ |
(1,011 |
) |
|
|
(11.3) |
% |
Other
related services
|
|
|
1,732 |
|
|
|
17.9 |
% |
|
|
1,854 |
|
|
|
17.1 |
% |
|
|
(122 |
) |
|
|
(6.6) |
% |
Total
net revenues
|
|
$ |
9,692 |
|
|
|
100.0 |
% |
|
$ |
10,825 |
|
|
|
100.0 |
% |
|
$ |
(1,133 |
) |
|
|
(10.5 |
)% |
The
following table sets forth certain information regarding the increases in net
revenues in our larger markets (which are inclusive of revenues from our other
related services) and in the number of units authenticated and graded in the
three months ended September 30, 2008 and 2007:
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
vs. 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Revenues
|
|
|
Units
Processed
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amounts
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Coins
|
|
$ |
4,995 |
|
|
|
51.5 |
% |
|
$ |
6,038 |
|
|
|
55.8 |
% |
|
$ |
(1,043 |
) |
|
|
(17.3) |
% |
|
|
(39,000 |
) |
|
|
(10.6 |
)% |
Sportscards
|
|
|
2,189 |
|
|
|
22.6 |
% |
|
|
2,292 |
|
|
|
21.2 |
% |
|
|
(103 |
) |
|
|
(4.5) |
% |
|
|
(36,900 |
) |
|
|
(10.9 |
)% |
Other
(1)
|
|
|
2,508 |
|
|
|
25.9 |
% |
|
|
2,495 |
|
|
|
23.0 |
% |
|
|
13 |
|
|
|
0.5 |
% |
|
|
(7,200 |
) |
|
|
(8.6 |
)% |
|
|
$ |
9,692 |
|
|
|
100.0 |
% |
|
$ |
10,825 |
|
|
|
100.0 |
% |
|
$ |
(1,133 |
) |
|
|
(10.5 |
)% |
|
|
(83,100 |
) |
|
|
(10.5 |
)% |
(1)
|
Consists
of autographs, stamps, currency, diamonds and colored gemstones, CCE
subscription business, our CFC dealer financing business, and our
collectibles convention business.
|
The
$1,133,000, or 10.5%, decrease in net revenues in the three months ended
September 30, 2008, compared to the same three months of the prior year, was
attributable to decreases in authentication and grading service fees of
$1,011,000 or 11.3%, and decreases in other related services revenues of
$122,000 or 6.6%.
The
decrease in authentication and grading fees was attributable to (i) an
$855,000, or 16%, decrease in coin grading and authentication revenues, (ii) a
$158,000, or 38%, decrease in stamp grading and authentication revenues, and
(iii) a $91,000, or 5% decrease in sportscard grading and authentication
revenues, that was only partially offset by a $93,000, or 8%, increase in the
revenues generated by our other grading and authentication
businesses.
The
decrease in coin authentication and grading revenues in this year’s first
quarter was primarily attributable to decreases in (i) coin trade show
grading revenues, which we believe was due to the continued high price and a
high level of volatility in the price of gold in the quarter, and
(ii) modern coin grading revenues, due primarily to lower activity combined
with a lower average service fees earned, due to the mix of coins graded in the
quarter. Those decreases were partially offset by increases in the
volume of our vintage coin grading submissions. The decrease in stamp
grading and authentication revenues in the quarter reflects a decrease in
submissions of modern stamps, which we believe was attributable to excess supply
and lower market prices in the modern stamp market, partially offset by
increased average service fees earned as we increased our focus on grading
vintage stamps. The decrease in sportscards grading and
authentication revenues was primarily attributable to a lower number of units
graded in the current quarter (due to less demand for our services for lower
value sportscards), partially offset by the positive effects of an increase in
the average service fees for the units graded.
The
decrease in revenues from other related services was primarily attributable to a
decline in sales of coins that we had purchased under our warranty policy (which
is not considered an integral part of our primary revenue generating activities)
and, to a much lesser extent, lower advertising revenues resulting from the
Company’s decision to discontinue the publication of the Rare Coin Marketing
Report, the revenues from which no longer justified the expenses of publishing
that Report.
Gross
Profit
Gross
profit is calculated by subtracting the cost of revenues from net
revenues. Gross profit margin is gross profit stated as a percent of
net revenues. The costs of authentication and grading revenues
consist primarily of labor to authenticate and grade collectibles, production
costs, credit card fees, warranty expense, occupancy, security, depreciation,
amortization and insurance costs that directly relate to providing
authentication and grading services. Cost of revenues also includes
printing, other direct costs of the revenues generated by our other non-grading
services and the costs of product revenues, which represent the carrying value
of the inventory of products (primarily collectible coins) that we
sold. In addition, costs of revenues include stock-based compensation
attributable to employees whose compensation is classified as part of the costs
of authentication and grading revenues.
