COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
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UNITED STATES (cid:13)
SECURITIES AND EXCHANGE COMMISSION (cid:13)
Washington, D.C. 20549 (cid:13)
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FORM 10-K (cid:13)
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(Mark One) (cid:13)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE (cid:13)
SECURITIES EXCHANGE ACT OF 1934 (cid:13)
For the fiscal year ended June 30, 2002 (cid:13)
OR (cid:13)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE (cid:13)
SECURITIES EXCHANGE ACT OF 1934 {NO FEE REQUIRED} (cid:13)
For the transition period from to (cid:13)
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Commission file number 0-27887 (cid:13)
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COLLECTORS UNIVERSE, INC. (cid:13)
(Exact name of Registrant as specified in its charter) (cid:13)
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Delaware 33-0846191 (cid:13)
(State or other jurisdiction of (I.R.S. Employer Identification No.) (cid:13)
Incorporation or organization) (cid:13)
1921 E. Alton Avenue, Santa Ana, 92705 (cid:13)
California (cid:13)
(Address of principal executive (Zip Code (cid:13)
offices) (cid:13)
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(949) 567-1375 (cid:13)
(Registrant's telephone number, including area code) (cid:13)
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Securities registered pursuant to Section 12(b) of the Act: None (cid:13)
(cid:13)
Securities registered pursuant to Section 12(g) of the Act: Common Stock, (cid:13)
par value $.001 per share (cid:13)
(cid:13)
Indicate, by check mark, whether the Registrant (1) has filed all reports (cid:13)
required to be filed by Section 13 or 15(d) of the Securities Exchange Act (cid:13)
of 1934 during the preceding 12 months (or for such shorter period that the (cid:13)
Registrant was required to file such reports); and (2) has been subject to (cid:13)
such filing requirements for the past 90 days. YES x NO (cid:13)
(cid:13)
This document is compiled by Thomson Financial
1
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Indicate, by check mark, if disclosure of delinquent filers pursuant to (cid:13)
Item 405 of Regulation S-K is not contained herein, and will not be (cid:13)
contained, to the best of Registrant's knowledge, in definitive proxy or (cid:13)
information statements incorporated by reference in Part III of this Form (cid:13)
10-K or any amendment to this Form 10-K. (cid:13)
(cid:13)
As of September 23, 2002, the aggregate market value of the Common Stock (cid:13)
held by non-affiliates was approximately $11,857,906. (cid:13)
(cid:13)
As of September 23, 2002, a total of 25,012,486 shares of Registrant's (cid:13)
Common Stock were outstanding. (cid:13)
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DOCUMENTS INCORPORATED BY REFERENCE (cid:13)
(cid:13)
Items 10, 11, 12, and 13 of Part III of the Form 10-K are incorporated by (cid:13)
reference from Registrant's Definitive Proxy Statement for its Annual (cid:13)
Meeting which is expected to be filed with the Securities and Exchange (cid:13)
Commission on or before October 28, 2002. (cid:13)
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COLLECTORS UNIVERSE, INC. (cid:13)
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FORM 10-K (cid:13)
(cid:13)
FOR THE FISCAL YEAR ENDED JUNE 30, 2002 (cid:13)
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INDEX (cid:13)
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Page (cid:13)
PART I ---------------- (cid:13)
Item 1. Business 1 (cid:13)
Item 2. Properties 12 (cid:13)
Item 3. Legal Proceedings 12 (cid:13)
Submission of Matters to a Vote (cid:13)
Item 4. of Security Holders 12 (cid:13)
Executive Officers of (cid:13)
Registrant 12 (cid:13)
PART II (cid:13)
Market for Common Stock and (cid:13)
Item 5. Related Stockholder Matters 13 (cid:13)
Selected Consolidated Financial (cid:13)
Item 6. Data 14 (cid:13)
Management's Discussion and (cid:13)
Analysis of Financial Condition (cid:13)
Item 7. and Results of Operations 15 (cid:13)
Quantitative and Qualitative (cid:13)
Item 7A. Disclosures About Market Risk 24 (cid:13)
Financial Statements and (cid:13)
Item 8. Supplementary Data 26 (cid:13)
Changes in and Disagreements (cid:13)
with Accountants on Accounting (cid:13)
Item 9. and Financial Disclosure 46 (cid:13)
PART III (cid:13)
Directors and Executive (cid:13)
Item 10. Officers 46 (cid:13)
Item 11. Executive Compensation 46 (cid:13)
Security Ownership of Certain (cid:13)
Beneficial Owners and (cid:13)
Item 12. Management 46 (cid:13)
Certain Relationships and (cid:13)
Item 13. Related Transactions 46 (cid:13)
This document is compiled by Thomson Financial
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Item 14. Controls and Procedures 46 (cid:13)
PART IV (cid:13)
Exhibits, Financial Statement (cid:13)
Schedules, and Reports on Form (cid:13)
Item 15. 8-K 47 (cid:13)
SIGNATURES S-1 (cid:13)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION (cid:13)
302 OF SARBANES-OXLEY ACT S-2 (cid:13)
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION (cid:13)
302 OF SARBANES-OXLEY ACT S-3 (cid:13)
INDEX TO EXHIBITS E-1 (cid:13)
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FORWARD-LOOKING STATEMENTS (cid:13)
(cid:13)
This Report, including "Management's Discussion and Analysis of Financial (cid:13)
Condition and Results of Operations" contains "forward-looking statements" (cid:13)
as defined in the Private Securities Litigation Reform Act of 1995. (cid:13)
Forward-looking statements are estimates of, or statements about our (cid:13)
expectations or beliefs regarding, our future financial performance and (cid:13)
operating trends that are based on current information and that are subject (cid:13)
to a number of risks and uncertainties that could cause our actual (cid:13)
operating results in the future to differ significantly from those expected (cid:13)
at the current time, including the risks and uncertainties described in (cid:13)
Part I of this Report under the caption "Item I--Description of (cid:13)
Business--Certain Factors That Could Affect Our Future Performance" and in (cid:13)
"Management's Discussion and Analysis of Financial Condition and Results of (cid:13)
Operations" above. (cid:13)
(cid:13)
Due to these and other possible uncertainties and risks, readers are (cid:13)
cautioned not to place undue reliance on the forward-looking statements (cid:13)
contained in this Report, which speak only as of the date of this Report, (cid:13)
or to make predictions based solely on historical financial performance. We (cid:13)
also disclaim any obligation to update forward-looking statements contained (cid:13)
in this Report. (cid:13)
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PART I (cid:13)
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Item 1. BUSINESS (cid:13)
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Collectors Universe--Overview (cid:13)
(cid:13)
Collectors Universe is a leading provider of value-added services to (cid:13)
dealers and collectors of high-end collectible coins, sportscards, (cid:13)
currency, stamps, sports and entertainment memorabilia, autographs and (cid:13)
other collectibles. Our reputation and the breadth of our value-added (cid:13)
services facilitate commerce in collectibles by providing collectors and (cid:13)
dealers with the confidence to buy and sell high-end collectibles, sight (cid:13)
unseen, at Internet and telephonic auctions that we, and others, conduct (cid:13)
and by making the collecting experience more exciting and memorable. (cid:13)
(cid:13)
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(cid:13)
. Service. We authenticate the genuineness of collectible coins, (cid:13)
sportscards, autographs and stamps, and we grade the quality of (cid:13)
collectible coins, sportscards and stamps in accordance with (cid:13)
This document is compiled by Thomson Financial
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
consistently applied uniform standards so that buyers can have the (cid:13)
assurance that the collectibles they are purchasing are genuine and (cid:13)
are of the quality represented by the sellers. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
. Content. We compile and publish authoritative information about (cid:13)
the rarity, quality and trading history of high-end collectibles (cid:13)
that make collectors and dealers more informed purchasers and (cid:13)
sellers and which adds to the excitement of the collecting (cid:13)
experience. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
. Commerce. We conduct premium multi-venue auctions at which (cid:13)
dealers and collectors are able, in person, by mail, via the (cid:13)
telephone and on the Internet, to buy and sell rare or valuable (cid:13)
collectibles (which we sometimes refer to as "high-end (cid:13)
collectibles"). We also operate an online collectibles marketplace, (cid:13)
at www.collectors.com., where collectors and dealers can buy (cid:13)
high-end collectibles and where they can access the information we (cid:13)
publish before making their purchase and sale decisions. We also (cid:13)
operate co-branded websites with e-Bay and Yahoo, that facilitate (cid:13)
the purchase and sale of collectibles at their online auction sites (cid:13)
by enabling buyers and sellers of collectibles visiting their (cid:13)
auction sites to access our authentication and grading services and (cid:13)
our collectibles content. (cid:13)
(cid:13)
(cid:13)
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We generate revenues from fees paid for authentication and grading services (cid:13)
provided to our customers, typically ranging from $6 to $70 per item. We (cid:13)
also generate revenues from commissions paid by both buyers and sellers (cid:13)
when we sell collectibles that have been consigned to us for auctioning (cid:13)
("consigned collectibles"), the total of which generally ranges from 10% to (cid:13)
25% of the sales prices of the collectibles, and from the sales of (cid:13)
collectibles that we purchase for resale at our auctions or through retail (cid:13)
sales ("purchased collectibles" or "owned collectibles"). When we sell (cid:13)
owned collectibles in one of our auctions, we receive a buyer's fee at the (cid:13)
same rate as charged for consigned collectibles sold in our auctions. (cid:13)
(cid:13)
We have developed some of the leading brand names in our collectibles (cid:13)
market: (cid:13)
(cid:13)
(cid:13)
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. "PCGS" ("Professional Coin Grading Service"), which is the leading (cid:13)
coin grading and authentication service in the United States; (cid:13)
(cid:13)
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(cid:13)
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. "PSA" ("Professional Sports Authenticators"), which is the leading (cid:13)
This document is compiled by Thomson Financial
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
sportscard grading and authentication service in the United States; (cid:13)
(cid:13)
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. "Bowers and Merena," which is a leading auctioneer of rare and (cid:13)
collectible coins in the United States; and (cid:13)
(cid:13)
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(cid:13)
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. "Lyn Knight Currency Auctions," which is a leading auctioneer of (cid:13)
rare and collectible currencies. (cid:13)
(cid:13)
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The High-End Collectibles Market Opportunity (cid:13)
(cid:13)
We believe that, over time, the high-end collectibles market will continue (cid:13)
to grow as a result of increased nostalgia for memorabilia, an increase in (cid:13)
leisure and disposable income, the desirability of (cid:13)
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owning collectibles and investor confidence that collectibles will (cid:13)
appreciate in value. We also believe that the convenience and efficiency of (cid:13)
the Internet will stimulate further growth in the high-end collectibles (cid:13)
market. It is also our view that this growth is dependent upon the (cid:13)
availability of reliable authentication and grading services, authoritative (cid:13)
information necessary to value collectibles and trading forums or venues (cid:13)
that enable buyers and sellers of collectibles to maximize the value of (cid:13)
their collectibles. As a provider of these services to the collectibles (cid:13)
markets, we have the opportunity to benefit directly from such growth in (cid:13)
terms of increased demand for our services. (cid:13)
(cid:13)
Industry Background (cid:13)
(cid:13)
Development of Collectibles Markets. (cid:13)
(cid:13)
Collectible Coin Grading and Authentication. The sight-unseen market for (cid:13)
high-end coins was practically non-existent prior to the development of (cid:13)
consistently applied uniform quality grading standards. Previously, buyers (cid:13)
needed to actually see a coin before purchase to determine whether its (cid:13)
quality justified the asking price. Even when buyers could view coins (cid:13)
before purchase, they often lacked the knowledge to determine, with (cid:13)
confidence, the authenticity or quality of a coin. As a result, a system (cid:13)
for grading coins developed among dealers by which they used either (cid:13)
descriptive terms, such as "uncirculated," "brilliant uncirculated" and (cid:13)
"gem brilliant uncirculated," or a numerical scale ranging from 1 to 70, (cid:13)
with higher numbers denoting a higher quality. However, whether using a (cid:13)
descriptive or numeric system, grading varied significantly from dealer to (cid:13)
dealer, depending on a dealer's subjective criteria. Moreover, dealers were (cid:13)
hardly disinterested or independent, since as the buyers or sellers of the (cid:13)
coins they were grading, they stood to benefit financially from the (cid:13)
assignment of a particular grade. As a result, grading standards were often (cid:13)
inconsistently applied, and many collectors were vulnerable to fraudulent (cid:13)
practices. These conditions severely limited the growth of the rare coin (cid:13)
market and created a barrier to the participation of new collectors who (cid:13)
This document is compiled by Thomson Financial
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
lacked the expertise necessary to buy and sell with confidence. (cid:13)
(cid:13)
In response to these conditions, in 1986 we launched Professional Coin (cid:13)
Grading Service (PCGS), which instituted the practice of employing expert (cid:13)
graders who were independent of the buyers and sellers of coins, thereby (cid:13)
providing impartiality in the grading process. We established consistent (cid:13)
standards of quality measured against an actual "benchmark" or "reference" (cid:13)
set of coins kept at our office, and we provided a warranty as to the (cid:13)
accuracy of our authentication and grading. We placed each graded coin in a (cid:13)
tamper-evident holder, so that any prospective buyer would know that it was (cid:13)
a PCGS authenticated and graded coin. (cid:13)
(cid:13)
As a result, dealers were able to trade PCGS graded coins sight-unseen and (cid:13)
an electronic teletype network called the "Certified Coin Exchange" (cid:13)
developed and was used by dealers to buy and sell rare coins electronically (cid:13)
before the Internet became viable. In addition, we began to provide a range (cid:13)
of authoritative content on coin collecting to inform and communicate with (cid:13)
the collector community, including guides that tracked the price and rarity (cid:13)
of PCGS graded coins. (cid:13)
(cid:13)
Sportscard Grading and Authentication. In the sportscard collectibles (cid:13)
markets, misrepresentations of authenticity and quality were also a barrier (cid:13)
to market growth. Using the skills and credibility we established with PCGS (cid:13)
in the coin market, in 1991 we launched Professional Sports Authenticator (cid:13)
(PSA), which instituted a similar authentication and grading system for (cid:13)
sportscards. Our authentication and grading services have improved the (cid:13)
marketability of sportscards by removing the barriers created by (cid:13)
misrepresentations of authenticity or quality and also facilitating sales (cid:13)
and trading of sportscards over the internet and at remotely held sports (cid:13)
memorabilia auctions. The sportscards submitted to us for grading include (cid:13)
primarily older or vintage sportscards, particularly of memorable or (cid:13)
historically famous or notable players, such as Joe DiMaggio, Ted Williams, (cid:13)
Mickey Mantle, Honus Wagner and modern or newly produced sportscards of (cid:13)
current or new athletes who are or have become popular with sports fans or (cid:13)
have achieved new records or milestones. These sportscards have or are (cid:13)
perceived to have sufficient collectible value to justify grading and are (cid:13)
sold more frequently than are sportscards of less notable athletes, leading (cid:13)
dealers and collectors to submit them for grading to enhance their (cid:13)
marketability. Additionally, the production and sale each new sports season (cid:13)
of new series of sportscards creates new collectibles that have been a (cid:13)
source of additional grading submissions to us. (cid:13)
(cid:13)
2 (cid:13)
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Stamp Grading. Based upon our success in establishing grading for coins (cid:13)
and sportscards, in January 2000 we launched grading of U.S. stamps through (cid:13)
Professional Stamp Experts (PSE). Stamp authentication and grading is in (cid:13)
its infancy and, based on our experience in launching coin grading and (cid:13)
sports card grading, we expect to meet resistance to this concept in the (cid:13)
stamp collectibles market, which is heaped in tradition. We believe, (cid:13)
however, that the grading of stamps can gain, albeit gradually, a degree of (cid:13)
market acceptance as grading has for coins and sportscards. (cid:13)
(cid:13)
Authentication of Sports and Historical Memorabilia. Forgeries and (cid:13)
misrepresentation of authenticity also have hindered development and growth (cid:13)
of the market for autographed memorabilia. Operation Bullpen conducted by (cid:13)
the FBI and other law enforcement agencies a few years ago uncovered (cid:13)
widespread misrepresentations as to the genuineness of sports memorabilia. (cid:13)
Beginning in 2001, we launched our James Spence Autographs division, (cid:13)
offering authentication services for sports autographs and memorabilia. (cid:13)
This division is headed by James Spence who has developed an expertise and (cid:13)
is recognized as a leader in authenticating autographs, especially of (cid:13)
sports heroes. We believe the demand for our vintage authentication (cid:13)
services will grow as collectors increasingly rely on independent third (cid:13)
This document is compiled by Thomson Financial
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
parties for determining the genuineness of sports and entertainment (cid:13)
collectibles. We offer another authentication service, PSA/DNA, that (cid:13)
certifies autographed sports collectibles at the time of signing or when (cid:13)
used during a sporting event. This service uses a proprietary (cid:13)
authentication system that incorporates a holographic, tamper-evident label (cid:13)
in conjunction with a special marking ink that is essentially (cid:13)
non-recreatable. (cid:13)
(cid:13)
Collectible Commerce. (cid:13)
(cid:13)
We conduct premium auctions of high-end collectible coins, currency, (cid:13)
sportscards and sports, entertainment and historical memorabilia. Our (cid:13)
premium auctions utilize a "multi-venue" auction format that allows buyers (cid:13)
and sellers to select the bidding format that is the most convenient and (cid:13)
comfortable for them. These auction formats include various combinations of (cid:13)
mail-in-bids, telephone, Internet and live bidding. Our premium auction (cid:13)
companies include Bowers and Merena Galleries and Kingswood Coin Auctions (cid:13)
for rare coins, Lyn Knight Currency Auctions for U.S. Currency, Superior (cid:13)
Sportscard Auctions for vintage sportscards and sports memorabilia, and (cid:13)
Odyssey for entertainment and historical memorabilia. Several of our (cid:13)
auction companies are prominent within their respective collectibles (cid:13)
market. (cid:13)
(cid:13)
In 1999, Bowers and Merena auctioned the 1804 Childs Silver Dollar for (cid:13)
$4,100,000, the second highest price at which a U.S. Coin has been sold at (cid:13)
auction. Lyn Knight Currency Auctions holds the record for the highest (cid:13)
gross auction sales at any single auction of U.S. currency at $6,500,000. (cid:13)
(cid:13)
In conjunction with our auction commerce, we also sell high-end collectible (cid:13)
coins and autographs through direct retail sales, catalogs and via the (cid:13)
Internet on our website at www.collectors.com. These "e-Shops" continue to (cid:13)
become a more important component of our direct retail sales activities in (cid:13)
the future. (cid:13)
(cid:13)
We also participate in e-commerce through co-branded websites with e-Bay (cid:13)
and Yahoo. These co-branded websites offer our authentication and grading (cid:13)
services to their users and also direct them to our website for price (cid:13)
guides on certain collectibles, rarity reports, verification of previously (cid:13)
authenticated collectibles and other commerce opportunities. (cid:13)
(cid:13)
Content and Publications. (cid:13)
(cid:13)
We publish authoritative price guides, rarity reports and other collectible (cid:13)
information. In July 2000, we acquired Odyssey Publications. Odyssey (cid:13)
publishes the nationally distributed Autograph Collectors Magazine and is (cid:13)
considered to be a leading authority within the entertainment and (cid:13)