Set forth
below is information regarding our gross profits in the three months ended
September 30, 2008 and 2007.
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
of Revenues
|
|
|
Amount
|
|
|
%
of Revenues
|
|
Gross profit
|
|
$ |
4,510,000 |
|
|
|
46.5 |
% |
|
$ |
5,625,000 |
|
|
|
52.0 |
% |
As
indicated in the above table, our total gross profit margin declined from 52% of
revenues in the three months ended September 30, 2007 to 46.5% of revenues in
the three months ended September 30, 2008. This decline in our gross
profit margin reflects (i) the relatively fixed nature of many of our direct
costs such that the decline in our coin, sportscards and stamps revenues as
discussed above, did not result in a proportionate reduction in our direct costs
(ii) the 17% reduction in our coin grading and authentication revenues on which
we earn a higher gross profit margin than on our other grading businesses, such
that our coin revenues in the current first quarter represented 51.5% of total
revenues, compared with 55.8% of our total revenues in the first quarter of the
prior year; and (iii) increased infrastructure costs allocated and other direct
costs incurred in support of our other businesses.
Selling
and Marketing Expenses
Selling
and marketing expenses include advertising and promotions costs, trade-show
related expenses, customer service personnel costs, depreciation and third-party
consulting costs. Set forth below is information regarding our
selling and marketing expenses in the three months ended September 30, 2008 and
2007.
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
of Revenues
|
|
|
Amount
|
|
|
%
of Revenues
|
|
Selling and
Marketing
|
|
$ |
1,730,000 |
|
|
|
17.9 |
% |
|
$ |
2,018,000 |
|
|
|
18.7 |
% |
The
decrease of $288,000 in selling and marketing expenses in the three months ended
September 30, 2008, compared to the three months ended September 30, 2007, was
primarily attributable to the transition in our jewelry grading businesses from
branding and awareness marketing programs to a more unit-driven marketing
approach.
General
and Administrative Expenses
General
and administrative (“G&A”) expenses are comprised primarily of compensation
paid to general and administrative personnel, including executive management,
finance and accounting and information technology personnel, and facilities
management costs, depreciation, amortization and other miscellaneous
expenses.
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
of Revenues
|
|
|
Amount
|
|
|
%
of Revenues
|
|
General and
Administrative
|
|
$ |
3,901,000 |
|
|
|
40.2 |
% |
|
$ |
3,948,000 |
|
|
|
36.4 |
% |
G&A
expenses decreased by $47,000 in the three months ended September 30, 2008,
compared to the same period of last year. That decrease was primarily
attributable to the initiation of staff reductions and other cost savings
measures, the effect of which on general and administrative expenses was
substantially offset by higher professional fees incurred in connection with
certain litigation matters, including the Miller lawsuit, and an increase in
rent expense as a result of the expansion of our colored gemstone
laboratory.
Amortization
of Intangible Assets
Amortization
of intangible assets is comprised of amortization of intangible assets that were
acquired through acquisitions and amortization of software development
costs.
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
of Revenues
|
|
|
Amount
|
|
|
%
of Revenues
|
|
Amortization of
Intangibles
|
|
$ |
310,000 |
|
|
|
3.2 |
% |
|
$ |
270,000 |
|
|
|
2.5 |
% |
The
increase in the amortization expense was primarily related to the amortization
of capitalized software costs incurred in prior fiscal quarters, amortization of
which commenced as software development projects were completed. That
increase was partially offset by a reduction in amortization of intangible
assets of our acquired jewelry businesses, resulting from an impairment in the
carrying value of certain of those intangible assets that was recognized in the
fourth quarter of fiscal 2008.
Stock-Based
Compensation
As
discussed in Note 1 to the Company’s Condensed Consolidated Financial
Statements, in accordance with SFAS 123(R) the Company recognized stock-based
compensation as follows:
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Included
in:
|
|
|
|
|
|
|
Cost
of revenues
|
|
$ |
82,000 |
|
|
$ |
61,000 |
|
Selling
and marketing expenses
|
|
|
- |
|
|
|
(7,000 |
) |
General
and administrative expenses
|
|
|
196,000 |
|
|
|
192,000 |
|
|
|
$ |
278,000 |
|
|
$ |
246,000 |
|
Stock-based
compensation expense is recorded over the vesting period, or the service period,
of the stock-based award. The increase in stock-based compensation
expense in the three months ended September 30, 2008 was primarily due to a
lower forfeiture rate on stock awards recognized in the fourth quarter of fiscal
2008 and to stock awards granted during fiscal 2008.
The total
amount of compensation cost related to non-vested awards not yet recognized at
September 30, 2008 was $806,000, which is expected to be recognized as
compensation expense through fiscal 2012, as set forth in the following table,
assuming the employees to whom those awards were granted continue to be employed
by us. However, such amounts do not include any additional
stock awards that may be granted in the future or any changes that may occur in
the applicable forfeiture percentage.
Fiscal Year Ending
June 30,
|
|
Amount
|
|
2009
|
|
|
394,000 |
|
2010
|
|
|
271,000 |
|
2011
|
|
|
125,000 |
|
2012
|
|
|
16,000 |
|
|
|
$ |
806,000 |
|
Interest
Income, Net
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
of
Revenues
|
|
|
Amount
|
|
|
%
of
Revenues
|
|
Interest income,
net
|
|
$ |
125,000 |
|
|
|
1.3 |
% |
|
$ |
444,000 |
|
|
|
4.1 |
% |
Interest
income is generated on cash and cash equivalent balances that we invest
primarily in highly-liquid money-market accounts. Interest income, net was
$125,000 in the three months ended September 30, 2008, compared with $444,000 in
the three months ended September 30, 2007. The decrease in interest
income was primarily attributable to (i) a shift, during the three months
ended September 30, 2008, of our cash and cash equivalent balances into
money-market investments that include only government guaranteed securities
which resulted in a lower yield on such investments; (ii) a decrease in our
average cash balances in the three months ended September 30, 2008, compared to
the three months ended September 30, 2007, due to our use of a portion of our
available cash to fund payments of quarterly dividends, the buyback of common
stock under our stock buyback program and capital expenditures, including
capitalized software costs; and (iii) lower prevailing interest rates due as a
result of actions taken by the Federal Reserve Board.
Income
Tax (Benefit) Expense
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Income
tax expense (benefit)
|
|
$ |
- |
|
|
$ |
(66,000 |
) |
No income
tax benefit has been recognized for the three months ended September 30, 2008
due to the Company establishing a valuation allowance against the related
deferred tax asset because of uncertainty of realization. As of June
30, 2008 and September 30, 2008, the Company has established a valuation
allowance against certain deferred tax assets due to the length of time and the
extent of taxable income required to fully realize those deferred tax
assets. The effective tax rate was 0% and 40% in the three months
ended September 30, 2008 and 2007, respectively.
Discontinued
Operations
|
|
Three
Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Loss
from discontinued operations (net of income taxes).
|
|
$ |
(1,000 |
) |
|
$ |
(10,000 |
) |
The
results of our discontinued operations (net of taxes), which were attributable
to the remaining activities of the collectibles sales businesses that we
disposed of in fiscal 2004, are expected to be immaterial going
forward.
At
September 30, 2008, we had cash and cash equivalents of approximately
$22,952,000, as compared to cash and cash equivalents of $23,345,000 at June 30,
2008.
Historically,
we have relied on internally-generated funds, rather than borrowings, as our
primary source of funds to support our grading operations.
During
the three months ended September 30, 2008, our operating activities used net
cash of $990,000, reflecting the net loss for the period as adjusted for
non-cash expenses, and changes in the level of our current assets and current
liabilities, due to the timing of activities in the period.
Net cash
generated by investing activities was $2,688,000 during the three months ended
September 30, 2008 and consisted primarily of $3,303,000 of net cash generated
by the sale of notes receivable held for sale at June 30, 2008, partially offset
by capital expenditures of $406,000 and capitalized software costs of
$232,000.
In the
three months ended September 30, 2008, financing activities used net cash of
$2,090,000, primarily related to the payment of cash dividends to
stockholders.
Outstanding
Financial Obligations
We had
the following financial obligations under operating leases, net of sublease
income, at September 30, 2008:
Fiscal
Year
|
|
Amount
|
|
2009
(remaining 9 months)
|
|
|
1,708,000 |
|
2010
|
|
|
1,415,000 |
|
2011
|
|
|
994,000 |
|
2012
|
|
|
1,022,000 |
|
2013
|
|
|
1,018,000 |
|
Thereafter
|
|
|
4,087,000 |
|
|
|
$ |
10,244,000 |
|
With the
exception of those obligations, we do not have any material financial
obligations, such as long-term debt or capital lease or purchase
obligations.