historical autograph market. We also publish the monthly Sports Market (cid:13)
Report for primary distribution to our 6,000 PSA Collectors Club members. (cid:13)
In April 2001, Odyssey commenced distribution of the Sports Market Report (cid:13)
as a national magazine to numerous outlets, including Borders, Barnes & (cid:13)
Noble, and to convenience stores, specialty outlets and grocery stores. We (cid:13)
believe our price guides, rarity information and (cid:13)
(cid:13)
3 (cid:13)
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authentication information has commercial potential, and we are exploring (cid:13)
various business opportunities to generate additional revenues from our (cid:13)
databases and publications. (cid:13)
(cid:13)
Our Business Strategy (cid:13)
(cid:13)
Our objectives are to create an integrated provider of collectible services (cid:13)
to the high-end collectibles markets and to increase our share of those (cid:13)
markets. To achieve those objectives we intend to: (cid:13)
(cid:13)
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COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Cross-Sell Our Services and Products to Our Established Customer (cid:13)
Base. Our experience has shown that collectors of one kind of (cid:13)
collectible frequently are interested in other types of collectibles. As a (cid:13)
result, we develop and conduct programs designed to cross-sell our services (cid:13)
and products to our customer base of dealers and collectors. (cid:13)
(cid:13)
Penetrate Other Collectibles Markets for Authentication and (cid:13)
Grading. There are other high-end collectibles markets in which growth (cid:13)
has been hampered due to the absence of independent authentication and (cid:13)
grading services. As a result, one of our strategies is to use our (cid:13)
reputation and expertise in coins and sportscards to penetrate new markets. (cid:13)
During fiscal 2000, we launched the grading of rare and collectible stamps (cid:13)
and the authentication of autographs and other sports memorabilia. We also (cid:13)
believe that authentication and grading services can be extended to serve (cid:13)
different tiers of presently served markets. (cid:13)
(cid:13)
Leverage Brand Names. We have established leading brands within select (cid:13)
collectibles markets, including PCGS, PSA, Bowers and Merena, Lyn Knight (cid:13)
Currency Auctions, Superior Sportscard Auctions, and PSA/DNA. We intend to (cid:13)
use the reputations of these brands to promote Collectors Universe as the (cid:13)
premier factor in the high-end collectibles industry. Our new stamp (cid:13)
authentication and grading service, PSE, is leveraging the reputation of (cid:13)
our other grading services to gain credibility within the stamp (cid:13)
collectibles market. (cid:13)
(cid:13)
Acquire Complementary Businesses. The collectibles markets are (cid:13)
fragmented, and therefore we seek opportunities to acquire complementary (cid:13)
businesses to augment our growth and to penetrate new markets to (cid:13)
consolidate niches within these markets. (cid:13)
(cid:13)
Form Strategic Alliances. We have entered into strategic alliances with (cid:13)
eBay, Yahoo, Upper Deck, and others to promote the Company's services, and (cid:13)
we will continue to seek out other strategic opportunities to expand our (cid:13)
business and open new markets. (cid:13)
(cid:13)
Expand Internationally. We believe the market for authenticated and (cid:13)
graded collectibles can be geographically expanded to the PacRim and (cid:13)
European markets. During fiscal 2001, we signed an exclusive distribution (cid:13)
agreement with a Japanese company to authenticate and grade sportscards (cid:13)
published and distributed in Japan. However, the grading of collectibles is (cid:13)
in its infancy in many international markets, and we do not know whether it (cid:13)
will gain wide spread acceptance. We intend, however over the next several (cid:13)
years, to pursue other international opportunities for coins, sportscards, (cid:13)
stamps, autographs and memorabilia. (cid:13)
(cid:13)
Factors That Could Affect Our Future Financial Performance (cid:13)
(cid:13)
A Decline in the Popularity of High-End Collectibles Could Impact Our (cid:13)
Business. The popularity of collectibles may vary over time due to (cid:13)
perceived scarcity, subjective value, general consumer trends, changes in (cid:13)
the prices of precious metals, interest rates and other general economic (cid:13)
conditions. Since our operating results are affected by both the market (cid:13)
value of collectibles and the volume of collectibles transactions, a (cid:13)
decline in popularity of high-end collectibles would likely cause a (cid:13)
decrease in our revenues and our profitability. (cid:13)
(cid:13)
Declines in General Economic Conditions Could Affect Our Operating (cid:13)
Results. The availability of discretionary or disposable income is an (cid:13)
important factor in the willingness and ability of individuals to purchase, (cid:13)
and the prices that they are willing to pay for, high-end collectibles. (cid:13)
Additionally, declines in purchases and sales of collectibles usually also (cid:13)
result in declines in utilization of authentication and (cid:13)
(cid:13)
4 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
This document is compiled by Thomson Financial
8
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
grading services, as such services are most often used by sellers and (cid:13)
purchasers of collectibles in conjunction with and to facilitate sale and (cid:13)
purchase transactions. As a result, economic uncertainties, downturns and (cid:13)
recessions can and do affect our operating results by (i) reducing the (cid:13)
commissions we are able to generate on sales of collectibles, (ii) reducing (cid:13)
the frequency at which collectors submit their coins, sportscards and other (cid:13)
collectibles for authentication and grading, (iii) causing declines in the (cid:13)
value of collectibles that we hold in our inventory, (iv) reducing the (cid:13)
ability and willingness of customers to pay outstanding accounts (cid:13)
receivable. One countervailing factor is that during economic downturns, (cid:13)
the value of gold and other precious metals tends to increase, which can (cid:13)
lead to increases in the sales prices of collectible coins. (cid:13)
(cid:13)
Temporary Popularity of Some Collectibles Could Cause Our Revenues to (cid:13)
Fluctuate. Temporary consumer popularity or "fads" among collectors may (cid:13)
lead to short term or temporary increases in the volume of collectibles (cid:13)
that we authenticate and grade and auction or sell. These trends may result (cid:13)
in significant period to period fluctuations in our operating results. Any (cid:13)
decline in the popularity of the collectibles we authenticate and grade and (cid:13)
auction or sell, as a result of changes in consumer trends, could harm our (cid:13)
business. In particular, the market for authentication and grading of (cid:13)
sportscards is relatively new, and the volume of sportscards we receive has (cid:13)
fluctuated significantly in the last two years. There is no guarantee that (cid:13)
the level of trading in sportscards will not continue to decline from (cid:13)
current levels. (cid:13)
(cid:13)
There Are Limited Supplies of Collectibles. Our business is (cid:13)
substantially dependent upon obtaining collectible coins, sportscards, (cid:13)
records and other high-end collectibles for authentication, grading and (cid:13)
auction. We depend upon dealers and collectors submitting collectibles for (cid:13)
authentication and grading, and there is no guarantee that the current (cid:13)
rates of grading and authentication submissions will remain stable or (cid:13)
increase. Although there are numerous dealers and collectors from whom we (cid:13)
are able to obtain collectibles for our auctions, there are only a limited (cid:13)
number of dealers with the capacity to submit high-end collectibles for (cid:13)
auction on a regular basis. A change in our relationships with suppliers or (cid:13)
dealers could negatively impact our ability to obtain or auction high-end (cid:13)
collectibles in the quantities and at the times we desire. This could (cid:13)
impair our ability to attract a sufficient number of people interested in (cid:13)
high-end collectibles to our auctions, which would lead to reductions in (cid:13)
our revenues and a decline in our operating results. See "Inventory and (cid:13)
Working Capital" elsewhere in this Item 1. (cid:13)
(cid:13)
Variability of Our Operating Results. Our operating results are and can (cid:13)
be significantly affected by the frequency and size of our high-end (cid:13)
collectibles auctions. The timing, frequency and size of those auctions (cid:13)
cannot be fixed, because scheduling of those auctions depends on when (cid:13)
sufficient consignments of collectibles can be obtained to justify the (cid:13)
holding of such auctions. In addition, as a result of revenue recognition (cid:13)
policies that apply to auctions, under generally accepted accounting (cid:13)
principles auction revenue generated in a particular accounting period may (cid:13)
not be recognized until the subsequent accounting period. As a result, our (cid:13)
auction revenue, and therefore our operating results, often vary from (cid:13)
period to period. See "Item 7--Management's Discussion and Analysis of (cid:13)
Financial Condition and Results of Operations" in Part II of this Report. (cid:13)
(cid:13)
We May Incur Losses on Our Collectibles Inventory. In addition to (cid:13)
auctioning collectibles on consignment, we own some of the collectibles (cid:13)
sold in our auctions and own almost all of the collectibles that we sell at (cid:13)
retail. We purchase these collectibles from dealers and collectors and (cid:13)
assume the inventory and price risks of these items until they are sold. If (cid:13)
we are unable to resell these purchased collectibles when we want or need (cid:13)
to, or at prices sufficient to generate a profit on their resale, or if the (cid:13)
market value of our inventory of purchased collectibles declines, our (cid:13)
revenues and operating results would decline. See "Inventory and Working (cid:13)
Capital" elsewhere in this Item 1. (cid:13)
This document is compiled by Thomson Financial
9
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
Our Investment and Expansion in New Collectibles Markets May Not Generate (cid:13)
Adequate Returns. We have expanded into new collectibles markets, (cid:13)
offering authentication and grading services in the collectible stamp (cid:13)
market and authentication services in the autograph sports memorabilia (cid:13)
market for the first time. Those services may not find market acceptance by (cid:13)
dealers and collectors in those markets as they have in the coin and (cid:13)
sportscard markets. In addition, standards for authenticating and grading (cid:13)
stamps and authenticating autographs are not well established, which (cid:13)
increases the risks of errors in grading and (cid:13)
(cid:13)
5 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
authentication that could make it difficult to establish the creditability (cid:13)
of such services on which the success of those businesses is dependent. As (cid:13)
a result, we may not generate acceptable returns, and we could incur losses (cid:13)
on our investments in these new businesses. (cid:13)
(cid:13)
Other Risks Associated With Expansion of Our Business. If appropriate (cid:13)
opportunities present themselves, we also intend to acquire businesses, (cid:13)
technologies, services or products that we believe will help us to expand (cid:13)
our business. The process of integrating an acquired business, technology, (cid:13)
service or product may result in operating difficulties and expenditures (cid:13)
which we cannot anticipate and may absorb significant management attention (cid:13)
that would otherwise be available for further development of our existing (cid:13)
business. Moreover, the anticipated benefits of any acquisition may not be (cid:13)
realized. Any future acquisitions of other businesses, technologies, (cid:13)
services or products might require us to obtain additional equity or debt (cid:13)
financing, which might not be available to us on favorable terms or at all, (cid:13)
and might be dilutive. (cid:13)
(cid:13)
We Could Suffer Losses on Authentication and Grading Warranties. We (cid:13)
offer a warranty covering the coins and sportscards that we authenticate (cid:13)
and grade. Under the terms of our warranty, any coin or sportscard that was (cid:13)
originally graded by us and which subsequently receives a lower grade upon (cid:13)
resubmittal to us for grading, obligates us either to purchase the coin or (cid:13)
sportscard or pay the difference in value of the item at its original grade (cid:13)
as compared with its lower grade. We have no insurance coverage for claims (cid:13)
made under these warranties and, therefore, we maintain reserves to satisfy (cid:13)
such warranty claims based on historical experience, which in the past have (cid:13)
proven to be adequate. If warranty claims were to exceed these reserves, we (cid:13)
would incur additional charges that would adversely affect our operating (cid:13)
results. (cid:13)
(cid:13)
Increased Competition Could Affect Our Financial Performance. Our (cid:13)
auction and retail businesses are highly competitive. We compete directly (cid:13)
with other auction companies that specialize in and have an industry (cid:13)
reputation for hosting premium collectibles auctions, including Sotheby's, (cid:13)
Inc., Christie's, Inc. Mastronet and Heritage Capital Corporation. These (cid:13)
competitors each have the ability to attract collectible consignments and (cid:13)
buyers to their auctions as a result of their reputation and the quality of (cid:13)
the collectibles they are able to obtain through their industry connections (cid:13)
and financial resources. In addition, other reputable auction companies (cid:13)
that do not presently engage in auctions for coins or sportscards, or other (cid:13)
collectibles that are the focus of our business, may decide to enter our (cid:13)
markets to compete with us. Some companies have greater name recognition (cid:13)
and have greater financial and marketing resources than we do. Our retail (cid:13)
sales business is highly competitive with hundreds of competitors, some of (cid:13)
whom are larger and enjoy greater name recognition than our company. (cid:13)
Additionally, although there are few major competitors in the collectibles (cid:13)
authentication and grading markets, competition also is intense in these (cid:13)
markets. Increases in competition could adversely affect our pricing and (cid:13)
profit margins and our ability to achieve further growth. See "Competition" (cid:13)
elsewhere in this Part I. (cid:13)
(cid:13)
This document is compiled by Thomson Financial
10
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
The Imposition of Government Regulations Could Increase the Costs of Doing (cid:13)
Business. The collectible coin and other high-end collectibles markets (cid:13)
are not currently subject to direct federal, state or local regulation, (cid:13)
although auctions in general and the sale of particular types of artwork (cid:13)
and autographed sports memorabilia are regulated in some states. However, (cid:13)
from time to time government authorities discuss additional regulations (cid:13)
which could impose restrictions on the collectibles industry, such as (cid:13)
regulating collectibles as securities or requiring collectibles dealers to (cid:13)
meet registration or reporting requirements, and impose restrictions on the (cid:13)
conduct of auction businesses. Adoption of laws or regulations of this (cid:13)
nature could increase the complexity and costs of conducting auctions, (cid:13)
which might decrease our ability to attract sellers and buyers. (cid:13)
(cid:13)
Factors that Could Affect our Share Price Performance (cid:13)
(cid:13)
Possible Delisting of our Shares by NASDAQ. During the quarter ended (cid:13)
June 30, 2002, the bid price of our shares declined below $1.00 per share (cid:13)
for a period of 30 consecutive trading days, where it has since remained. (cid:13)
We have been notified by NASDAQ that our shares may be delisted from (cid:13)
trading on the NASDAQ National Stock Market if the bid price does not (cid:13)
increase to at least $1.00 per share for 10 consecutive trading days within (cid:13)
the succeeding 90 days and we are unable to demonstrate to NASDAQ that our (cid:13)
share price will so increase as a result of actions being taken by the (cid:13)
Company. Although we believe that anticipated (cid:13)
(cid:13)
6 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
improvements in operating results in the current fiscal year will result in (cid:13)
the required improvement in the trading price of our shares, there is no (cid:13)
assurance that NASDAQ will not proceed with the delisting. A delisting of (cid:13)
our shares from NASDAQ would make it more difficult for our stockholders to (cid:13)
sell their shares in the open market and for the Company to attract new (cid:13)
investors and to achieve improvements in the price performance of our (cid:13)
stock. Accordingly, if necessary to maintain our NASDAQ listing, subject to (cid:13)
the approval of our stockholders we are prepared to implement a reverse (cid:13)
stock split of our outstanding shares to increase our share price above (cid:13)
$1.00. See Item 5 in Part II of this Report. (cid:13)
(cid:13)
Services and Customers (cid:13)
(cid:13)
Authentication and Grading of Collectibles. We offer authentication and (cid:13)
grading services for coins and sportscards and have recently inaugurated (cid:13)
the grading of stamps. Using proprietary grading software developed by us, (cid:13)
our teams of trained and experienced authenticators and graders determine (cid:13)
the authenticity of an item submitted and then assign a numeric grade to (cid:13)
the item based upon its quality. After the item is graded, it is usually (cid:13)
encapsulated in a tamper-evident plastic holder. Customers for our (cid:13)
authentication and grading services include individual collectors, dealers (cid:13)
and, to a limited extent, wholesalers and manufacturers. (cid:13)
(cid:13)
We also offer authentication services for vintage sports autographs and (cid:13)
signed sports memorabilia. After an item of memorabilia is determined to be (cid:13)
authentic, it is entered into our database, with a digital picture for (cid:13)
future reference, and issued a certificate of authenticity. Customers for (cid:13)
our authentication services are primarily individual collectors and (cid:13)
dealers. We also offer authentication services for "signed-in-the-presence" (cid:13)
autographs and sports memorabilia, in which we use our proprietary PSA/DNA (cid:13)
authentication system to affix a holographic label and/or special ink to (cid:13)
the item that marks the item as genuine. (cid:13)
(cid:13)
PCGS Coin Grading Operations. Since our inception in 1986, we have (cid:13)
graded more than 7,000,000 coins with a declared insured value of more than (cid:13)
$9.0 billion. We authenticate and grade approximately 600,000 coins per (cid:13)
year and, depending on the customer's requested turnaround time, we (cid:13)
typically charge between $8 and $100 per coin for this service. We have (cid:13)
This document is compiled by Thomson Financial
11
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
graded, either before or after sale, three of the five highest priced U.S. (cid:13)
coins ever sold at public auction, including an 1804 silver dollar that was (cid:13)
purchased for approximately $4,100,000. We also have been named as the (cid:13)
official grading service of the Professional Numismatists Guild, the most (cid:13)
prominent non-profit national coin dealer trade organization. (cid:13)
(cid:13)
Our grading of coins involves a very exacting and standardized process. We (cid:13)
receive coins from dealers and collectors and enter them into our (cid:13)
proprietary computerized inventory system which tracks the coins at every (cid:13)
stage of the grading process. The coins are graded by experts with years of (cid:13)
coin grading experience who follow our benchmarked grading standards. Coins (cid:13)
enter the grading process without any markings that could identify the (cid:13)
owner of the coin ensuring that our graders are completely objective. (cid:13)
Graders also examine the coins independently from one another. Based upon (cid:13)
the type of coin and the results of the grading process, our proprietary (cid:13)
software determines whether additional graders will examine the coin to (cid:13)
assign a final grade. The coin is then sonically sealed in our (cid:13)
specially-designed holder, which also encases the grade, the description of (cid:13)
the coin and the PCGS hologram and brand name. The coin, grade and (cid:13)
description are then verified by one or more experts who have the authority (cid:13)
to resubmit the coin for further review, if necessary. Only after the (cid:13)
grading phase is complete is the coin reunited with its invoice, thus (cid:13)
keeping the grading process independent of the identity of the owner and (cid:13)
the history of the coin. (cid:13)
(cid:13)
PSA Sportscard Grading Operations. Our PSA Division first started (cid:13)
grading sportscards in 1991 and has graded over 4 million sportscards with (cid:13)
a declared value of more than $0.6 billion. We employ authentication and (cid:13)
grading procedures and provide warranties of accuracy that are similar to (cid:13)
the procedures employed and warranties given in authentication and grading (cid:13)
of coins. In addition to baseball cards, we authenticate and grade (cid:13)
football, hockey and basketball sportscards and other collectible cards. We (cid:13)