Dividends. The
Company’s dividend policy, through September 26, 2008, called for the payment of
quarterly cash dividends of $0.25 per common share and, in accordance with that
policy, dividends in an aggregate amount of $2,090,000 were paid to stockholders
in the three months ended September 30, 2008.
On
September 26, 2008, the Board of Directors suspended the payment of future cash
dividends based on its determination that, due to market and economic
conditions, including the liquidity crisis in the United States, the prudent
course of action would be to preserve the Company's cash
resources. At the same time, the Board of Directors declared a 10%
stock dividend on the Company's outstanding shares, which was distributed on
November 3, 2008 to all stockholders of record as of October 20,
2008.
Stock Buyback
Program. At September 30, 2008, the Company continued to have
approximately $4.2 million remaining under its buyback program. Subsequent to
September 30, 2008, the Company repurchased approximately 80,000 shares under
this program due to an involuntary sale of shares by its Chief Executive
Officer, at a cost of approximately $320,000.
Future Uses and Sources of
Cash. We plan to use our cash resources, consisting of
available cash and cash equivalent balances, together with internally generated
cash flows, to (i) expand our existing and implement new marketing
programs, (ii) introduce new services for our customers, (iii) acquire
or start-up other high-value collectibles or high-value asset authentication and
grading businesses; and (iv) fund working capital requirements, and for
other general corporate purposes. Although we have no current plans
to do so, we also may seek borrowings, and we may issue additional shares of our
stock, to finance acquisitions of additional authentication or grading
businesses.
There are
a number of risks and uncertainties that could affect our future operating
results and financial condition and which could cause our future operating
results to differ materially from those expected at this time. Those
risks and uncertainties include, but are not limited to:
·
|
changes
in general economic conditions generally, including the current liquidity
crisis in the United States, or changes in conditions in the collectibles
or high-value assets markets in which we operate, including a possible
decline in the popularity of some high-value collectibles or assets, any
of which could reduce the volume of authentication and grading submissions
to us and, therefore, the grading fees we
generate;
|
·
|
a
lack of diversity in our sources of revenues and, more particularly, our
dependence on collectible coin authentication and grading for a
significant percentage of our total revenues, which makes us more
vulnerable to adverse changes in economic conditions, including volatility
in the prices of gold and other precious metals or recessionary or other
conditions that could lead to reduced coin and other collectibles
submissions or trade show activities that would, in turn, result in
reductions in our revenues and
income;
|
·
|
our
dependence on certain key executives and collectibles experts, the loss of
the services of any of which could adversely affect our ability to obtain
authentication and grading submissions and, therefore, could harm our
operating results;
|
·
|
the
fact that for the fiscal year ended June 30, 2008 and the three months
ended September 30, 2008, our six largest coin authentication and grading
customers accounted, in the aggregate, for approximately 10% and 12% of
our net revenues, respectively, which means that the loss of any of those
customers, or a significant reduction in their grading submissions to us,
could result in a decline in our revenues and a reduction in our operating
income;
|
·
|
increased
competition from other collectibles’ authentication and grading companies
that could result in reductions in collectibles submissions to us or could
require us to reduce the prices we charge for our services, either of
which could result in reductions in our revenue and
income;
|
·
|
the
risk that we will incur unanticipated liabilities under our authentication
and grading warranties that would increase our operating
expenses;
|
·
|
the
risk that warranty claims will increase to a higher level than in the past
such that we will have to recognize additional warranty accruals in
anticipation of these claims and our ongoing warranty accrual rate will
need to be increased to cover potential higher claims in the
future;
|
·
|
the
risk that new collectibles service offerings and business initiatives,
such as autograph, stamp and paper currency, and diamond and colored
gemstone grading services, will not gain market acceptance or will be
unsuccessful and will, as a result, increase our operating expenses and
reduce our overall profitability or cause us to incur losses and the risk
that these businesses will not make a material contribution to our net
revenues or achieve profitability;
|
·
|
the
risks involved in acquiring existing or commencing new authentication and
grading businesses, including the risks that we will be unable to
successfully integrate new businesses into our operations; that our new
businesses (in particular our diamond and colored gemstones businesses)
may not gain market acceptance; that business expansion may result in a
costly diversion of management time and resources from our existing
businesses and increase our operating expenses; that acquisition-related
goodwill and intangible assets may become impaired, which could adversely
impact our results of operations; and that we will not achieve adequate
returns on the investments we may make in acquiring other or establishing
new businesses, any of which would harm our profitability or cause us to
incur losses;
|
·
|
the
risks that we will encounter problems with or failures of our computer
systems that would interrupt our services or result in loss of data that
we need for our business; and
|
·
|
the
potential of increased government regulation of our businesses that could
cause operating costs to increase.
|
Certain
of these risks and uncertainties, as well as other risks, are more fully
described above in this Section of this Report (entitled “Management's
Discussion and Analysis of Financial Condition and Results of Operations”), and
in Item 1A of Part 1, entitled “Risk Factors” in our Annual Report on Form 10-K
for our fiscal year ended June 30, 2008, as filed with the SEC under the
Securities Exchange Act of 1934 and investors are urged to read that Annual
Report.