typically charge between $6 and $20 per card for our authentication and (cid:13)
grading service, depending on the customer's requested turnaround time. We (cid:13)
also have periodically entered into arrangements with sportcard (cid:13)
manufacturers to grade, in bulk, modern sportscards that they produce. (cid:13)
(cid:13)
7 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
We experienced a rapid increase in grading submissions between fiscal 1999 (cid:13)
and fiscal 2000. However, during the 4th quarter of fiscal 2000, sportscard (cid:13)
submissions started to decline from a quarterly rate of approximately (cid:13)
520,000 cards to approximately 310,000 cards per quarter, a level at which (cid:13)
it has remained throughout fiscal 2001 and 2002. We believe that this (cid:13)
decrease in submission rates is due, in part, to an increase in the number (cid:13)
of modern sportscards in circulation, which has led to a reduction in (cid:13)
resale prices of those sportscards that has reduced the economic incentive (cid:13)
to have them graded. However, we have been able to partially offset that (cid:13)
decline in submissions through our Sport Card Set Registry Programs. Those (cid:13)
programs, introduced by PSA in fiscal 2001, have encouraged collectors to (cid:13)
collect or amass sets or combinations of related vintage and also modern (cid:13)
sportscards, comprised not only of the cards of more famous and popular (cid:13)
players, but also of less notable players who may have been or are (cid:13)
associated with particular teams or sports events. To enhance the (cid:13)
collectibility and marketability of such related sets or combinations of (cid:13)
sportscards, on an increasing basis, dealers and collectors have been (cid:13)
submitting the cards making up those sets for grading, including those of (cid:13)
the less notable players which might not otherwise have been submitted for (cid:13)
grading. (cid:13)
(cid:13)
Other Authentication and Grading Services. We commenced stamp (cid:13)
authentication and grading and sports autograph authentication during (cid:13)
fiscal 2000. The volume of submissions through fiscal 2002 has not been (cid:13)
material, and since these services are new to the markets, we cannot (cid:13)
This document is compiled by Thomson Financial
12
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
predict when or even whether they will gain market acceptance. (cid:13)
(cid:13)
High-End Collectibles Auctions and Sales. We conduct premium auctions (cid:13)
for high-end collectibles, including coins, currency, sportscards and (cid:13)
sports memorabilia, rare records, entertainment and historical memorabilia. (cid:13)
All of our premium auctions offer multi-venue bidding that includes varying (cid:13)
combinations of Internet, telephone, mail and in-person formats. While the (cid:13)
number of premium auctions varies each year, we typically conduct (cid:13)
approximately 20 premium auctions each fiscal year. (cid:13)
(cid:13)
Customers for our premium auctions are generally individual collectors and (cid:13)
dealers. At those auctions we sell collectibles that are consigned to us by (cid:13)
dealers and collectors ("consigned collectibles") and, to a lesser extent, (cid:13)
collectibles that we purchase for resale at our auctions ("purchased (cid:13)
collectibles" or "owned collectibles"). We also make direct and catalog (cid:13)
sales primarily of purchased collectibles. (cid:13)
(cid:13)
We generate revenue from our auctions in the form of commissions from both (cid:13)
buyers and sellers of consigned collectibles and from sales of purchased (cid:13)
collectibles that we sell and buyer's commissions on the sale of purchased (cid:13)
or owned collectibles. Commissions from the sale of consigned collectibles (cid:13)
vary but are generally between 10% to 25% of the sales price of the (cid:13)
collectible. We charge buyers a commission on the sale of owned (cid:13)
collectibles that varies but is generally between 10% and 15% of the sales (cid:13)
price. Revenues from the sale of owned collectibles were $19,983,000 and (cid:13)
$23,152,000 in fiscal 2002 and fiscal 2001, respectively. Commissions (cid:13)
revenues from the sale of consigned and owned collectibles were $4,875,000 (cid:13)
and $6,241,000 in fiscal 2002 and fiscal 2001, respectively. See "Item (cid:13)
7--Management's Discussion and Analysis of Financial Condition and Results (cid:13)
of Operations" in Part II of this Report. (cid:13)
(cid:13)
Premium Auctions. Premium auctions feature special or unique (cid:13)
collectibles that are sold in a multi-venue auction formats. In some of our (cid:13)
premium auctions, we utilize "callback bidding" where bidders can choose to (cid:13)
be called back by a phone operator immediately after the close of the first (cid:13)
auction phase to be given the opportunity to participate in the final (cid:13)
bidding phase. (cid:13)
(cid:13)
We require consignors in our premium auctions to ship their collectibles to (cid:13)
us prior to auction. We photograph and prepare descriptions for all items (cid:13)
consigned to us for auction and compile and publish a catalog of all items (cid:13)
to be auctioned in advance of each of our premium auctions. Collectors can, (cid:13)
thus, view all of the collectibles to be auctioned, along with complete (cid:13)
descriptions, either by visiting our website and viewing online, or by (cid:13)
ordering a catalog in hardcopy format. At the conclusion of the auction, we (cid:13)
handle shipping and payment transactions. (cid:13)
(cid:13)
Direct and Catalog Sales. We also make sales of high-end collectibles at (cid:13)
fixed prices at our website, at industry shows, by e-mail, newsletters, (cid:13)
catalogs and by other direct sales programs to customers (cid:13)
(cid:13)
8 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
that prefer purchasing collectibles at fixed prices rather than acquiring (cid:13)
them at auctions. We have a regular database of customers to whom we make (cid:13)
direct and catalog sales, which include individual collectors. (cid:13)
(cid:13)
Publications and Content. We publish authoritative price guides and (cid:13)
rarity reports for certain collectibles, including coins, currency and (cid:13)
sportscards. This information is available on our website and in our (cid:13)
publications that are distributed throughout the year. These publications (cid:13)
include: (cid:13)
(cid:13)
Price Guides. We provide a wide variety of authoritative price guides (cid:13)
for a number of collectible markets. For example, we track the value of the (cid:13)
This document is compiled by Thomson Financial
13
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
3,000 most actively-traded U.S. coins with information dating back to 1970. (cid:13)
We compile and publish this information in a widely recognized collectible (cid:13)
coin index, the CU3000. (cid:13)
(cid:13)
Rarity Reports. Three primary characteristics drive the market value of (cid:13)
many collectibles: relative rarity, grade and significance to collectors. (cid:13)
We compile and publish reports that list the total number of sportscards (cid:13)
and coins we have graded since our inception in 1986, categorized by item (cid:13)
type and grade determination. We can publish, for example, the exact number (cid:13)
of MS67-grade 1881-S Morgan silver dollars we have graded. Collectors can (cid:13)
utilize this information to make informed decisions regarding the purchase (cid:13)
of particular coins. (cid:13)
(cid:13)
Articles. Collecting is a passion for many and has nuances and anecdotes (cid:13)
that are well suited to a library of articles for each category of (cid:13)
collectible. We write informative articles and publish them on our website. (cid:13)
A sense of community is also important to collectors. We, therefore, (cid:13)
encourage our users to communicate and to write articles that can be made (cid:13)
available to all collectors. (cid:13)
(cid:13)
Historical Content. Collecting is often about history, and, in many (cid:13)
instances, the collectible's history is what makes it valuable. In our (cid:13)
catalogs, and in other publications, we provide short histories about (cid:13)
unusual and rare collectibles that add to the attractiveness and excitement (cid:13)
of purchasing such items. (cid:13)
(cid:13)
News. We provide the information that collectors and dealers need to (cid:13)
track recent events, trends and developments in the collectibles markets we (cid:13)
serve. For example, new collectibles are constantly being created, some (cid:13)
collectibles increase in popularity and other collectibles sell at record (cid:13)
prices. (cid:13)
(cid:13)
Customer Support (cid:13)
(cid:13)
We devote significant resources to providing personalized, customer service (cid:13)
and support in a timely manner. Customers can check the status of their (cid:13)
grading submissions at our Internet website. In addition, customers or (cid:13)
prospective buyers can confirm the authenticity of the over 11 million (cid:13)
collectibles we have graded. Customers also can choose to telephone or (cid:13)
e-mail our general support staff. We also make available specialists and (cid:13)
experts who are able to address virtually any issues our customers may (cid:13)
encounter when using our services. (cid:13)
(cid:13)
Inventory and Working Capital (cid:13)
(cid:13)
Our inventory consists primarily of collectibles held for sale in our (cid:13)
auctions and through direct sales. In our premium auctions, the majority of (cid:13)
the collectibles sold are consigned to us, but we do sell collectibles (cid:13)
owned by us, particularly sportscards and entertainment memorabilia. (cid:13)
Collectibles sold through direct sales or catalog are usually owned by us. (cid:13)
The supply of high-end collectibles is limited, and the timing of their (cid:13)
availability in sufficient quantity to support our premium auctions and (cid:13)
direct sales is uncertain. We, therefore, purchase inventory to insure (cid:13)
availability and to take advantage of the opportunities to acquire high-end (cid:13)
collectibles at favorable prices. In some circumstances, we may purchase a (cid:13)
large "collection" of inventory with the intent of selling it in multiple (cid:13)
future auctions. Therefore, our inventories are exposed to potentially (cid:13)
limited turnover and valuation risks associated with fluctuations in their (cid:13)
market prices. The Company periodically reviews its inventories and takes (cid:13)
reserves against potential valuation loss. (cid:13)
(cid:13)
9 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
Historically, fees for authentication and grading were generally prepaid or (cid:13)
This document is compiled by Thomson Financial
14
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
paid at the time the item was submitted. Prepayments for services are (cid:13)
recorded as deferred revenue until the service is completed and the item is (cid:13)
returned. In prior fiscal years, prepaid submittals have provided us with a (cid:13)
consistent source of cash and improved our working capital position. At (cid:13)
June 30, 2002, deferred grading revenue, that is, the value of prepaid, but (cid:13)
unprocessed grading submissions, was $545,000 as compared to $288,000 at (cid:13)
June 30, 2001. We advance, to certain consignors in our premium auctions, (cid:13)
funds in anticipation of selling their collectibles at auction. We (cid:13)
generally charge market rates of interest for such advances and hold their (cid:13)
consignment as collateral. This practice is common in the market for (cid:13)
higher-end collectibles and is used to attract consignments to our (cid:13)
auctions. At June 30, 2002, we had advanced $3,359,000 to consignors. (cid:13)
(cid:13)
The timing of premium auctions can have a significant impact upon our (cid:13)
working capital. We generally pay consignors 45-days after the close of any (cid:13)
auction but collect, all, or essentially all, the receivables from an (cid:13)
auction 60 days following the completion of the auction. This auction cycle (cid:13)
can cause significant fluctuations in the Company's cash balances and (cid:13)
working capital position. See "Management's Discussion and Analysis of (cid:13)
Financial Condition and Results of Operations" in Part II of this Report. (cid:13)
(cid:13)
Manufacturing and Suppliers (cid:13)
(cid:13)
We purchase injection-molded parts, holograms and printed labels for our (cid:13)
grading services. There are numerous suppliers for these items, and any one (cid:13)
could be substituted without significant delay or cost to the Company. (cid:13)
However, while there are numerous sources for injection molded parts, these (cid:13)
parts require a die to fabricate the part. The manufacture of high (cid:13)
precision dies can be a lengthy process and requires considerable expertise (cid:13)
in their fabrication. We do not have "back-up" dies for many of our high (cid:13)
volume injection molded parts, and we rely on one supplier for these (cid:13)
requirements. In the event that this supplier experiences a protracted (cid:13)
production stoppage, we would not be able to service all of our customers. (cid:13)
(cid:13)
Operations and Technology (cid:13)
(cid:13)
We utilize proprietary software for our authentication, grading, order (cid:13)
tracking, order processing and certain database functions. During fiscal (cid:13)
2002, we completed interfacing our proprietary grading software with a new (cid:13)
company-wide enterprise software system. Total cost of this new software, (cid:13)
and related hardware, was approximately $1,250,000, of which, approximately (cid:13)
$600,000 and $50,000 was expensed during fiscal 2002 and 2001, (cid:13)
respectively, representing primarily pre-development and (cid:13)
post-implementation training and support costs. Approximately $600,000 has (cid:13)
been capitalized and is being amortized over a 3 to 5 year life. (cid:13)
(cid:13)
Competition (cid:13)
(cid:13)
There are three main competitors in coin grading, Numismatic Guaranty (cid:13)
Corporation of America, Independent Coin Grading and ANACS, a subsidiary of (cid:13)
Amos Press, Inc. and a few minor competitors. In sportscard grading, there (cid:13)
are also two main competitors, Beckett and Sportscard Grading Corporation, (cid:13)
but numerous smaller competitors. The sportscard grading market attracts (cid:13)
new competitors every year and, every year, several competitors disappear (cid:13)
from the market. In July 2001, a new competitor entered the sportscard (cid:13)
grading market, SCD Authentic, a division of Krause Publications. We (cid:13)
believe that PCGS and PSA have the largest market share in each of their (cid:13)
respective markets, but barriers to entry into the authentication and (cid:13)
grading market are relatively low, especially into the sportscard grading (cid:13)
market. However, the development of a brand name that buyers and sellers (cid:13)
will rely on for making "sight-unseen" purchases can take several years to (cid:13)
develop, and collectors tend to favor grading services that have an (cid:13)
established reputation and whose grading standards tend to support the (cid:13)
highest price in the market. (cid:13)
(cid:13)
Our traditional auction business is also highly competitive. We compete (cid:13)
This document is compiled by Thomson Financial
15
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
directly with other companies that specialize in collectibles and have an (cid:13)
industry reputation for hosting premium collectibles auctions. Our (cid:13)
competitors in traditional auction markets include Heritage Numismatic (cid:13)
Auctions, Currency Auctions of America, recently purchased by Heritage, (cid:13)
Mastro Fine Sports Auctions, Greg Manning Auctions and numerous smaller (cid:13)
auction companies that compete in our markets for coins, sportscards and (cid:13)
sports memorabilia, currency, rare records, autographs, and other types of (cid:13)
collectibles. In addition, other (cid:13)
(cid:13)
10 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
reputable and much larger auction companies such as Sotheby's, Christie's (cid:13)
and Butterfield & Butterfield, which do not specialize in, but do conduct (cid:13)
auctions for collectibles that our Company specializes in, are potential (cid:13)
competitors. In addition, other significant auction companies that do not (cid:13)
presently engage in auctions for coins or sportscards or other collectibles (cid:13)
that are the focus of our business may decide to enter our markets to (cid:13)
compete with us. These companies have greater name recognition than us and (cid:13)
have access to more financial and marketing resources than we do. We (cid:13)
believe that the principal competitive factors in the traditional auction (cid:13)
business are the reputation of the Company hosting the auction, the hosting (cid:13)
party's ability to attract buyers to the auction and the quality of (cid:13)
collectibles available for sale at the auction. (cid:13)
(cid:13)
In addition to these traditional auction companies, several companies have (cid:13)
developed sales, auctions and trading over the Internet. While these (cid:13)
Internet e-commerce companies generally host auctions or sell collectibles (cid:13)
that have lower average selling prices than our collectibles sold at (cid:13)
auction, several of them are much larger and have greater financial (cid:13)
resources than our Company. These companies include eBay and, to a lessor (cid:13)
extent, Yahoo and Amazon. In addition, several large companies sell (cid:13)
specialty consumer products, including collectibles through interactive (cid:13)
electronic media, including broadcast, cable and satellite television and, (cid:13)
increasingly, the Internet. These companies include QVC, Home Shopping (cid:13)
Network and Shop At Home. They generally have substantial financial (cid:13)
resources and, while their current collectible offerings tend to be less (cid:13)
focused and at lower prices than our collectible offerings, there can be no (cid:13)
guarantee that they will not become significant competitors in the future. (cid:13)
(cid:13)
Direct sales of collectibles is highly competitive. There are thousands of (cid:13)
retail establishments that sell collectibles directly to collectors, and (cid:13)
there are numerous catalog companies and e-tailers that offer collectibles (cid:13)
for sale through the Internet. The Company is not dominant in any of these (cid:13)
markets, and barriers to entry are relatively low in e-commerce using (cid:13)
commercially available software. (cid:13)
(cid:13)
Intellectual Property (cid:13)
(cid:13)
Our intellectual property primarily consists of trademarks, copyrights, and (cid:13)
proprietary software and trade secrets. As part of our confidentiality (cid:13)
procedures, we generally enter into agreements with our employees and (cid:13)
consultants and limit access to, and distribution of, our software, (cid:13)
documentation and other proprietary information. (cid:13)
(cid:13)
The following table sets forth a list of our trademarks, both unregistered (cid:13)
and registered, that are currently being used in the conduct of our (cid:13)
business: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Unregistered Marks Registered Marks (cid:13)
-------------------------------------------------- ------------------------ (cid:13)
Coin Universe Bowers and Merena Galleries Collectors Universe (cid:13)
Collectors.com Kingswood Coin Auctions PCGS (cid:13)
This document is compiled by Thomson Financial
16
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Lyn Knight Currency (cid:13)
Auctions Sports Collectors Universe PSA (cid:13)
Superior Sportscard (cid:13)
Auctions Currency Universe PSA/DNA (cid:13)
Bowers and Merena (cid:13)
Auctions Record Universe Good Rockin' Tonight (cid:13)
(cid:13)
(cid:13)
(cid:13)
We have not conducted an exhaustive search of possible prior users of the (cid:13)
unregistered trademarks listed above and, therefore, it is possible that (cid:13)
our use of some of these trademarks may conflict with others. (cid:13)
(cid:13)
Government Regulation (cid:13)
(cid:13)
Numerous states, including the State of California in which our (cid:13)
headquarters is located, have regulations regarding the manner in which (cid:13)
"auctions" may be conducted and the liability of "auctioneers" in (cid:13)
conducting such auctions. We must comply with each state's requirements (cid:13)
when conducting in-person auctions and are required to collect sales tax (cid:13)
depending on the collectible sold and manner in which title changes. The (cid:13)
Company conducts multi-venue auctions in which the customer may bid, (cid:13)
in-person, over the telephone or on the Internet through our website. At (cid:13)
this time, it has not been determined if a state or (cid:13)
(cid:13)
11 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
governmental body could claim authority over a multi-venue auction for (cid:13)
purposes of complying with "auctioneering" laws or the collection of sales (cid:13)
tax. (cid:13)
(cid:13)
Employees (cid:13)
(cid:13)
As of June 30, 2002, we had 187 full-time employees and 33 part-time (cid:13)
employees. Included in this total were 105 in grading and authentication, (cid:13)
52 in collectible sales and auction, 6 in website development, 4 in sales (cid:13)
and marketing and 53 in other business and administrative services. We have (cid:13)
never had a work stoppage, and no employees are represented under (cid:13)
collective bargaining agreements. We consider our relations with our (cid:13)
employees to be good. (cid:13)
(cid:13)
Item 2. PROPERTIES (cid:13)
(cid:13)
We lease approximately 59,000 square feet for our California-based (cid:13)
headquarters under a nine-year lease that commenced in November 2000. This (cid:13)
new facility exceeds our space requirements, and we are seeking to sublet a (cid:13)
portion of the facility. (cid:13)
(cid:13)
We also lease a 6,500 square foot office in Wolfeboro, New Hampshire; a (cid:13)
3,700 square foot office in Lenexa, Kansas; a 3,200 square foot office in (cid:13)
Traverse City, Michigan; a 1,500 square foot office in Orwigsburg, (cid:13)
Pennsylvania and a 2,900 square foot office in Corona, California. (cid:13)
(cid:13)
Item 3. LEGAL PROCEEDINGS (cid:13)
(cid:13)
At June 30, 2002, we were not party to any legal proceedings that we (cid:13)
believe is material. (cid:13)
(cid:13)
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (cid:13)
(cid:13)
None. (cid:13)
(cid:13)
EXECUTIVE OFFICERS OF REGISTRANT (cid:13)
(cid:13)
This document is compiled by Thomson Financial
17
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
(cid:13)
Name Age Positions (cid:13)
---- --- ------ (cid:13)
Roger W. Johnson 67 Chief Executive Officer (cid:13)
David G. Hall 55 President (cid:13)
Michael J. Lewis 58 Chief Financial Officer (cid:13)
(cid:13)
(cid:13)
(cid:13)
ROGER W. JOHNSON has served as a Director of Collectors Universe since (cid:13)
November 1999 and was elected as its Chairman and Chief Executive Officer (cid:13)
in September, 2001. From 1996 to September 2001, Mr. Johnson was a private (cid:13)
investor. He was appointed by President Clinton and served as the (cid:13)
Administrator of the General Services Administration of the United States (cid:13)
from 1993 to 1996. Mr. Johnson also has been Chief Executive Officer of the (cid:13)
Young Presidents' Organization, International since 1998. He is a member of (cid:13)
the boards of directors of The Needham Funds, Inc., Sypris Solutions, Inc., (cid:13)
Insulectro, Carole Little and the Women's Consumer Network, Washington, (cid:13)
D.C. Mr. Johnson was Chairman and Chief Executive Officer of Western (cid:13)
Digital Corporation from 1982 to 1993. Mr. Johnson holds an M.B.A. in (cid:13)
industrial management from the University of Massachusetts. (cid:13)
(cid:13)
In August 2002, Mr. Johnson announced his decision to step down as Chairman (cid:13)
and Chief Executive Officer of the Company, after having achieved goals he (cid:13)
had set for himself when he assumed those positions with the Company. In (cid:13)
announcing that decision, Mr. Johnson stated it was time to hand over his (cid:13)
responsibilities to a new chief executive officer who could commit to a (cid:13)
much longer period of leadership with the Company than he would be able to (cid:13)
do. The Company's Board of Directors has opened an active search for a (cid:13)
successor to Mr. Johnson, who has agreed to remain as Chief Executive (cid:13)
Officer for an interim period to assist with the transition to the new (cid:13)
Chief Executive Officer. At the same time, the Board of Directors elected (cid:13)
James H. O'Neal, as Chairman of the Board, to lead that search. Mr. O'Neal, (cid:13)
who is a private investor and has served as a director of the Company since (cid:13)
June, 2001, was the President and Chief Executive Officer of Frito-Lay (cid:13)
International from 1997 until his retirement in 2000, and prior to 1997 (cid:13)
held a number of executive positions with PepsiCo, the parent company of (cid:13)
Frito-Lay. (cid:13)
(cid:13)
DAVID G. HALL has served as President of Collectors Universe, Inc. since (cid:13)
September 2001. From April 2000 to September 2001, Mr. Hall served as our (cid:13)
Chairman of the Board and Chief Executive Officer. Mr. Hall also served as (cid:13)
Chairman of the Board and a Director since founding Collectors Universe in (cid:13)
February 1986. From 1986 to January 1999, he also served as President and (cid:13)
Chief Executive Officer. Mr. Hall was honored in 1999 by COINage Magazine (cid:13)
as Numismatist of the Century, along with 14 others. In 1990, Mr. Hall was (cid:13)
named an Orange County Entrepreneur of the Year by INC. magazine. In (cid:13)
addition, he has written A Mercenary's Guide to the Rare Coin Market, a (cid:13)
book dedicated to coin collecting. Mr. Hall is also a member of the (cid:13)
Professional Numismatists Guild. (cid:13)
(cid:13)
MICHAEL J. LEWIS has served as Chief Financial Officer of Collectors (cid:13)
Universe, Inc. since October 2001. From January 2000 to October 2001, Mr. (cid:13)
Lewis was a private investor. In 1998, Mr. Lewis was Chief Financial (cid:13)
Officer of the Young Presidents' Organization. During 1999, Mr. Lewis was (cid:13)
an associate with Eureka Financial Markets. From 1994 to 1997, Mr. Lewis (cid:13)
served as (cid:13)
Chief Executive Officer of National Case Management. Prior to that time, (cid:13)
Mr. Lewis served as a Financial Consultant or as Chief Financial Officer, (cid:13)
including Chief Financial Officer of Western Digital Corporation and Emulex (cid:13)
Corporation. (cid:13)
(cid:13)
12 (cid:13)
This document is compiled by Thomson Financial
18
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
------------------------------------------------------------------------ (cid:13)
PART II (cid:13)
(cid:13)
Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS (cid:13)
(cid:13)
The Company's common stock has been listed on the Nasdaq National Market, (cid:13)
trading under the symbol CLCT, since November 4, 1999, when we commenced (cid:13)
our initial public offering of common stock. The following table sets forth (cid:13)
high and low closing prices for our common stock, as reported by the Nasdaq (cid:13)
National Market for each of the fiscal quarters in the fiscal years ended (cid:13)
on June 30, 2002 and 2001: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Fiscal 2002 High Low (cid:13)
-------- ---- --- (cid:13)
First Quarter 2.23 .71 (cid:13)
Second Quarter 1.60 .72 (cid:13)
Third Quarter 1.72 1.11 (cid:13)
Fourth Quarter 1.50 .76 (cid:13)
(cid:13)
Fiscal 2001 High Low (cid:13)
-------- ---- --- (cid:13)
First Quarter 4.67 2.50 (cid:13)
Second Quarter 2.56 1.53 (cid:13)
Third Quarter 2.19 1.44 (cid:13)
Fourth Quarter 2.20 1.45 (cid:13)
(cid:13)
(cid:13)
(cid:13)
The Company had 162 holders of record of its common stock and approximately (cid:13)
2,119 beneficial owners on June 30, 2002. (cid:13)
(cid:13)
Possible Delisting of Shares and Possible Reverse Stock Split. During (cid:13)
the quarter ended June 30, 2002, the trading prices of our shares declined (cid:13)
to less than $1.00 per share for 30 consecutive trading days. As a result, (cid:13)
we have been informed by NASDAQ that our shares may be delisted from (cid:13)
trading on the NASDAQ Stock Market, unless we can demonstrate to NASDAQ's (cid:13)
satisfaction that the decline in our share price is temporary and the price (cid:13)
will increase above $1.00 in the near term. A delisting of our shares from (cid:13)
the NASDAQ Stock market would result in a decline in the marketability and (cid:13)
the liquidity of our shares, making it more difficult for our stockholders (cid:13)
to purchase and sell shares when they want or need to do so and for us to (cid:13)
achieve improvements in our share price performance. (cid:13)
(cid:13)
As a result, if NASDAQ determines to proceed with the delisting of our (cid:13)
shares, the only alternative available for achieving the increase in our (cid:13)
share price required to maintain our NASDAQ listing may be a reverse stock (cid:13)
split of our outstanding shares, in all probability ranging somewhere (cid:13)
between a one share-for-three share to a one share-for-five share reverse (cid:13)
split. Accordingly, we intend to ask our stockholders, at our Annual (cid:13)
Stockholders Meeting scheduled for December 4, 2002, to grant the Board of (cid:13)
Directors the authority to effectuate a reverse split of our outstanding (cid:13)
shares within that range. If the reverse stock split is approved, the Board (cid:13)
of Directors is likely to implement it only if it becomes necessary to (cid:13)
ensure the continued listing of our shares on the NASDAQ Stock Market. (cid:13)
Accordingly, even if the reverse stock split is approved by the (cid:13)
stockholders, the Board of Directors may elect to delay, or even abandon it (cid:13)
entirely if we are able to otherwise maintain the listing of our shares on (cid:13)
NASDAQ. (cid:13)
(cid:13)
Dividends and Share Repurchases (cid:13)
(cid:13)
This document is compiled by Thomson Financial
19
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
We do not intend to declare or pay cash dividends in the foreseeable (cid:13)
future, as it is our current policy to retain all earnings to support (cid:13)
future growth and expansion. (cid:13)
(cid:13)
Pursuant to an open market and private stock repurchase program approved by (cid:13)
the Board of Directors, from September 25, 2000, through December 28, 2000, (cid:13)
the Company purchased 500,000 of its shares at an average price of $2.04 (cid:13)
per share. Although we do not currently have plans to do so, depending (cid:13)
(cid:13)
13 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
on market conditions and the alternatives for which the Company's cash may (cid:13)
be used, the Board of Directors may consider adopting additional stock (cid:13)
repurchase programs in the future. (cid:13)
(cid:13)
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA (cid:13)
(cid:13)
The consolidated statements of operations data and balance sheets data for (cid:13)
each of the fiscal years shown, include the operations of Collectors (cid:13)
Universe, Inc. and its predecessor, Professional Coin Grading Service, Inc. (cid:13)
The selected operating data for the fiscal years ended June 30, 2002, 2001 (cid:13)
and 2000, and the selected balance sheet data at June 30, 2002 and 2001, (cid:13)
are derived from the Company's audited consolidated financial statements (cid:13)
included elsewhere in this Report. The selected financial data for the (cid:13)
fiscal years ended June 30, 1999 and 1998 and at June 30, 2000, 1999 and (cid:13)
1998 are derived from audited consolidated financial statements that are (cid:13)
not included in this Report. The following data should be read in (cid:13)
conjunction with our consolidated financial statements and the related (cid:13)
notes thereto and "Management's Discussion and Analysis of Financial (cid:13)
Condition and Results of Operations" included herein. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Years Ended June 30, (4) (cid:13)
-------------------------------------------------- (cid:13)
Consolidated (cid:13)
Statements of (cid:13)
Operations Data 2002 2001 2000 1999 1998 (cid:13)
(1) ------- -------- ------- ------- -------- (cid:13)
(in thousands, except per share data) (cid:13)
Net revenues $44,781 $ 52,384 $42,374 $22,563 $ 10,989 (cid:13)
Cost of revenues 26,517 30,604 20,185 8,654 2,915 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Gross profit 18,264 21,780 22,189 13,909 8,074 (cid:13)
Selling, general (cid:13)
and administrative (cid:13)
expenses 20,911 19,954 18,614 14,368 7,135 (cid:13)
Amortization of (cid:13)
goodwill 1,649 1,798 1,070 337 33 (cid:13)
Impairment of (cid:13)
goodwill 51 906 -- -- -- (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Operating income (cid:13)
(loss) (4,347) (878) 2,505 (796) 906 (cid:13)
Interest income, (cid:13)
net 379 855 748 30 26 (cid:13)
Other income (cid:13)
(expense), net 23 (33) (161) (28) (46) (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Income (loss) (cid:13)
before income (cid:13)
taxes (3,945) (56) 3,092 (794) 886 (cid:13)
Provision (cid:13)
(benefit) for (cid:13)
This document is compiled by Thomson Financial
20
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
income taxes (2) (1,435) 593 1,550 (624) 13 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Net income (loss) (cid:13)
(3) $(2,510) $ (649) $ 1,542 $ (170) $ 873 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Net income (loss) (cid:13)
per share: (cid:13)
Basic $ (0.10) $ (0.03) $ 0.07 $ (0.01) $ 0.05 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Diluted $ (0.10) $ (0.03) $ 0.06 $ (0.01) $ 0.05 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Weighted average (cid:13)
shares (cid:13)
outstanding: (cid:13)
Basic 25,389 25,114 23,330 17,644 16,064 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Diluted 25,389 25,114 24,575 17,644 16,064 (cid:13)
-------- --------- -------- -------- --------- (cid:13)
Balance Sheet (cid:13)
Data: (cid:13)
Cash and cash (cid:13)
equivalents $ 4,947 $ 5,874 $14,580 $ 1,852 $ 612 (cid:13)
Working capital 18,496 20,485 20,399 2,316 975 (cid:13)
Total assets 45,509 46,868 56,232 15,540 3,104 (cid:13)
Stockholders' (cid:13)
equity 37,128 39,550 41,115 10,098 1,562 (cid:13)
(cid:13)
(cid:13)
------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
1. Consolidated statements of operations data are not comparable for all (cid:13)
periods shown. On April 11, 2002, we acquired the operating assets of (cid:13)
Collectible Properties, Inc. On July 18, 2000, we acquired the (cid:13)
publishing business of Odyssey Publications. On March 10, 2000, we (cid:13)
acquired the operating assets of Bowers and Merena. On February 5, (cid:13)
1999, we acquired the auction businesses of Lyn F. Knight Rare Coins, (cid:13)
Inc. and Kingswood Coin auctions LLC and acquired an additional 40% (cid:13)
membership interest in Superior Sportscard Auctions LLC. On January 25, (cid:13)
1999, we acquired an additional 40% membership interest in Internet (cid:13)
Universe LLC. The operating results for the periods shown include the (cid:13)
operating results of each of those acquired companies only for the (cid:13)
periods subsequent to their acquisition. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
2. In fiscal 2000, we provided for federal and state income taxes at rates (cid:13)
applicable for a C corporation. For the first seven months of fiscal (cid:13)
1999, we provided for state income taxes at 1.5% and made no provision (cid:13)
for federal income taxes because we were an S corporation. For the last (cid:13)
five months of fiscal 1999, we provided for income taxes at applicable (cid:13)
C corporation rates. For fiscal year 1998, we provided income taxes at (cid:13)
1.5%, the rate applicable for California S corporations, and made no (cid:13)
provision for federal income taxes because we were an S corporation. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
This document is compiled by Thomson Financial
21
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
3. Net income (loss) is not comparable for all periods presented because (cid:13)
we converted from a substantially non-taxable S corporation to a fully (cid:13)
taxable C corporation on February 5, 1999. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
4. The Company's fiscal year ends on the Saturday closest to June 30th. (cid:13)
Accordingly, the last three fiscal years ended on June 29, 2002, June (cid:13)
30, 2001 and July 1, 2000. For clarity of presentation, all fiscal (cid:13)
years are reported as ending on June 30th. (cid:13)
(cid:13)
(cid:13)
14 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND (cid:13)
RESULTS OF OPERATIONS (cid:13)
(cid:13)
The following discussion and analysis should be read in conjunction with (cid:13)
the "Selected Consolidated Financial Data" and the Company's consolidated (cid:13)
financial statements and related notes included elsewhere herein. (cid:13)
(cid:13)
Critical Accounting Policies and Estimates (cid:13)
(cid:13)
General. The Company's consolidated financial statements have been (cid:13)
prepared in accordance with accounting principles generally accepted in the (cid:13)
United States of America ("GAAP"). In determining the carrying value of (cid:13)
some of our assets and liabilities, principally accounts receivable, (cid:13)
inventories, warranty obligations, deferred income taxes, and goodwill, we (cid:13)
must make judgments, estimates and assumptions regarding future events and (cid:13)
circumstances that could affect the value of those assets and liabilities, (cid:13)
such as future economic conditions that will affect our ability to collect (cid:13)
our accounts receivable or sell our inventories in future periods. Those (cid:13)
judgments, estimates and assumptions are based on current information (cid:13)
available to us at the time they are made. Many of those events and (cid:13)
circumstances, however, are outside of our control and if changes in those (cid:13)
events or circumstances occur thereafter, GAAP may require us to adjust our (cid:13)
earlier estimates that are affected by those changes. Any downward (cid:13)
adjustments are commonly referred to as "write-downs" of the assets (cid:13)
involved. (cid:13)
(cid:13)
Additionally, decisions of when adjustments of this nature should be made (cid:13)
also require subjective judgments involving an assessment or prediction (cid:13)
abut the effects and duration of events or changes in circumstances. For (cid:13)
example, it is not easy to predict whether events, such as occurred on (cid:13)
September 11, 2001 or increases in interest rates or economic slowdowns, (cid:13)
will have short or longer term consequences for a particular business and (cid:13)
it is not uncommon for it to take some time, after the occurrence of an (cid:13)
event or the onset of changes in economic circumstances, for the full (cid:13)
effects of such events or changes to be recognized. (cid:13)
(cid:13)
It is our practice in certain cases to establish reserves or allowances to (cid:13)
record any downward adjustments or "write-downs" in the carrying value of (cid:13)
assets such as these. Examples include reserves or allowances established (cid:13)
for uncollectible accounts receivable (sometimes referred to as "bad debt (cid:13)
reserves") and reserves for slow moving inventory. Write-downs are charged (cid:13)
against these reserves or allowances and those reserves are replenished (cid:13)
following such write downs, or increased to take account of changed (cid:13)
conditions or events, by charges to income or increases in expense in our (cid:13)
This document is compiled by Thomson Financial
22
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
statement of operations in the periods when those reserves or allowances (cid:13)
are replenished or increased. With respect to other assets, such as (cid:13)
goodwill, we write down their carrying value directly in the event of an (cid:13)
impairment as a charge to income. As a result, our judgments, estimates and (cid:13)
assumptions about future events can and will affect not only the amounts at (cid:13)
which we record these assets on our balance sheet, but also our results of (cid:13)
operations. (cid:13)
(cid:13)
Under GAAP, we also must make estimates or judgments regarding the periods (cid:13)
during which, and also regarding the amounts at which, sales are recorded. (cid:13)
Those estimates and judgments will depend on such factors as the (cid:13)
circumstances under which customers may be entitled to return the products (cid:13)
or reject or adjust the payment for the services provided to them. (cid:13)
Additionally, in the case we grant our customers contractual rights to (cid:13)
return products sold to them, we establish a reserve or allowance for (cid:13)
product returns by means of a reduction in the amount at which the sales (cid:13)
are recorded, based primarily on the nature, extensiveness and duration of (cid:13)
those rights and our historical product return experience. (cid:13)
(cid:13)
In making our estimates and assumptions we follow GAAP and accounting (cid:13)
practices applicable to our business that we believe will enable us to make (cid:13)
fair and consistent estimates of the realizable or recoverable amounts of (cid:13)
those assets and establish adequate reserves or allowances. Set forth below (cid:13)
is a summary of the accounting policies that we believe are material to an (cid:13)
understanding of our financial condition and results of operations that are (cid:13)
discussed below. (cid:13)
(cid:13)
Revenue Recognition and the Allowance for Returns. We record, as (cid:13)
deferred revenue, all prepaid grading submissions until the items are (cid:13)
graded and returned to the submitter. Upon shipment back to the customer, (cid:13)
we record the revenue from grading and deduct this amount from deferred (cid:13)
revenue. For dealers who have open account status, we record revenue at the (cid:13)
time of shipment. (cid:13)
(cid:13)
We record revenue from the sale of collectibles at our auctions at the time (cid:13)
the collectible is either shipped based on agreement with the customer or (cid:13)
delivered in-person to the successful bidder. Shipment or delivery (cid:13)
generally takes place after payment is received from the successful bidder, (cid:13)
which can be as long as 60 days after completion of the auction. As a (cid:13)
result, revenues from sales made at auctions conducted in the second half (cid:13)
of a fiscal quarter usually will not be recorded until the subsequent (cid:13)
quarter. However, for certain repeat bidders we ship or deliver in-person (cid:13)
the collectibles at the close of an auction and allow them to pay up to 60 (cid:13)
days following the auction. Those sales are also recorded at the time of (cid:13)
delivery or shipment. We also offer extended payment terms to certain (cid:13)
collectors or dealers. For collectibles that we own and sell at auction, we (cid:13)
record the successful bidder amount, or "hammer," as the sale of the (cid:13)
merchandise and record the buyer's fee as commission earned. We also record (cid:13)
the cost of the merchandise sold as cost of revenues. For collectibles that (cid:13)
are consigned to us for auction, we record, as commissions earned, the (cid:13)
amounts of the buyer's and seller's fees. Depending upon the type of (cid:13)
collectibles auction, we charge successful bidders a 10% to 15% commission (cid:13)
and generally charge consignors a 5% to 15% selling commission. On some (cid:13)
large or important consignments, we may negotiate a reduced consignor (cid:13)
commission or even pay a fee to the consignor. (cid:13)