Due to
these and other possible uncertainties and risks, you are cautioned not to place
undue reliance on the forward-looking statements contained in this Report, which
speak only as of the date of this Report. We also disclaim any
obligation to update forward-looking statements contained in this Report or in
our 2008 Annual
Report on Form 10-K.
ITEM 2A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
risk represents the risk of loss that may impact our financial position, results
of operations or cash flows due to adverse changes in financial market prices,
including interest rate risk, foreign currency exchange rate risk, commodity
price risk and other relevant market rate or price risks.
Due to
the cash and cash equivalent balances that we maintain, we are exposed to risk
of changes in short-term interest rates. At September 30, 2008, we
had approximately $22,952,000 in cash and cash equivalents, primarily invested
in low-yield money-market funds that invest in government-generated
securities. Reductions in short-term interest rates could result in
reductions in the amount of that income. However, the impact on our
operating results of such changes is not expected to be material.
The
Company has no activities that would expose it to foreign currency exchange rate
risk or commodity price risks.
Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are
designed to provide reasonable assurance that information required to be
disclosed in our reports filed under that Act, such as this Quarterly Report, is
recorded, processed, summarized and reported within the time periods specified
in the rules of the Securities and Exchange Commission. Our
disclosure controls and procedures also are designed to ensure that such
information is accumulated and communicated to our management, including our CEO
and CFO, to allow timely decisions regarding required disclosures.
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures in effect as of September 30,
2008. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of September 30, 2008, our disclosure
controls and procedures were effective to provide reasonable assurance that
material information, relating to the Company and its consolidated subsidiaries,
required to be included in our Exchange Act reports, including this Quarterly
Report on Form 10−Q, is made known to management, including the CEO and CFO, on
a timely basis.
There were no changes in our internal
control over financial reporting that occurred during the quarter ended
September 30, 2008, that has materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART II – OTHER
INFORMATION
Bill Miller vs. Collectors Universe, Inc.
Effective October 14, 2008, William Miller and the Company executed a settlement
and release agreement which provides for a complete release by each party of all
known and unknown claims it has or may have against the other relating to or
arising out of the subject matter of the lawsuit that Miller had brought against
the Company in 2004 in which he sought alleged statutory damages from the
Company of up to approximately $10.5 million based on a claim that the Company
had used his name, allegedly without his consent, on Company authentication
certificates. The released claims include pending claims brought by
each party seeking to recover its legal fees and expenses in that lawsuit from
the other party. No payments were required to be made by the Company
to Miller in exchange for that release.
There
were no material changes in the risk factors that were disclosed under the
caption “Risk Factors” in Part IA of our Annual Report on Form 10-K for our
fiscal year ended June 30, 2008, except as may otherwise be set forth above
under the caption “Risks and Uncertainties That Could Affect Our Future
Financial Performance” in Item 2 of Part I of this Report.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
|
Exhibits:
|
|
|
Exhibit
3.3
|
Amended
and Restated Bylaws of Collectors Universe, Inc., as Adopted and Effective
September 28, 2008
|
|
|
|
|
Exhibit
31.1
|
Certification
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
Exhibit
32.1
|
Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
Exhibit
32.2
|
Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
COLLECTORS
UNIVERSE, INC.
|
|
|
|
Date: November
10, 2008
|
|
/s/
MICHAEL R. HAYNES
|
|
|
Michael
R. Haynes
|
|
|
Chief
Executive Officer
|
|
|
COLLECTORS
UNIVERSE, INC.
|
|
|
|
Date: November
10, 2008
|
|
/s/
JOSEPH J. WALLACE
|
|
|
Joseph
J. Wallace
|
|
|
Chief
Financial Officer
|
Number
|
Description
|
Exhibit
3.3
|
Amended
and Restated Bylaws of Collectors Universe, Inc., as Adopted and Effective
September 28, 2008
|
|
|
Exhibit
31.1
|
Certification
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Exhibit
32.1
|
Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
Exhibit
32.2
|
Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|