We sometimes provide our customers with limited rights to return items (cid:13)
sold. (cid:13)
(cid:13)
15 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
We establish an allowance for estimated returns, which reduces the amounts (cid:13)
of our reported revenues, based on historical returns experience. (cid:13)
(cid:13)
Accounts Receivable and the Allowance for Doubtful Accounts. In the (cid:13)
normal course of business, we extend payment terms to larger, more (cid:13)
This document is compiled by Thomson Financial
23
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
creditworthy collectibles dealers. We regularly review their accounts and (cid:13)
estimate the amount of and establish an allowance for uncollectible amounts (cid:13)
in each reporting period. The amount of that allowance is based on several (cid:13)
factors, including the age of unpaid amounts, a review of significant past (cid:13)
due accounts, and economic conditions that may affect the ability of (cid:13)
dealers to keep their accounts current. Estimates of uncollectible amounts (cid:13)
are reviewed each period and, based on that review, and are revised to (cid:13)
reflect changed circumstances or conditions and those changes are recorded (cid:13)
in the period they become known. For example, if the financial condition of (cid:13)
certain dealers or economic conditions were to deteriorate, adversely (cid:13)
affecting the ability of those dealers to make payments on their accounts, (cid:13)
increases in the allowance may be required. Since the allowance is created (cid:13)
by recording a charge against income that is reflected in selling, general (cid:13)
and administrative expenses, an increase in the allowance will cause a (cid:13)
decline in our operating results in the period when the increase is (cid:13)
recorded. (cid:13)
(cid:13)
Inventory Valuation Reserve. Inventories are valued at the lower of cost (cid:13)
or market and are reduced by an inventory valuation allowance to provide (cid:13)
for declines in the value of our inventory, which consists of collectible (cid:13)
coins, sportscards and other collectibles. The amount of the allowance is (cid:13)
determined on the basis of historical experience, estimates concerning (cid:13)
future economic conditions and estimates of future sales. If there is an (cid:13)
economic downturn or a decline in sales, causing inventories of some (cid:13)
collectibles to accumulate, it may become necessary to increase the (cid:13)
allowance. Increases in this allowance will cause a decline in operating (cid:13)
results as such increases are effectuated by charges against income. (cid:13)
(cid:13)
Long-Lived Assets and Goodwill. Long-lived assets such as property and (cid:13)
equipment, and goodwill and intangible assets are reviewed for impairment (cid:13)
when events or circumstances indicate that the carrying value may not be (cid:13)
recoverable. Prior to and during the fiscal year ending June 30, 2002, (cid:13)
estimated undiscounted future cash flows were used to determine if an asset (cid:13)
was impaired and, if such a determination were made, the carrying value of (cid:13)
the asset would be reduced to fair value. Any resulting impairment would be (cid:13)
recorded as a charge against income in the period in which the impairment (cid:13)
was recorded. However, beginning with our 2003 fiscal year, we will be (cid:13)
required to assess our goodwill for impairment based on the new standard (cid:13)
established by Statement of Financial Accounting Standards (SFAS) No. 142, (cid:13)
Goodwill and Other Intangible Assets, which will require that assessment to (cid:13)
be made on the basis of the fair values of the assets of our reporting (cid:13)
units, as defined in SFAS No. 142, rather than on the basis of undiscounted (cid:13)
cash flows. We are in the process of performing the two-step transitional (cid:13)
goodwill impairment testing required under this new standard. Although we (cid:13)
will not be able to determine the full effect of SFAS No. 142 on our (cid:13)
results of operations until we are able to complete that impairment (cid:13)
analysis, it now appears that the new standard will require us, in the (cid:13)
first half of fiscal 2003, to record a substantial write down in our (cid:13)
goodwill, which totaled nearly $15 million at June 30, 2002. The amount of (cid:13)
that goodwill write down or "impairment" will result in a non-cash charge (cid:13)
that will be recorded on our income statement as a "cumulative effect of a (cid:13)
change in accounting principle" for the quarter in which the amount of the (cid:13)
write-off is determined. However, we do not expect that it will have an (cid:13)
adverse effect our business operations or cash flows. For additional (cid:13)
information regarding SFAS No. 142, see "Recent Accounting Pronouncements" (cid:13)
below in this Section of the Report and Note 2 to our Consolidated (cid:13)
Financial Statements, under the subcaption "Recent Accounting (cid:13)
Pronouncements" also included in this Report. (cid:13)
(cid:13)
Warranty Reserve (cid:13)
(cid:13)
The Company offers a warranty covering the coins and sportscards it (cid:13)
authenticates and grades. Under the terms of the warranty, any coin or (cid:13)
sportscard originally graded by us, which subsequently receives a lower (cid:13)
grade upon resubmittal to us, obligates us to either purchase the coin or (cid:13)
sportscard or pay the difference in value of the item at its original grade (cid:13)
This document is compiled by Thomson Financial
24
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
as compared with its lower grade. Similarly, any coin or sportscard (cid:13)
originally graded by us, which subsequently is determined to be not (cid:13)
authentic, obligates us to purchase the coin or sportscard. We accrue for (cid:13)
estimated warranty costs based on historical trends and related experience. (cid:13)
(cid:13)
Overview (cid:13)
(cid:13)
Our Business. (cid:13)
(cid:13)
Collectors Universe provides grading and authentication services for (cid:13)
sportscards, rare coins, vintage stamps and authentication services for (cid:13)
autographs and sports memorabilia. We also sell rare coins and rare (cid:13)
currencies, sportscards, sports and entertainment memorabilia and other (cid:13)
collectibles through auctions and direct sales channels. Most of our (cid:13)
collectibles auctions are conducted utilizing a "multi-venue" format that (cid:13)
may include in-person, Internet, mail-in, and telephone bidding options. (cid:13)
This multi- (cid:13)
(cid:13)
16 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
venue format allows bidders to enter auction bids at any time and from any (cid:13)
place in the manner that is most convenient for them. We also sell rare (cid:13)
coins, sportscards, sports memorabilia and autographs through shows, (cid:13)
catalogs, Internet and direct sales. During fiscal year 2000, we conducted (cid:13)
weekly Internet auctions of consigned and owned collectibles, but these (cid:13)
auctions were discontinued at the end of fiscal 2000. (cid:13)
(cid:13)
Revenue Recognition Policies. We record, as deferred revenue, all (cid:13)
prepaid grading submissions until the items are graded and returned to the (cid:13)
submitter. Upon shipment back to the customer, we record the revenue from (cid:13)
grading and deduct this amount from deferred revenue. For dealers who have (cid:13)
open account status, we record revenue at the time of shipment. (cid:13)
(cid:13)
We record revenue from the sale of collectibles at our auctions at the time (cid:13)
the collectible is either shipped based on agreement with the customer or (cid:13)
delivered in-person to the successful bidder. Shipment or delivery (cid:13)
generally takes place after payment is received from the successful bidder, (cid:13)
which can be as long as 60 days after completion of the auction. As a (cid:13)
result, revenues from sales made at auctions conducted in the second half (cid:13)
of a fiscal quarter usually will not be recorded until the subsequent (cid:13)
quarter. However, for certain repeat bidders we ship or deliver in-person (cid:13)
the collectibles at the close of an auction and allow them to pay up to 60 (cid:13)
days following the auction. Those sales are also recorded at the time of (cid:13)
delivery or shipment. We also offer extended payment terms to certain (cid:13)
collectors or dealers. For collectibles that we own and sell at auction, we (cid:13)
record the successful bidder amount, or "hammer," as the sale of the (cid:13)
merchandise and record the buyer's fee as commission earned. We also record (cid:13)
the cost of the merchandise sold as cost of revenues. For collectibles that (cid:13)
are consigned to us for auction, we record, as commissions earned, the (cid:13)
amounts of the buyer's and seller's fees. Depending upon the type of (cid:13)
collectibles auction, we charge successful bidders a 10% to 15% commission (cid:13)
and generally charge consignors a 5% to 15% selling commission. On some (cid:13)
large or important consignments, we may negotiate a reduced consignor (cid:13)
commission or even pay a fee to the consignor. (cid:13)
(cid:13)
Gross Profit Margins. The gross margin on sales of consigned (cid:13)
collectibles is significantly higher than the gross margin on sales of (cid:13)
owned collectibles because we realize commissions on sales of consigned (cid:13)
collectibles without having to incur any significant associated costs. By (cid:13)
contrast, upon the sale of owned collectibles, we record the costs of (cid:13)
acquiring those collectibles, which are usually a significant percentage of (cid:13)
the selling price. As a result, the sale of owned collectibles reduces our (cid:13)
overall auction margins to a level that is significantly below that (cid:13)
realized for authentication and grading services. Additionally, to a lesser (cid:13)
extent, the gross profit margins on grading submissions can be affected by (cid:13)
This document is compiled by Thomson Financial
25
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
the mix of submissions between vintage or "classic" coins and sportscards, (cid:13)
on the one hand, and modern coins and sportscards, on the other hand. (cid:13)
Generally, our prices for grading services vary depending on the (cid:13)
"turn-around" time requested by submitting dealers and collectors, who are (cid:13)
willing to pay more for faster turn-around of the coins and sportscards (cid:13)
they submit for grading. As a general rule, dealers and collectors request (cid:13)
faster turn-around for vintage or classic coins and sportscards than they (cid:13)
do for modern submissions. Consequently, our gross margin depends, not only (cid:13)
upon the mix of grading revenues and auction revenues, but also upon the (cid:13)
mix of consigned and owned collectibles sold at our auctions and the mix of (cid:13)
vintage and modern collectibles submitted for grading and authentication. (cid:13)
(cid:13)
Our auctions are held periodically throughout the fiscal year. The number, (cid:13)
scheduling and size of the auctions we conduct vary from quarter to (cid:13)
quarter, depending largely on the volume, value and timing of the (cid:13)
collectibles consignments that we receive for our auctions. For this (cid:13)
reason, our auction revenue can vary, sometimes significantly, from quarter (cid:13)
to quarter. Additionally, under our revenue recognition policies, we do not (cid:13)
recognize auction revenues until the items sold at an auction are either (cid:13)
shipped based on agreement with the customer or delivered in-person to the (cid:13)
winning bidders. Since those items generally are not shipped to the winning (cid:13)
bidders until payment is received from them, which can take up to 60 days (cid:13)
after completion of an auction, revenue generated from auctions conducted (cid:13)
near the end of a fiscal period often cannot be reported until the (cid:13)
succeeding fiscal period, which contributes to the period-to-period (cid:13)
variability in our auction revenues. These circumstances also make it (cid:13)
difficult to forecast, on a quarterly basis, revenue that will be (cid:13)
attributable to our auction business. (cid:13)
(cid:13)
Our cash flow is also affected by the number and timing of the auctions we (cid:13)
conduct. Generally, we pay consignors of collectibles to our auctions the (cid:13)
cash price at which their collectibles were sold, less (cid:13)
(cid:13)
17 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
the seller's commissions earned by us, approximately 45 days after (cid:13)
completion of the auction. However, most of the payments for those (cid:13)
collectibles from the winning bidders are not received until 60 days after (cid:13)
an auction is completed. As a result, we experience significant cash (cid:13)
outflows within the first 45 days, and cash inflows beginning 60 days, (cid:13)
following completion of a large auction. Therefore, the amount of cash that (cid:13)
we have at the end of any fiscal period can vary widely, depending on the (cid:13)
number and timing of the auctions conducted during that fiscal period. (cid:13)
(cid:13)
The Company generates substantially all of its revenues from the (cid:13)
collectibles market segment, which primarily relies on discretionary (cid:13)
consumer spending. During the last quarter of fiscal year 2001, which ended (cid:13)
on June 30, 2001, and during fiscal 2002, the Company experienced lower (cid:13)
revenues from grading submissions, sales of owned collectibles and fees (cid:13)
earned on the sale of consigned collectibles. We believe these lower (cid:13)
revenues reflect, at least in part, the impact of recent unfavorable (cid:13)
economic conditions on consumer spending. If these unfavorable economic (cid:13)
conditions persist, it is likely that they will adversely affect the (cid:13)
Company's operating results and financial condition in future periods, as (cid:13)
well. (cid:13)
(cid:13)
18 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
Results of Operations (cid:13)
(cid:13)
The following table sets forth, for the periods indicated, certain (cid:13)
financial data expressed as a percentage of net revenues: (cid:13)
(cid:13)
This document is compiled by Thomson Financial
26
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
(cid:13)
Fiscal Years Ended June 30, (cid:13)
------------------------------- (cid:13)
2002 2001 2000 (cid:13)
------ ------ ------ (cid:13)
Net revenues 100.0% 100.0% 100.0% (cid:13)
Cost of revenues 59.2% 58.4% 47.6% (cid:13)
------- ------- ------- (cid:13)
Gross profit 40.8% 41.6% 52.4% (cid:13)
Operating expenses: (cid:13)
Selling, general & (cid:13)
administrative 46.7% 38.1% 43.9% (cid:13)
Impairment of (cid:13)
goodwill 0.1% 1.8% (cid:13)
Amortization of (cid:13)
goodwill 3.7% 3.4% 2.6% (cid:13)
------- ------- ------- (cid:13)
Total operating (cid:13)
expenses 50.5% 43.3% 46.5% (cid:13)
Operating income (cid:13)
(loss) (9.7%) (1.7%) 5.9% (cid:13)
Interest income, (cid:13)
net 0.8% 1.6% 1.8% (cid:13)
Other, net 0.1% -- (0.4%) (cid:13)
------- ------- ------- (cid:13)
Income (loss) (cid:13)
before income taxes (8.8%) (0.1)% 7.3% (cid:13)
Provision (benefit) (cid:13)
for income taxes (3.2%) 1.1% 3.7% (cid:13)
------- ------- ------- (cid:13)
Net income (loss) (5.6%) (1.2%) 3.6% (cid:13)
------- ------- ------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Net Revenues. Net revenues decreased 15% to $44,781,000 in fiscal 2002 (cid:13)
from $52,384,000 in the prior year. Collectible sales revenues decreased (cid:13)
16% to $26,454,000 in fiscal 2002 from $31,422,000 in the prior fiscal (cid:13)
year, while grading and authentication revenues declined by 13% to (cid:13)
$18,327,000 in the current fiscal year from $20,962,000 in fiscal 2001. (cid:13)
Collectible sales revenue represented 59% and 60% of total revenues, while (cid:13)
grading and authentication revenue represented 41% and 40% of total (cid:13)
revenues, for fiscal 2002 and 2001, respectively. The 13% decrease in (cid:13)
grading and authentication revenues in fiscal 2002 occurred primarily (cid:13)
because of a 30% decrease in sportscard submissions. On the other hand, (cid:13)
coin grading submissions increased 47% in fiscal 2002 from fiscal 2001. (cid:13)
However, that increase in coin grading submissions only partially offset (cid:13)
the decline in revenues from sportscard grading submissions because the (cid:13)
average price for coin grading declined from the prior year. The reduction (cid:13)
in sportscard submissions in fiscal 2002 was caused by several factors, (cid:13)
including (i) reduced submissions by sportscard manufacturers for "bulk" (cid:13)
grading; and (ii) a reduction in resale prices of modern sportscards, which (cid:13)
reduced the economic incentive to have these cards graded and sold. In (cid:13)
addition, sportscard grading revenue was negatively impacted by a decline (cid:13)
in "vintage" sportscard submissions, which tend to use a higher priced (cid:13)
grading service rate because of the value of these sportscards. The decline (cid:13)
in the average price for coin grading in fiscal 2002 was primarily due to a (cid:13)
higher proportion of modern coin submittals versus vintage submittals. (cid:13)
Grading fees for modern coins are generally lower than grading fees for (cid:13)
vintage coins, and this causes the average selling price to decline. For (cid:13)
fiscal 2002, the average grading fee for coins declined approximately 15%. (cid:13)
(cid:13)
The 16% decrease in collectibles sales revenues in fiscal 2002 was due to (cid:13)
This document is compiled by Thomson Financial
27
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
several diverse factors, including (i) a continued decline, which began in (cid:13)
fiscal 2001, in the demand for sportscards that we sell at auctions and in (cid:13)
our direct sales channels, and (ii) a reduction in consignments by dealers (cid:13)
and collectors to our premium Bowers and Merena Coin Auctions and to our (cid:13)
Lyn Knight Currency Auctions which we believe was primarily due to concerns (cid:13)
about the prices that could be realized for their coins and currency due to (cid:13)
the economic recession. (cid:13)
(cid:13)
Net revenues increased 24% to $52,384,000 in fiscal 2001 from $42,374,000 (cid:13)
in the prior year. Collectible sales revenues increased 74% to $31,422,000 (cid:13)
in fiscal 2001 from $18,011,000 in the prior fiscal year; while grading and (cid:13)
authentication revenues declined by 14% to $20,962,000 in fiscal 2001 from (cid:13)
$24,363,000 in fiscal 2000. Collectible sales revenue represented 60% and (cid:13)
43% of total revenues, while grading and authentication revenue represented (cid:13)
40% and 57% of total revenues, for fiscal 2001 and 2000, (cid:13)
(cid:13)
19 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
respectively. The 14% decrease in grading and authentication revenues in (cid:13)
fiscal 2001 occurred primarily because of lower sportscard submissions and, (cid:13)
to a lesser extent, lower average grading fees for coin grading (cid:13)
submissions. The reduction in sportscard submissions in fiscal 2001 was (cid:13)
caused by several factors, including (i) reduced submissions by sportscard (cid:13)
manufacturers for "bulk" grading; (ii) the absence in fiscal 2001 of (cid:13)
submissions for grading of Pokemon cards, which were very popular in fiscal (cid:13)
2000; and (iii) a decline in resale prices of modern sportscards, which (cid:13)
reduced the economic incentive to have these cards graded and sold. In (cid:13)
addition, sportscard grading revenue was negatively impacted by a decline (cid:13)
in "vintage" sportscard submissions, which tend to use a higher priced (cid:13)
grading service rate because of the value of these sportscards. However, (cid:13)
because of the much lower submission rates for bulk grading, which are the (cid:13)
lowest cost grading service offered by the Company, the average grading fee (cid:13)
for sportscard submissions actually increased approximately 5% in fiscal (cid:13)
2001 over the prior fiscal year. The average price for coin grading (cid:13)
declined by approximately 6% in fiscal 2001 from the prior year primarily (cid:13)
because of a higher proportion of modern submittals versus vintage (cid:13)
submittals, as overall submission rates were stable. (cid:13)
(cid:13)
The 74% increase in collectibles sales revenues in fiscal 2001 was due to a (cid:13)
variety of factors, including (i) the fact that operating results in fiscal (cid:13)
2001 included a full year of the operations of Bowers and Merena, which we (cid:13)
acquired in March 2000, as compared to only about three months in fiscal (cid:13)
2000, which added approximately $10,000,000 of incremental net revenues in (cid:13)
fiscal 2001; (ii) our acquisitions of James Spence Autographs and Odyssey (cid:13)
Publications which added approximately $2,600,000 to our net revenues in (cid:13)
fiscal 2001; and (iii) increases in retail and auction sales of owned (cid:13)
collectibles in fiscal 2001. (cid:13)
(cid:13)
Gross Profit. Gross profit is calculated by subtracting the cost of (cid:13)
revenues from net revenues. Cost of revenues consist primarily of labor to (cid:13)
grade and authenticate coins and sportscards, production costs, printing, (cid:13)
credit cards fees, warranty expense and the cost of owned collectibles sold (cid:13)
in our auctions. Gross profit margin is gross profit stated as a percent of (cid:13)
net revenues. Our gross profit margin (gross profits as a percentage of (cid:13)
revenues) declined to 40.8% in fiscal 2002 from 41.6% in the prior fiscal (cid:13)
year. That decline was due primarily to (i) the decline in net sales which (cid:13)
affected gross profit margins because a significant portion of our costs of (cid:13)
sales are fixed and, therefore, cannot be reduced directly in proportion to (cid:13)
decreases in our revenues; and (ii) lower gross profit margins on grading (cid:13)
activities because we received a higher proportion of modern sportscards (cid:13)
for grading. As previously discussed, collectors and dealers submitting (cid:13)
modern sportscards generally elect lower cost grading services than with (cid:13)
respect to vintage sportscards (cid:13)
(cid:13)
Our gross profit margin declined to 41.6% in fiscal 2001 from 52.4% in the (cid:13)
This document is compiled by Thomson Financial
28
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
prior fiscal year. That decline was due primarily to (i) a change in the (cid:13)
mix of revenues to a higher proportion of collectible sales revenue and a (cid:13)
lower percentage of grading revenue on which we generally realize higher (cid:13)
margins than on sales of collectibles; (ii) provisions made to establish (cid:13)
bad debt and inventory valuation reserves and customer allowances in (cid:13)
response to weakening economic conditions; and (iii) increases in direct (cid:13)
labor costs associated with grading operations which were partially offset (cid:13)
by lower production and warranty expenses. (cid:13)
(cid:13)
Selling, General and Administrative. Selling, general and (cid:13)
administrative expenses (SG&A) primarily include wages and payroll-related (cid:13)
expenses, advertising and promotional expenses, travel-related expenses, (cid:13)
facility and security expenses, outside service charges and other general (cid:13)
administrative expenses. Overall, SG&A increased 5.0% in fiscal 2002 to (cid:13)
$20,911,000 from $19,954,000 the prior fiscal year. That increase was due (cid:13)
primarily to (i) costs of implementing the Company's new enterprise (cid:13)
computer management system, including integration of that system with the (cid:13)
Company's existing grading software, and (ii) costs associated with changes (cid:13)
in management and severance costs resulting from staff reductions that (cid:13)
occurred in fiscal 2002. As a percentage of total net revenue, SG&A (cid:13)
expenses increased to 47% in fiscal 2002 year from 38% in fiscal 2001, (cid:13)
primarily because revenues decreased 15%, while SG&A was increasing. (cid:13)
(cid:13)
Overall, SG&A increased 7% in fiscal 2001 to $19,954,000 from $18,614,000 (cid:13)
the prior fiscal year, due primarily to the inclusion in fiscal 2001 of the (cid:13)
operating expenses of the acquired businesses and, to a lesser extent, (cid:13)
increases in facility rent, salaries and marketing expenses, which were (cid:13)
significantly offset by a $2,800,000 reduction in expenses that resulted (cid:13)
from the discontinuation of our weekly Internet operations. However, as a (cid:13)
percent of total revenue, SG&A expenses decreased to 38% in the current (cid:13)
fiscal (cid:13)
(cid:13)
20 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
year from 44% in fiscal 2000, primarily because revenues increased at a (cid:13)
much greater rate, 24%, than did SG&A expenses. (cid:13)
(cid:13)
Goodwill Impairment. Periodically, we evaluate the recoverability of (cid:13)
goodwill and based upon our analysis at June 30, 2002, we determined that (cid:13)
the goodwill associated with Professional Stamp Experts ("PSE") was (cid:13)
partially impaired. This impairment resulted from a reduction in the (cid:13)
projected revenues of PSE over the next several years. Accordingly, we (cid:13)
incurred a goodwill impairment charge of $51,000 in fiscal 2002 to reduce (cid:13)
the carrying value of the PSE goodwill to $89,000. (cid:13)
(cid:13)
During fiscal 2001, we determined that the goodwill associated with our (cid:13)
acquisition in 1999 of Internet Universe, LLC, which conducted our Internet (cid:13)
operations, had become impaired. This determination resulted primarily from (cid:13)
a change in our projected revenue for Internet advertising on our website (cid:13)
www.collectors.com, due to industry-wide reductions in the viability of (cid:13)
banner advertising and the rates that could be charged for this type of (cid:13)
Internet advertising. Accordingly, we incurred a charge of $906,000 in (cid:13)
fiscal 2001 to reduce the carrying value of the Internet Universe, LLC (cid:13)
goodwill to zero. This impairment charge was reflected in our collectible (cid:13)
sales segment for the fiscal year ended June 30, 2001. (cid:13)
(cid:13)
Amortization of Goodwill and Intangibles. Amortization of goodwill and (cid:13)
intangibles consists of goodwill charges relating to acquisitions by the (cid:13)
Company and amortization charges for non-competition agreements that we (cid:13)
obtained from the sellers in those acquisitions. We amortize goodwill over (cid:13)
periods of 5 to 15 years and non-competition agreements over the respective (cid:13)
terms of those agreements, which range from 3 to five years. Amortization (cid:13)
expense for fiscal 2002 was $1,649,000 as compared to $1,798,000 for fiscal (cid:13)
2001. This decrease was due to the $906,000 goodwill write off in fiscal (cid:13)
2001 (discussed above), which reduced the amount of goodwill being (cid:13)
This document is compiled by Thomson Financial
29
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
amortized in fiscal 2002. (cid:13)
(cid:13)
Amortization expense for fiscal 2001 was $1,798,000 as compared to (cid:13)
$1,070,000 for fiscal 2000. This increase resulted from the acquisition of (cid:13)
Bowers and Merena and, to a lesser extent, the acquisition of Odyssey (cid:13)
Publications. Those increases were partially offset by a $148,000 reduction (cid:13)
in amortization expense attributable to the goodwill write-off in fiscal (cid:13)
2001, which occurred during the first half of that year. (cid:13)
(cid:13)
Interest Income. Interest income is generated on cash balances that we (cid:13)
invest primarily in a highly liquid money market account, short-term CDs (cid:13)
and commercial paper instruments. Interest income was $379,000 in fiscal (cid:13)
2002, compared with $855,000 in fiscal 2001 and $748,000 in fiscal 2000. (cid:13)
The decrease in interest income results primarily from reduced average (cid:13)
invested cash balances during 2002 as compared to 2001, which declined (cid:13)
primarily as a result of operating losses incurred during 2002. (cid:13)
(cid:13)
Income Taxes. A tax benefit of $1,435,000 was recorded for fiscal year (cid:13)
2002, reflecting the loss incurred for the year. For fiscal 2001, the (cid:13)
provision for income taxes was $593,000, despite a loss from operations (cid:13)
before income taxes. This provision for income taxes resulted from the (cid:13)
non-deductibility, for income tax purposes, of certain goodwill (cid:13)
amortization expenses and other permanent tax differences. For fiscal 2000, (cid:13)
income taxes were provided at 50.1%, which also reflects the statutory rate (cid:13)
of 40.8% for California C corporations and the non-deductibility, for tax (cid:13)
purposes, of certain goodwill amortization charges and other permanent tax (cid:13)
differences. (cid:13)
(cid:13)
For fiscal 2001, we recorded a provision for income taxes of $593,000, (cid:13)
despite a loss from operations before income taxes, due to the (cid:13)
non-deductibility, for income tax purposes, of certain goodwill (cid:13)
amortization expenses and other permanent tax differences. For fiscal 2000, (cid:13)
income taxes were provided at 50.1%, which also reflects the statutory rate (cid:13)
of 40.8% for California C corporations and the non-deductibility, for tax (cid:13)
purposes, of certain goodwill amortization charges and other permanent tax (cid:13)
differences. (cid:13)
(cid:13)
21 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
Quarterly Results of Operations and Seasonality (cid:13)
(cid:13)
The following table presents unaudited quarterly financial information for (cid:13)
each of the eight quarters beginning September 30, 2000 and ending on June (cid:13)
30, 2002. The information has been derived from our unaudited quarterly (cid:13)
financial statements, which have been prepared by us on a basis consistent (cid:13)
with our audited financial statements appearing elsewhere in this Form (cid:13)
10-K. The information includes all necessary adjustments, consisting only (cid:13)
of normal recurring adjustments, that management considers necessary for a (cid:13)
fair presentation of the unaudited quarterly results when read in (cid:13)
conjunction with the consolidated financial statements and the notes (cid:13)
thereto appearing elsewhere in this Form 10-K. These operating results are (cid:13)
not necessarily indicative of results that may be expected for any (cid:13)
subsequent periods. We expect our operating results to fluctuate in the (cid:13)
future due to a number of factors which are outside of our control. See (cid:13)
"Overview" above in this Section of this Report for a discussion of those (cid:13)
factors. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Fiscal Quarters Ended (cid:13)
------------------------------------------------------------------------ (cid:13)
Sept. Dec. Mar. June Sept. Dec. Mar. June (cid:13)
30, 31, 31, 30, 30, 31, 31, 30, (cid:13)
This document is compiled by Thomson Financial
30
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
2000 2000 2001 2001 2001 2001 2002 2002 (cid:13)
------- ------- ------- ------- ------- ------- ------- ------- (cid:13)
Net revenues $12,588 $12,112 $16,614 $11,070 $ 9,329 $10,615 $12,856 $11,981 (cid:13)
Cost of (cid:13)
revenues 6,913 7,094 9,432 7,165 5,917 6,254 8,036 6,310 (cid:13)
------- -------- ------- -------- -------- -------- -------- -------- (cid:13)
Gross profit 5,675 5,018 7,182 3,905 3,412 4,361 4,820 5,671 (cid:13)
SG&A 4,999 4,161 5,145 5,649 5,218 5,138 5,282 5,273 (cid:13)
Amortization (cid:13)
of goodwill 487 486 412 413 411 412 412 414 (cid:13)
Impairment (cid:13)
of goodwill -- 906 -- -- -- -- -- 51 (cid:13)
------- -------- ------- -------- -------- -------- -------- -------- (cid:13)
Total (cid:13)
operating (cid:13)
expenses 5,486 5,553 5,557 6,062 5,629 5,550 5,694 5,738 (cid:13)
Operating (cid:13)
income (cid:13)
(loss) 189 (535) 1,625 (2,157) (2,217) (1,189) (874) (67) (cid:13)
Interest (cid:13)
income, net 313 212 200 130 88 38 107 146 (cid:13)
Other income (cid:13)
(expense) -- (1) 1 (33) 8 7 4 4 (cid:13)
------- -------- ------- -------- -------- -------- -------- -------- (cid:13)
Income (cid:13)
(loss) (cid:13)
before (cid:13)
income taxes 502 (324) 1,826 (2,060) (2,121) (1,144) (763) 83 (cid:13)
Provision (cid:13)
(benefit) (cid:13)
for income (cid:13)
taxes 234 (129) 1,039 (551) (1,035) (43) (292) (65) (cid:13)
------- -------- ------- -------- -------- -------- -------- -------- (cid:13)
Net income (cid:13)
(Loss) $ 268 $ (195) $ 787 $(1,509) $(1,086) $(1,101) $ (471) $ 148 (cid:13)
------- -------- ------- -------- -------- -------- -------- -------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Liquidity and Capital Resources (cid:13)
(cid:13)
At June 30, 2002, we had cash and cash equivalents of $4,947,000 compared (cid:13)
to cash and cash equivalents of $5,874,000 at June 30, 2001. The decrease (cid:13)
in cash and cash equivalents since the end of the prior fiscal year (cid:13)
primarily resulted from the operating loss in fiscal 2002, partially offset (cid:13)
by reductions in accounts receivables and inventories. (cid:13)
(cid:13)
Because of the variability of the timing, the size and collectible content (cid:13)
of our auctions is an inherent feature of our business, we expect that our (cid:13)
cash and cash equivalent balances, and outstanding consignor payables, will (cid:13)
be subject to significant fluctuations in subsequent reporting periods. (cid:13)
(cid:13)
Cash provided by operating activities was $933,000 for fiscal 2002, (cid:13)
compared to cash used in operating activities of $5,511,000 in fiscal 2001. (cid:13)
In fiscal 2002, cash was provided by (i) a $734,000 reduction in accounts (cid:13)
receivable caused by enhanced credit management, (ii) a $1,480,000 (cid:13)
reduction in inventories caused by management's emphasis on increasing (cid:13)
inventory turns, and (iii) $2,574,000 of non-cash amortization expense (cid:13)
charged for the fiscal year. Partially offsetting these cash sources was a (cid:13)
net loss for the year of $2,510,000 and an increase in consignment advances (cid:13)
against a large auction held in the last few days of June 2002. (cid:13)
(cid:13)
The amount of cash used in operating activities in fiscal 2001, which (cid:13)
included $6,979,000 used to pay consignor payables, was largely (cid:13)
attributable to the timing of our collectible auctions. We conducted (cid:13)
This document is compiled by Thomson Financial
31
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
several large auctions at the end of fiscal 2000, which generated a (cid:13)
significant amount of payables due to the consignors whose collectibles (cid:13)
were sold at those auctions. Since amounts due collectibles consignors (cid:13)
(cid:13)
22 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
generally are paid 45 days after completion of an auction, those payables (cid:13)
were paid in the first quarter of fiscal 2001 although the auction activity (cid:13)
that generated those payables occurred in fiscal 2000. By contrast, the (cid:13)
open auctions at June 30, 2001 were not nearly as large as those at June (cid:13)
30, 2000, and accordingly the consignor payable liability significantly (cid:13)
decreased in fiscal 2002 as compared to fiscal 2001. (cid:13)
(cid:13)
Net cash used in investing activities was $1,927,000 in fiscal 2002, (cid:13)
compared to net cash used of $2,228,000 in fiscal 2001. We used $713,000 (cid:13)
for capital expenditures in fiscal 2002, primarily for computer software (cid:13)
and hardware. We also used net cash of $1,034,000 in the acquisition of (cid:13)
Collectible Properties, Inc. in April 2002. During fiscal 2001, we advanced (cid:13)
an officer of the Company $181,000. In the prior fiscal year, we used (cid:13)
$1,050,000 for capital expenditures, primarily related to leasehold (cid:13)
improvements for the new corporate offices and net cash of $814,000 in the (cid:13)
acquisition of Odyssey Publications. (cid:13)
(cid:13)
During fiscal 2002, there was a cash inflow of $67,000 from financing (cid:13)
activities. This cash inflow was primarily from the exercise of stock (cid:13)
options. In the prior fiscal year, net cash of $967,000 was used in (cid:13)
financing activities for the purchase of 500,000 shares of our common stock (cid:13)
in an open market and private stock repurchase program approved by the (cid:13)
Board of Directors. (cid:13)
(cid:13)
We believe that our existing cash balances and internally-generated funds, (cid:13)
in addition to a $1.5 million bank line of credit obtained in November (cid:13)
2001, will be sufficient to finance our operations and financing (cid:13)
requirements, and we do not expect any material changes in the sources of (cid:13)
cash to fund our operations during the next twelve months. We anticipate (cid:13)
that during fiscal 2003, we will be making capital expenditures of less (cid:13)
than $100,000. (cid:13)
(cid:13)
Borrowings under the $1.5 million line of credit are subject to certain (cid:13)
borrowing base limitations, bear interest at the prime rate (4.75% at June (cid:13)
30, 2002) plus 1%, and are due on demand. At September 27, 2002, there were (cid:13)
no outstanding borrowings under the line of credit. (cid:13)
(cid:13)
Our capital requirements during the next twelve months could change as a (cid:13)
result of any of a number of factors, including the level of sales that we (cid:13)
are able to generate during fiscal 2003, which will depend both on the size (cid:13)
of and the value of the collectibles we are able to sell at our auctions, (cid:13)
and on grading submission rates and our growth rates. In addition, as part (cid:13)
of our business strategy, we will continue to seek out opportunities to (cid:13)
expand our business, both through internal growth and by acquisition, which (cid:13)
could require significant cash expenditures. Depending upon these and other (cid:13)
factors, we may require additional financing in the future through equity (cid:13)
or debt offerings, which may or may not be available or may be dilutive to (cid:13)
our shareholders. Our ability to obtain additional capital will depend upon (cid:13)
our operating results, financial condition, future business prospects and (cid:13)
conditions then prevailing in the relevant capital markets. (cid:13)
(cid:13)
Recent Accounting Pronouncements (cid:13)
(cid:13)
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS (cid:13)
No. 133, Accounting for Derivative Instruments and Hedging Activities. The (cid:13)
Company adopted SFAS No. 133 effective for the first quarter of its fiscal (cid:13)
year beginning July 1, 2000. SFAS No. 133 requires that the Company record (cid:13)
all derivatives on the balance sheet at fair value. The Company does not (cid:13)
have any derivative instruments nor does the Company engage in hedging (cid:13)
This document is compiled by Thomson Financial
32
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
activities. Therefore, the adoption of SFAS No. 133 had no impact on the (cid:13)
Company's financial statements. (cid:13)
(cid:13)
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS (cid:13)
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the (cid:13)
use of the purchase method of accounting and prohibits the use of the (cid:13)
pooling-of-interests method of accounting for business combinations (cid:13)
initiated after June 30, 2001. SFAS No. 141 also requires that the Company (cid:13)
recognize acquired intangible assets, apart from goodwill, if the acquired (cid:13)
intangible assets meet certain criteria. SFAS No. 141 applies to all (cid:13)
business combinations initiated after June 30, 2001 and for purchase (cid:13)
business combinations completed on or after July 1, 2001. The Company (cid:13)
accounted for the acquisition of (cid:13)
(cid:13)
23 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
Collectible Properties, Inc. which was consummated subsequent to June 30, (cid:13)
2001, in accordance with SFAS No. 141. (cid:13)
(cid:13)
SFAS No. 142 requires, among other things, that companies no longer (cid:13)
amortize goodwill, but instead test goodwill for impairment at least (cid:13)
annually. In addition, SFAS No. 142 requires that the Company identify (cid:13)
reporting units for the purposes of assessing potential future impairments (cid:13)
of goodwill, reassess the useful lives of other existing recognized (cid:13)
intangible assets, and cease amortization of intangible assets with an (cid:13)
indefinite useful life. An intangible asset with an indefinite useful life (cid:13)
should be tested for impairment in accordance with the guidance in SFAS No. (cid:13)
142. SFAS No. 142 is required to be applied in fiscal years beginning after (cid:13)
December 15, 2001 to all goodwill and other intangible assets recognized at (cid:13)
that date, regardless of when those assets were initially recognized. SFAS (cid:13)
No. 142 was adopted by the Company effective as of July 1, 2002 and will (cid:13)
require the Company to complete a transitional goodwill impairment test by (cid:13)
no later than December 31, 2002. The Company is also required to reassess (cid:13)
the useful lives of other intangible assets within the first interim (cid:13)
quarter after adoption of SFAS No. 142. (cid:13)
(cid:13)
In accordance with the transition provisions of SFAS No. 142, the Company (cid:13)
did not amortize goodwill arising from the acquisition of Collectible (cid:13)
Properties in fiscal 2002. The Company's previous business combinations (cid:13)
were accounted for using the purchase method. Due to our adoption of SFAS (cid:13)
No. 142, we will no longer amortize our other goodwill balances arising (cid:13)
from acquisitions consummated prior to July 1, 2001. (Such amortization (cid:13)
expenses amounted to $1,649,000 in 2002.) The Company is in the process of (cid:13)
performing the two-step transitional goodwill impairment testing required (cid:13)
under the new standard. Based on the analysis for the first step testing (cid:13)
performed to date, the Company anticipates an impairment of a substantial (cid:13)
amount of its goodwill under the new standard in fiscal year 2003. The (cid:13)
impairment will result in a non-cash charge that will be recorded on our (cid:13)
income statement as a "cumulative effect of a change in accounting (cid:13)
principle" for the fiscal quarter when the amount of that impairment is (cid:13)
determined. (cid:13)
(cid:13)
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment (cid:13)
or Disposal of Long-Lived Assets, which supercedes previous guidance on (cid:13)
financial accounting and reporting for the impairment of disposal of (cid:13)
long-lived assets and for segments of a business to be disposed of. SFAS (cid:13)
No. 144 is effective for fiscal years beginning after December 15, 2001. (cid:13)
The Company does not expect the adoption of SFAS No. 144 to have a (cid:13)
significant impact on the Company's financial position or results of (cid:13)
operations. (cid:13)
(cid:13)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated (cid:13)
with Exit or Disposal Activities. SFAS No. 146 addresses significant issues (cid:13)
regarding the recognition, measurement, and reporting of costs associated (cid:13)
with exit and disposal activities, including restructuring activities. SFAS (cid:13)
This document is compiled by Thomson Financial
33
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
No. 146 also addresses recognition of certain costs related to terminating (cid:13)
a contract that is not a capital lease, costs to consolidate facilities or (cid:13)
relocate employees, and termination benefits provided to employees that are (cid:13)
involuntarily terminated under the terms of a one-time benefit arrangement (cid:13)
that is not an ongoing benefit arrangement or an individual (cid:13)
deferred-compensation contract. SFAS No. 146 is effective for exit or (cid:13)
disposal activities that are initiated after December 31, 2002. Management (cid:13)
believes that the adoption of SFAS No. 146 will not have a material impact (cid:13)
on the Company's consolidated financial statements. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (cid:13)
(cid:13)
(cid:13)
(cid:13)
Market risk represents the risk of loss that may impact the financial (cid:13)
position, results of operations or cash flows of the Company due to adverse (cid:13)
changes in financial market prices, including interest rate risk, foreign (cid:13)
currency exchange rate risk, commodity price risk and other relevant market (cid:13)
rate or price risks. (cid:13)
(cid:13)
The Company is exposed to a degree of market risk through changes in (cid:13)
short-term interest rates. At June 30, 2002, we had approximately (cid:13)
$4,947,000 in cash and cash equivalents. These funds are primarily invested (cid:13)
in a highly liquid money market fund, and interest earned is re-invested in (cid:13)
the same fund. The Company is exposed to the risk of declining short-term (cid:13)
interest rates, but we do not consider this risk to be material. (cid:13)
(cid:13)
24 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
We have no activities that would expose it to foreign currency exchange (cid:13)
rate risks or commodity price risks. (cid:13)
(cid:13)
FORWARD-LOOKING STATEMENTS (cid:13)
(cid:13)
This Report, including "Management's Discussion and Analysis of Financial (cid:13)
Condition and Results of Operations" contains "forward-looking statements" (cid:13)
as defined in the Private Securities Litigation Reform Act of 1995. (cid:13)
Forward-looking statements are estimates of, or statements about our (cid:13)
expectations or beliefs regarding, our future financial performance that (cid:13)
are based on current information and that are subject to a number of risks (cid:13)
and uncertainties that could cause our actual operating results in the (cid:13)
future to differ significantly from those expected at the current time, (cid:13)
including the risks and uncertainties described in Part I of this Report (cid:13)
under the caption "Item I--Description of Business--Certain Factors That (cid:13)
Could Affect Our Future Financial Performance" and in "Management's (cid:13)
Discussion and Analysis of Financial Condition and Results of Operations" (cid:13)
above. (cid:13)
(cid:13)
Due to these and other possible uncertainties and risks, readers are (cid:13)
cautioned not to place undue reliance on the forward-looking statements (cid:13)
contained in this Report, which speak only as of the date of this Report, (cid:13)
or to make predictions based solely on historical financial performance. We (cid:13)
also disclaim any obligation to update forward-looking statements contained (cid:13)
in this Report (cid:13)
(cid:13)
25 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (cid:13)
This document is compiled by Thomson Financial
34
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
Index to Consolidated Financial Statements (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Page (cid:13)
----------------------------- (cid:13)
Independent Auditors' Report 27 (cid:13)
Consolidated Balance Sheets at June 30, 2002 (cid:13)
and 2001 28 (cid:13)
Consolidated Statements of Operations for (cid:13)
the Years Ended June 30, 2002, 2001 and 2000 29 (cid:13)
Consolidated Statements of Stockholders' (cid:13)
Equity for the Years Ended June 30, 2002, (cid:13)
2001 and 2000 30 (cid:13)
Consolidated Statements of Cash Flows for (cid:13)
the Years Ended June 30, 2002, 2001 and 2000 31 (cid:13)
Notes to Consolidated Financial Statements (cid:13)
for the Years Ended June 30, 2002, 2001 and (cid:13)
2000 33 (cid:13)
(cid:13)
(cid:13)
26 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
INDEPENDENT AUDITORS' REPORT (cid:13)
(cid:13)
To the Stockholders and Board of Directors of (cid:13)
Collectors Universe, Inc. (cid:13)
(cid:13)
We have audited the accompanying consolidated balance sheets of Collectors (cid:13)
Universe, Inc. and subsidiaries (the Company) as of June 30, 2002 and 2001, (cid:13)
and the related consolidated statements of operations, stockholders' (cid:13)
equity, and cash flows for each of the three years in the period ended June (cid:13)
30, 2002. Our audits also included the financial statement schedule listed (cid:13)
in the index at Item 15(A) (2). These financial statements and the (cid:13)
financial statement schedule are the responsibility of the Company's (cid:13)
management. Our responsibility is to express an opinion on these financial (cid:13)
statements and the financial statement schedule based on our audits. (cid:13)
(cid:13)
We conducted our audits in accordance with auditing standards generally (cid:13)
accepted in the United States of America. Those standards require that we (cid:13)
plan and perform the audit to obtain reasonable assurance about whether the (cid:13)
financial statements are free of material misstatement. An audit includes (cid:13)
examining, on a test basis, evidence supporting the amounts and disclosures (cid:13)
in the financial statements. An audit also includes assessing the (cid:13)
accounting principles used and significant estimates made by management, as (cid:13)
well as evaluating the overall financial statement presentation. We believe (cid:13)
that our audits provide a reasonable basis for our opinion. (cid:13)
(cid:13)
In our opinion, such consolidated financial statements present fairly, in (cid:13)
all material respects, the financial position of Collectors Universe, Inc. (cid:13)
and subsidiaries as of June 30, 2002 and 2001, and the results of their (cid:13)
operations and their cash flows for each of the three years in the period (cid:13)
ended June 30, 2002, in conformity with accounting principles generally (cid:13)
accepted in the United States of America. Also, in our opinion, such (cid:13)
financial statement schedule, when considered in relation to the basic (cid:13)
consolidated financial statements taken as a whole, presents fairly in all (cid:13)
material respects the information set forth therein. (cid:13)
(cid:13)
(cid:13)
DELOITTE & TOUCHE LLP (cid:13)
(cid:13)
Costa Mesa, California (cid:13)
This document is compiled by Thomson Financial
35
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
August 26, 2002, except for paragraph 5 of Note 12, (cid:13)
as to which the date is September 10, 2002 (cid:13)
(cid:13)
(cid:13)
27 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
CONSOLIDATED BALANCE SHEETS (cid:13)
(in thousands, except per share data) (cid:13)
(cid:13)
Assets (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
June 30, (cid:13)
------------------------------- (cid:13)
2002 2001 (cid:13)
--------------- ------------ (cid:13)
ASSETS (cid:13)
Current assets: (cid:13)
Cash and cash equivalents $ 4,947 $ 5,874 (cid:13)
Accounts receivable, net 7,291 8,162 (cid:13)
Auction consignment advances 3,359 1,897 (cid:13)
Inventories, net 8,166 9,088 (cid:13)
Prepaid expenses and other 513 823 (cid:13)
Notes receivable 481 -- (cid:13)
Note receivable from related (cid:13)
party 381 200 (cid:13)
Refundable income taxes 1,191 892 (cid:13)
Deferred income taxes 648 645 (cid:13)
---------------- ------------- (cid:13)
Total current assets 26,597 27,581 (cid:13)
Property and equipment, net 1,736 1,898 (cid:13)
Notes receivable, net of current (cid:13)
portion 476 -- (cid:13)
Goodwill, net 14,961 16,146 (cid:13)
Deferred income taxes 1,074 803 (cid:13)
Other assets 285 440 (cid:13)
---------------- ------------- (cid:13)
$ 45,509 $ 46,868 (cid:13)
---------------- ------------- (cid:13)
LIABILITIES AND STOCKHOLDERS' (cid:13)
EQUITY (cid:13)
Current liabilities: (cid:13)
Accounts payable $ 878 $ 452 (cid:13)
Consignor payable 4,598 4,265 (cid:13)
Accrued liabilities 736 917 (cid:13)
Compensation and benefits 967 650 (cid:13)
Deferred revenue 921 812 (cid:13)
---------------- ------------- (cid:13)
Total current liabilities 8,100 7,096 (cid:13)
Deferred rent 281 222 (cid:13)
Commitments and contingencies (cid:13)
(Note 13) (cid:13)
Stockholders' equity: (cid:13)
Preferred stock, $.001 par value; (cid:13)
3,000 shares authorized; no (cid:13)
shares issued or outstanding -- -- (cid:13)
Common stock, $.001 par value; (cid:13)
30,000 shares authorized; (issued (cid:13)
and outstanding shares: 25,526 in (cid:13)
2002 and 25,470 in 2001) 26 26 (cid:13)
Additional paid-in capital 41,248 41,160 (cid:13)
This document is compiled by Thomson Financial
36
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Accumulated deficit (3,125) (615) (cid:13)
Treasury stock, at cost (500 (cid:13)
shares) (1,021) (1,021) (cid:13)
---------------- ------------- (cid:13)
Total stockholders' equity 37,128 39,550 (cid:13)
---------------- ------------- (cid:13)
$ 45,509 $ 46,868 (cid:13)
---------------- ------------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
The accompanying notes are an integral part of these consolidated financial (cid:13)
statements. (cid:13)
(cid:13)
28 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
CONSOLIDATED STATEMENTS OF OPERATIONS (cid:13)
(in thousands, except per share data) (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Years Ended June 30, (cid:13)
--------------------------------------- (cid:13)
2002 2001 2000 (cid:13)
----------- ---------- --------- (cid:13)
Net revenues (cid:13)
Grading and authentication (cid:13)
fees $ 18,327 $ 20,962 $ 24,363 (cid:13)
Sales of collectibles and (cid:13)
other 21,579 25,181 12,974 (cid:13)
Commissions earned 4,875 6,241 5,037 (cid:13)
------------ ----------- ---------- (cid:13)
Total net revenues 44,781 52,384 42,374 (cid:13)
(cid:13)
Cost of revenues (cid:13)
Grading and authentication (cid:13)
operating expenses 7,036 7,820 6,855 (cid:13)
Cost of auctions and (cid:13)
collectibles sold 19,481 22,784 13,330 (cid:13)
------------ ----------- ---------- (cid:13)
Total costs of revenues 26,517 30,604 20,185 (cid:13)
(cid:13)
Gross profit 18,264 21,780 22,189 (cid:13)
(cid:13)
Selling, general and (cid:13)
administrative expenses 20,911 19,954 18,614 (cid:13)
Amortization of goodwill 1,649 1,798 1,070 (cid:13)
Impairment of goodwill 51 906 -- (cid:13)
------------ ----------- ---------- (cid:13)
Total operating expenses 22,611 22,658 19,684 (cid:13)
(cid:13)
Operating income (loss) (4,347) (878) 2,505 (cid:13)
(cid:13)
Interest income, net 379 855 748 (cid:13)
Other income (expense), net 23 (33) (161) (cid:13)
------------ ----------- ---------- (cid:13)
Income (loss) before income (cid:13)
taxes (3,945) (56) 3,092 (cid:13)
(cid:13)
Provision (benefit) for (cid:13)
income taxes (1,435) 593 1,550 (cid:13)
This document is compiled by Thomson Financial
37
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
------------ ----------- ---------- (cid:13)
Net income (loss) ($ 2,510) $ (649) $ 1,542 (cid:13)
------------ ----------- ---------- (cid:13)
(cid:13)
Net income (loss) per (cid:13)
share: (cid:13)
Basic ($ 0.10) $ (0.03) $ 0.07 (cid:13)
------------ ----------- ---------- (cid:13)
Diluted ($ 0.10) $ (0.03) $ 0.06 (cid:13)
------------ ----------- ---------- (cid:13)
(cid:13)
Weighted average shares (cid:13)
outstanding: (cid:13)
Basic 25,389 25,114 23,330 (cid:13)
------------ ----------- ---------- (cid:13)
Diluted 25,389 25,114 24,575 (cid:13)
------------ ----------- ---------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
The accompanying notes are an integral part of these consolidated financial (cid:13)
statements. (cid:13)
(cid:13)
29 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (cid:13)
(in thousands) (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Retained (cid:13)
Common Stock Additional Earnings Treasury Stock (cid:13)
-------------- ---------------- (cid:13)
Paid-in (Accumulated (cid:13)
Shares Amount Capital Deficit) Shares Amount Total (cid:13)
------ ------ ---------- ------------- ------ ------- ------- (cid:13)
Balance at (cid:13)
July 1, 1999 20,282 $ 20 $ 11,586 $ (1,508) -- $ -- $10,098 (cid:13)
(cid:13)
Issuance of (cid:13)
common stock (cid:13)
in public (cid:13)
offering 4,000 4 21,351 -- -- -- 21,355 (cid:13)
Issuance of (cid:13)
shares in (cid:13)
acquisition 1,000 1 7,624 -- -- -- 7,625 (cid:13)
Exercise of (cid:13)
stock (cid:13)
options 147 -- 323 -- -- -- 323 (cid:13)
Tax benefit (cid:13)
of stock (cid:13)
option (cid:13)
exercise -- -- 111 -- -- -- 111 (cid:13)
Compensation (cid:13)
expense (cid:13)
related to (cid:13)
stock (cid:13)
options (cid:13)
granted -- -- 61 -- -- -- 61 (cid:13)
Net income -- -- -- 1,542 -- -- 1,542 (cid:13)
------ ------ ---------- -------------- ------- -------- -------- (cid:13)
This document is compiled by Thomson Financial
38
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Balance at (cid:13)
June 30, (cid:13)
2000 25,429 25 41,056 34 -- -- 41,115 (cid:13)
(cid:13)
Repurchase (cid:13)
of common (cid:13)
stock -- -- -- -- (500) (1,021) (1,021) (cid:13)
Employee (cid:13)
stock (cid:13)
purchase (cid:13)
plan 41 1 53 -- -- -- 54 (cid:13)
Compensation (cid:13)
expense (cid:13)
related to (cid:13)
stock (cid:13)
options (cid:13)
granted -- -- 51 -- -- -- 51 (cid:13)
Net loss -- -- -- (649) -- -- (649) (cid:13)
------ ------ ---------- -------------- ------- -------- -------- (cid:13)
Balance at (cid:13)
June 30, (cid:13)
2001 25,470 26 41,160 (615) (500) (1,021) 39,550 (cid:13)
(cid:13)
Employee (cid:13)
stock (cid:13)
purchase (cid:13)
plan 41 -- 55 -- -- -- 55 (cid:13)
Exercise of (cid:13)
stock (cid:13)
options 15 -- 12 -- -- -- 12 (cid:13)
Compensation (cid:13)
expense (cid:13)
related to (cid:13)
stock (cid:13)
options (cid:13)
granted -- -- 21 -- -- -- 21 (cid:13)
Net loss -- -- -- (2,510) -- -- (2,510) (cid:13)
------ ------ ---------- -------------- ------- -------- -------- (cid:13)
25,526 $ 26 $ 41,248 $ (3,125) (500) $(1,021) $37,128 (cid:13)
(cid:13)
(cid:13)
(cid:13)
The accompanying notes are in integral part of these consolidated financial (cid:13)
statements. (cid:13)
(cid:13)
30 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
COLLECTORS UNIVERSE, INC. (cid:13)
(cid:13)
CONSOLIDATED STATEMENTS OF CASH FLOWS (cid:13)
(in thousands) (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Years ended June 30, (cid:13)
---------------------------------------- (cid:13)
2002 2001 2000 (cid:13)
---------- ---------- ----------- (cid:13)
CASH FLOWS FROM OPERATING (cid:13)
ACTIVITIES: (cid:13)
Net income (loss) $ (2,510) $ (649) $ 1,542 (cid:13)
Adjustments to reconcile (cid:13)
net income (loss) to net -- -- -- (cid:13)
This document is compiled by Thomson Financial
39
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Cash provided from (cid:13)
operating activities: (cid:13)
Depreciation and (cid:13)
amortization 2,523 2,552 1,689 (cid:13)
Impairment of goodwill 51 906 -- (cid:13)
Stock-based compensation (cid:13)
expense 21 51 61 (cid:13)
Provision for bad debts 137 502 182 (cid:13)
Provision for inventory (cid:13)
write-down 31 234 17 (cid:13)
Write-off and forgiveness (cid:13)
of note receivable from (cid:13)
related party -- -- 26 (cid:13)
Write-down of property and (cid:13)
equipment -- 34 -- (cid:13)
Deferred income taxes (274) (437) (156) (cid:13)
Changes in operating assets (cid:13)
and liabilities (net of (cid:13)
effects of acquisitions): (cid:13)
Accounts receivable 734 1,493 (7,981) (cid:13)
Auction consignment (cid:13)
advances (1,462) (204) (453) (cid:13)
Inventories 1,480 (1,907) (1,154) (cid:13)
Prepaid expenses and other 310 366 (597) (cid:13)
Notes receivable (957) -- -- (cid:13)
Refundable income taxes (299) (504) (388) (cid:13)
Other assets 85 (81) (260) (cid:13)
Accounts payable 426 (40) (526) (cid:13)
Consignor payable 333 (6,979) 9,825 (cid:13)
Accrued liabilities (181) (207) 227 (cid:13)
Accrued compensation and (cid:13)
benefits 317 110 16 (cid:13)
Deferred revenue 109 (973) 108 (cid:13)
Income tax payable -- -- (16) (cid:13)
Deferred rent 59 222 -- (cid:13)
----------- ----------- ------------ (cid:13)
Net cash provided by (used (cid:13)
in) operating activities 933 (5,511) 2,162 (cid:13)
(cid:13)
CASH FLOWS FROM INVESTING (cid:13)
ACTIVITIES: (cid:13)
Proceeds from sale of (cid:13)
property and equipment 1 -- -- (cid:13)
Capital expenditures (713) (1,050) (915) (cid:13)
Net cash paid for acquired (cid:13)
businesses (1,034) (814) (10,308) (cid:13)
Advances on notes (cid:13)
receivable from related (cid:13)
parties, net (181) (364) -- (cid:13)
----------- ----------- ------------ (cid:13)
Net cash used in investing (cid:13)
activities (1,927) (2,228) (11,223) (cid:13)
(cid:13)
(cid:13)
(cid:13)
The accompanying notes are an integral part of these consolidated financial (cid:13)
statements. (cid:13)
(cid:13)
31 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
COLLECTORS UNIVERSE, INC. (cid:13)
(cid:13)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (cid:13)
(in thousands) (cid:13)
This document is compiled by Thomson Financial
40
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Years ended June 30, (cid:13)
---------------------------------------- (cid:13)
2002 2001 2000 (cid:13)
---------- ---------- ----------- (cid:13)
CASH FLOWS FROM FINANCING (cid:13)
ACTIVITIES: (cid:13)
Purchase of common stock -- (1,021) -- (cid:13)
Proceeds from sale of (cid:13)
common stock -- -- 21,355 (cid:13)
Proceeds from employee (cid:13)
stock purchase plan 55 54 -- (cid:13)
Stock option exercise and (cid:13)
related tax benefit 12 -- 434 (cid:13)
----------- ----------- ------------ (cid:13)
Net cash provided by (used (cid:13)
in) financing activities 67 (967) 21,789 (cid:13)
(cid:13)
Net increase (decrease) in (cid:13)
cash and cash equivalents (927) (8,706) 12,728 (cid:13)
Cash and cash equivalents (cid:13)
at beginning of year 5,874 14,580 1,852 (cid:13)
----------- ----------- ------------ (cid:13)
Cash and cash equivalents (cid:13)
at end of year $ 4,947 $ 5,874 $ 14,580 (cid:13)
----------- ----------- ------------ (cid:13)
(cid:13)
SUPPLEMENTAL DISCLOSURES OF (cid:13)
CASH FLOW INFORMATION: (cid:13)
Income taxes paid $ 9 $ 1,713 $ 2,018 (cid:13)
Interest paid 36 -- -- (cid:13)
(cid:13)
SUPPLEMENTAL SCHEDULE OF (cid:13)
NONCASH TRANSACTIONS: (cid:13)
During the years ended June (cid:13)
30, 2002, 2001 and 2000, (cid:13)
the Company acquired (cid:13)
certain businesses, as (cid:13)
follows (Note 3): (cid:13)
Common stock issued in (cid:13)
acquisitions $ -- $ -- $ (7,625) (cid:13)
Fair value of assets (cid:13)
acquired 589 25 4,583 (cid:13)
Goodwill 445 857 13,391 (cid:13)
Cash paid in acquisitions, (cid:13)
net of cash acquired (1,034) (814) (10,308) (cid:13)
----------- ----------- ------------ (cid:13)
Liabilities assumed $ -- $ 68 $ 41 (cid:13)
----------- ----------- ------------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
The accompanying notes are an integral part of these consolidated financial (cid:13)
statements. (cid:13)
(cid:13)
32 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cid:13)
This document is compiled by Thomson Financial
41
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
1. Company Organization and Nature Of Business (cid:13)
(cid:13)
Organization (cid:13)
(cid:13)
Collectors Universe, Inc. (We or the Company) is a Delaware corporation (cid:13)
that was organized on February 5, 1999 for the purpose of enabling (cid:13)
Professional Coin Grading Service, Inc. (PCGS or the Predecessor) to (cid:13)
acquire other businesses that, like PCGS, would provide services to the (cid:13)
collectibles markets. On February 5, 1999, Collectors Universe issued (cid:13)
17,311 shares of common stock in exchange for all of the outstanding shares (cid:13)
of PCGS. As a result of that exchange, the former stockholders of PCGS (cid:13)
become stockholders of Collectors Universe, with each of them receiving a (cid:13)
number of our shares based on his or her percentage ownership of the shares (cid:13)
of PCGS. Prior to this exchange, Collectors Universe had no operating (cid:13)
assets or liabilities and had not yet conducted any operations. The assets (cid:13)
and liabilities acquired were recorded at the predecessor basis as the (cid:13)
transaction represented a transfer of assets and liabilities between (cid:13)
entities under common control. (cid:13)
(cid:13)
Concurrently, with the exchange transaction with PCGS, Collectors Universe (cid:13)
acquired the assets of the auction businesses of Lyn F. Knight Rare Coins, (cid:13)
Inc. (Lyn Knight) and Kingswood Coin Auctions, LLC (Kingswood) and the (cid:13)
minority ownership interests in Superior Sportscard Auctions, LLC (cid:13)
(Superior) and Internet Universe, LLC (IU), both of which were (cid:13)
majority-owned subsidiaries of PCGS at the time these acquisitions were (cid:13)
consummated. (cid:13)
(cid:13)
Nature of the Business (cid:13)
(cid:13)
We are a collectibles company engaged in the grading, auctioning, selling (cid:13)
and content information for high-end collectibles. We provide (cid:13)
authentication and grading services for sportscards, rare coins, stamps and (cid:13)
authentication-only services for sports memorabilia and autographs. We (cid:13)
conduct in-person, telephone and Internet auctions of rare coins and (cid:13)
currency, sportscards and sports memorabilia, rare records and (cid:13)
entertainment memorabilia. We sell rare coins, sportscards, sports and (cid:13)
entertainment memorabilia, historical documents and records on a direct (cid:13)
basis and through catalogs and the Internet. We also publish magazines that (cid:13)
provide market prices and information for certain collectibles. (cid:13)
(cid:13)
Basis of Presentation (cid:13)
(cid:13)
The accompanying consolidated financial statements have been prepared in (cid:13)
accordance with accounting principles generally accepted in the United (cid:13)
States of America. (cid:13)
(cid:13)
2. Summary of Significant Accounting Policies (cid:13)
(cid:13)
Principles of Consolidation (cid:13)
(cid:13)
The accompanying consolidated financial statements include the accounts of (cid:13)
Collectors Universe, Inc. and its subsidiaries. During the years ended June (cid:13)
30, 2002, 2001, and 2000, the Company acquired certain assets of other (cid:13)
businesses and consolidated their accounts from the dates of acquisition (cid:13)
(Note 3). All intercompany accounts have been eliminated in consolidation. (cid:13)
(cid:13)
Fiscal Year (cid:13)
(cid:13)
The Company's fiscal year ends on the Saturday closest to June 30th. (cid:13)
Accordingly, the last three fiscal years ended on June 29, 2002, June 30, (cid:13)
2001 and July 1, 2000. For clarity of presentation, all fiscal years are (cid:13)
reported as ending on June 30th. (cid:13)
(cid:13)
Use of Estimates (cid:13)
(cid:13)
This document is compiled by Thomson Financial
42
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
The preparation of financial statements in conformity with generally (cid:13)
accepted accounting principles requires management to make estimates and (cid:13)
assumptions that affect the reported amounts of assets and liabilities and (cid:13)
disclosure of contingent assets and liabilities at the dates of the (cid:13)
financial statements and the reported amounts of (cid:13)
(cid:13)
33 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
revenues and expenses during the reporting periods. Actual results may (cid:13)
differ from those estimates, and such differences may be material to the (cid:13)
consolidated financial statements. (cid:13)
(cid:13)
Cash and Cash Equivalents (cid:13)
(cid:13)
We consider all highly liquid investments with original maturities of three (cid:13)
months or less at the date of purchase to be cash equivalents. (cid:13)
(cid:13)
Concentrations (cid:13)
(cid:13)
Financial instruments that potentially subject the Company to significant (cid:13)
concentrations of credit risk consist primarily of cash and cash (cid:13)
equivalents and accounts receivable. The Company invests its excess cash in (cid:13)
a large uninsured institutional money market fund. A substantial portion of (cid:13)
accounts receivable is due from collectibles dealers. The Company performs (cid:13)
an analysis of the expected collectibility of accounts receivable and makes (cid:13)
an allowance for doubtful accounts, when necessary. The allowance for (cid:13)
doubtful accounts was $293,000 and $570,000 at June 30, 2002 and 2001, (cid:13)
respectively. (cid:13)
(cid:13)
The Company purchases injection-molded parts, holograms and printed labels (cid:13)
for its grading services. There are numerous suppliers for these items, and (cid:13)
any one could be substituted without significant delay or cost to the (cid:13)
Company. However, while there are numerous sources for injection molded (cid:13)
parts, these parts require a die to fabricate the part. The manufacture of (cid:13)
high precision dies can be a lengthy process and requires considerable (cid:13)
expertise in their fabrication. The Company does not have "back-up" dies (cid:13)
for many of its high volume injection molded parts, and the Company relies (cid:13)
on one supplier for these requirements. In the event that this supplier (cid:13)
experiences a protracted production stoppage, the Company would not be able (cid:13)
to service all of its customers. (cid:13)
(cid:13)
Fair Value of Financial Instruments (cid:13)
(cid:13)
The carrying value of cash equivalents, accounts receivable, notes (cid:13)
receivable, accounts payable and accrued liabilities approximate their fair (cid:13)
values. (cid:13)
(cid:13)
Inventories (cid:13)
(cid:13)
We account for inventories under the specific identification method, except (cid:13)
for certain sports celebrity autograph inventory that is accounted for at (cid:13)
average cost. Inventories are valued at the lower of cost or market on an (cid:13)
inventory category basis. Inventories are periodically reviewed to identify (cid:13)
slow moving items, and the allowance for inventory loss is recognized, as (cid:13)
necessary. The allowance for inventory loss was $339,000 and $312,000 at (cid:13)
June 30, 2002 and 2001, respectively. It is possible that our estimates of (cid:13)
market value could change in the near term due to market conditions in the (cid:13)
various collectibles markets served by the Company. (cid:13)
(cid:13)
During the fourth quarter ended June 30, 2002, the Company capitalized (cid:13)
This document is compiled by Thomson Financial
43
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
$116,000 of supplies inventory used in its grading and authentication (cid:13)
operations. (cid:13)
(cid:13)
Property and Equipment (cid:13)
(cid:13)
Property and equipment are stated at cost. Depreciation and amortization (cid:13)
are provided using the straight-line method over the estimated useful lives (cid:13)
ranging from three to seven years. Leasehold improvements are amortized (cid:13)
over the shorter of the estimated useful lives of the improvements or the (cid:13)
term of the related lease. Repair and maintenance costs are expensed as (cid:13)
incurred. (cid:13)
(cid:13)
Goodwill (cid:13)
(cid:13)
Goodwill represents the excess of the purchase price over the fair value of (cid:13)
net assets acquired and is amortized using the straight-line method over (cid:13)
periods ranging from five to fifteen years. We periodically evaluate the (cid:13)
recoverability of goodwill by determining whether the amortization of the (cid:13)
balance over its remaining useful life can be recovered through projected (cid:13)
undiscounted future operating cash flows. During fiscal 2001, we determined (cid:13)
that the goodwill associated with Internet Universe, LLC, which conducted (cid:13)
our Internet operations, had become impaired. This determination resulted (cid:13)
primarily from a change in our projected revenue for Internet advertising (cid:13)
on our website www.collectors.com, due to industry-wide reductions in the (cid:13)
viability of banner advertising and the rates that could be charged for (cid:13)
this type of Internet advertising. Accordingly, we recorded a charge of (cid:13)
$906,000 in fiscal 2001 to reduce the carrying value of the Internet (cid:13)
Universe, LLC goodwill to zero. During fiscal 2002, we determined that the (cid:13)
goodwill associated with Professional Stamp Experts (PSE) was partially (cid:13)
impaired. This determination resulted from a reduction in future projected (cid:13)
revenues of PSE. Accordingly, we recorded a charge of $51,000 in fiscal (cid:13)
2002 to reduce the carrying value of the PSE goodwill to $89,000. Based on (cid:13)
our most recent analysis, we believe that no additional impairment exists (cid:13)
at June 30, 2002. Accumulated amortization of goodwill was $4,188,000 and (cid:13)
$2,609,000 at June 30, 2002 and 2001, respectively. (cid:13)
(cid:13)
34 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
Impairment of Long-Lived Assets (cid:13)
(cid:13)
We account for the impairment and disposition of long-lived assets in (cid:13)
accordance with Statement of Financial Accounting Standards (SFAS) No. 121, (cid:13)
Accounting for the Impairment of Long-Lived Assets and for Long-Lived (cid:13)
Assets to Be Disposed Of . In accordance with SFAS No. 121, long-lived (cid:13)
assets to be held for use are reviewed for events or changes in (cid:13)
circumstances which indicate that their carrying value may not be (cid:13)
recoverable through projected undiscounted future operating cash flows. The (cid:13)
Company periodically reviews the carrying value of long-lived assets to (cid:13)
determine whether an impairment to such value has occurred. At June 30, (cid:13)
2002, there was no impairment of long-lived assets. (cid:13)
(cid:13)
Revenue Recognition (cid:13)
(cid:13)
Net revenues include fees generated from the grading and authentication of (cid:13)
sportscards, coins, autographs and stamps; the sales prices of owned (cid:13)
collectibles sold in our auctions and directly to collectors; commissions (cid:13)
earned on sales of consigned collectibles at our auctions; and revenue from (cid:13)
the publication of collectibles magazines. Net revenues are determined net (cid:13)
of discounts and allowances, product returns, and commissions paid to (cid:13)
This document is compiled by Thomson Financial
44
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
consignors on sales of their collectibles. (cid:13)
(cid:13)
We record revenue from the sale of collectibles at our auctions at the time (cid:13)
the collectible is delivered in person, or otherwise shipped based on (cid:13)
agreement with the successful bidder. Shipment or delivery generally takes (cid:13)
place after payment is received from the successful bidder, which can be as (cid:13)
long as 60 days after completion of the auction. However, for certain (cid:13)
repeat bidders, we deliver in-person or ship the collectibles at the close (cid:13)
of an auction and allow them to pay up to 60 days following the auction. (cid:13)
Such sales are also recorded at the time of delivery or shipment. We also (cid:13)
offer extended payment terms to certain collectors or dealers. For (cid:13)
collectibles that we own and sell at auction, we record the successful (cid:13)
bidder amount, or "hammer," as the sale of the merchandise and record the (cid:13)
buyer's fee as commission earned. We also record the cost of the (cid:13)
merchandise sold as cost of revenues. For collectibles that are consigned (cid:13)
to us for auction, we record, as commissions earned, the amounts of the (cid:13)
buyer's and seller's fees. Depending upon the type of collectibles auction, (cid:13)
we charge successful bidders a 10% to 15% commission and generally charge (cid:13)
consignors a 5% to 15% selling commission. On some large or important (cid:13)
consignments, we may negotiate a reduced consignor commission or even pay a (cid:13)
fee to the consignor. (cid:13)
(cid:13)
Grading revenues are recognized when the graded item is returned to the (cid:13)
customer. Grading fees have generally been prepaid, although we have (cid:13)
offered open account privileges to numerous larger dealers. Advance (cid:13)
payments received for grading services are deferred until the service is (cid:13)
performed and the item is shipped. For dealers who have open account (cid:13)
status, we record revenue at the time of shipment. (cid:13)
(cid:13)
Warranty Costs (cid:13)
(cid:13)
The Company offers a warranty covering the coins and sportscards it (cid:13)
authenticates and grades. Under the terms of the warranty, any coin or (cid:13)
sportscard originally graded by us, which subsequently receives a lower (cid:13)
grade upon resubmittal to us, obligates us to either purchase the coin or (cid:13)
sportscard or pay the difference in value of the item at its original grade (cid:13)
as compared with its lower grade. Similarly, any coin or sportscard (cid:13)
originally graded by us, which subsequently is determined to be not (cid:13)
authentic, obligates us to purchase the coin or sportscard. We accrue for (cid:13)
estimated warranty costs based on historical trends and related experience. (cid:13)
(cid:13)
Advertising Costs (cid:13)
(cid:13)
Advertising costs are expensed as incurred and amounted to approximately (cid:13)
$661,000, $849,000 and $895,000 for the three years ended June 30, 2002, (cid:13)
2001 and 2000, respectively. (cid:13)
(cid:13)
Income Taxes (cid:13)
(cid:13)
We account for income taxes in accordance with SFAS No. 109, Accounting for (cid:13)
Income Taxes. Deferred taxes on income result from temporary differences (cid:13)
between the reporting of income and expense for financial statements and (cid:13)
tax reporting purposes. A valuation allowance related to a deferred tax (cid:13)
asset is recorded when it is more likely than not that some portion or all (cid:13)
of the deferred tax asset will not be realized. (cid:13)
(cid:13)
(cid:13)
35 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
This document is compiled by Thomson Financial
45
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Stock-Based Compensation (cid:13)
(cid:13)
We account for stock-based awards to employees using the intrinsic value (cid:13)
method in accordance with Accounting Principles Board (APB) Opinion No. 25, (cid:13)
Accounting for Stock Issued to Employees, and adopted the disclosure (cid:13)
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. (cid:13)
(cid:13)
We account for equity instruments issued to non-employees in accordance (cid:13)
with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) (cid:13)
Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other (cid:13)
Than Employees for Acquiring, or in Conjunction with Selling Goods or (cid:13)
Services. All transactions in which goods or services are the consideration (cid:13)
received for the issuance of equity instruments are accounted for based on (cid:13)
the fair value of the consideration received or the fair value of the (cid:13)
equity instrument issued, whichever is more reliably measurable. The (cid:13)
measurement date used to determine the fair value of the equity instrument (cid:13)
issued is the earlier of the date on which the third-party performance is (cid:13)
complete or the date on which it is probable that performance will occur. (cid:13)
(cid:13)
Net Income (Loss) Per Share (cid:13)
(cid:13)
We compute net income (loss) per share in accordance with SFAS No. 128, (cid:13)
Earnings Per Share. SFAS No. 128 requires the presentation of basic and (cid:13)
diluted earnings per share. Basic earnings (loss) per share is computed by (cid:13)
dividing net income (loss) attributable to common stockholders by the (cid:13)
weighted average number of common shares outstanding during the periods (cid:13)
presented. Diluted net income per share is computed by dividing net income (cid:13)
attributable to common stockholders by the weighted average number of (cid:13)
common and common equivalent shares outstanding during the periods (cid:13)
presented assuming the exercise of all outstanding stock options and other (cid:13)
dilutive securities. For the years ended June 30, 2002 and June 30, 2001, (cid:13)
the effect of potentially dilutive stock options of 719,000 and 557,000 (cid:13)
shares, respectively, is not included, as the effect is anti-dilutive. (cid:13)
(cid:13)
The following table sets forth the computation of basic and diluted net (cid:13)
income (loss) per common share: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(in thousands) (cid:13)
--------------------------------------------- (cid:13)
June 30, (cid:13)
--------------------------------------------- (cid:13)
2002 2001 2000 (cid:13)
---------- --------- ---------------- (cid:13)
Numerator: (cid:13)
Net income (loss) used for (cid:13)
basic and diluted net income (cid:13)
(loss) per share $ (2,510) $ (649) $ 1,542 (cid:13)
----------- ---------- --------------- (cid:13)
Denominator: (cid:13)
Average common shares used (cid:13)
for basic net income (loss) (cid:13)
per share 25,389 25,114 23,330 (cid:13)
Effects of dilutive stock (cid:13)
options -- -- 1,245 (cid:13)
----------- ---------- --------------- (cid:13)
Denominator for diluted net (cid:13)
income (loss) per share 25,389 25,114 24,575 (cid:13)
----------- ---------- --------------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Comprehensive Income (cid:13)
This document is compiled by Thomson Financial
46
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
The Company does not have any items of other comprehensive income requiring (cid:13)
separate disclosure. (cid:13)
(cid:13)
Computer Software Development Costs (cid:13)
(cid:13)
In accordance with Statement of Position No. 98-1, Accounting for the Costs (cid:13)
of Computer Software Developed or Obtained for Internal Use, the Company (cid:13)
has capitalized certain costs to obtain or develop software to be used for (cid:13)
internal purposes. For fiscal years 2002 and 2001, the Company capitalized (cid:13)
$93,000 and $232,000 respectively, of software development costs and (cid:13)
amortized $198,000 and $142,000 respectively, of these costs based upon a (cid:13)
two-year amortization period. (cid:13)
(cid:13)
36 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
Recent Accounting Pronouncements (cid:13)
(cid:13)
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS (cid:13)
No. 133, Accounting for Derivative Instruments and Hedging Activities. The (cid:13)
Company adopted SFAS No. 133 effective for the first quarter of its fiscal (cid:13)
year beginning July 1, 2000. SFAS No. 133 requires that the Company record (cid:13)
all derivatives on the balance sheet at fair value. The Company does not (cid:13)
have any derivative instruments nor does the Company engage in hedging (cid:13)
activities. Therefore, the adoption of SFAS No. 133 had no impact on the (cid:13)
Company's consolidated financial statements. (cid:13)
(cid:13)
In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS (cid:13)
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires the (cid:13)
use of the purchase method of accounting and prohibits the use of the (cid:13)
pooling-of-interests method of accounting for business combinations (cid:13)
initiated after June 30, 2001. SFAS No. 141 also requires that the Company (cid:13)
recognize acquired intangible assets, apart from goodwill, if the acquired (cid:13)
intangible assets meet certain criteria. SFAS No. 141 applies to all (cid:13)
business combinations initiated after June 30, 2001 and for purchase (cid:13)
business combinations completed on or after July 1, 2001. The Company (cid:13)
accounted for the acquisition of Collectible Properties, Inc. (CPI) (note (cid:13)
3), which was consummated subsequent to June 30, 2001, in accordance with (cid:13)
SFAS No. 141. (cid:13)
(cid:13)
SFAS No. 142 requires, among other things, that companies no longer (cid:13)
amortize goodwill, but instead test goodwill for impairment at least (cid:13)
annually. In addition, SFAS No. 142 requires that the Company identify (cid:13)
reporting units for the purposes of assessing potential future impairments (cid:13)
of goodwill, reassess the useful lives of other existing recognized (cid:13)
intangible assets, and cease amortization of intangible assets with an (cid:13)
indefinite useful life. An intangible asset with an indefinite useful life (cid:13)
should be tested for impairment in accordance with the guidance in SFAS No. (cid:13)
142. SFAS No. 142 is required to be applied in fiscal years beginning after (cid:13)
December 15, 2001 to all goodwill and other intangible assets recognized at (cid:13)
that date, regardless of when those assets were initially recognized. SFAS (cid:13)
No. 142 was adopted by the Company effective as of July 1, 2002 and will (cid:13)
require the Company to complete a transitional goodwill impairment test by (cid:13)
no later than December 31, 2002. The Company is also required to reassess (cid:13)
the useful lives of other intangible assets within the first interim (cid:13)
quarter after adoption of SFAS No. 142. (cid:13)
(cid:13)
In accordance with the transition provisions of SFAS No. 142, the Company (cid:13)
did not amortize goodwill arising from the acquisition of CPI in fiscal (cid:13)
This document is compiled by Thomson Financial
47
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
2002. The Company's previous business combinations were accounted for using (cid:13)
the purchase method. Due to the Company's adoption of SFAS No. 142, it will (cid:13)
no longer amortize its other goodwill balances arising from acquisitions (cid:13)
consummated prior to July 1, 2001 (such amortization expenses amounted to (cid:13)
$1,649,000 in 2002). The Company is in the process of performing the (cid:13)
two-step transitional goodwill impairment testing required under the new (cid:13)
standard. Based on the analysis for the first step testing performed to (cid:13)
date, the Company anticipates an impairment of a substantial amount of its (cid:13)
goodwill under the new standard in fiscal year 2003. (cid:13)
(cid:13)
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment (cid:13)
or Disposal of Long-Lived Assets, which supercedes previous guidance on (cid:13)
financial accounting and reporting for the impairment of disposal of (cid:13)
long-lived assets and for segments of a business to be disposed of. SFAS (cid:13)
No. 144 is effective for fiscal years beginning after December 15, 2001. (cid:13)
The Company does not expect the adoption of SFAS No. 144 to have a (cid:13)
significant impact on the Company's financial position or results of (cid:13)
operations. (cid:13)
(cid:13)
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated (cid:13)
with Exit or Disposal Activities. SFAS No. 146 addresses significant issues (cid:13)
regarding the recognition, measurement, and reporting of costs associated (cid:13)
with exit and disposal activities, including restructuring activities. SFAS (cid:13)
No. 146 also addresses recognition of certain costs related to terminating (cid:13)
a contract that is not a capital lease, costs to consolidate facilities or (cid:13)
relocate employees, and termination benefits provided to employees that are (cid:13)
involuntarily terminated under the terms of a one-time benefit arrangement (cid:13)
that is not an ongoing benefit arrangement or an individual (cid:13)
deferred-compensation contract. SFAS No. 146 is effective for exit or (cid:13)
disposal activities that are initiated after December 31, 2002. Management (cid:13)
believes that the adoption of SFAS No. 146 will not have a material impact (cid:13)
on the Company's consolidated financial statements. (cid:13)
(cid:13)
37 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
Reclassifications (cid:13)
(cid:13)
Certain reclassifications have been made to the fiscal 2001 and 2000 (cid:13)
financial statements to conform to the fiscal 2002 presentation. (cid:13)
(cid:13)
3. Acquisitions (cid:13)
(cid:13)
Prior to June 30, 2001 (cid:13)
(cid:13)
On October 11, 1999, we acquired Professional Stamp Experts (PSE), a stamp (cid:13)
authentication service. Total consideration was $305,000 in cash. The (cid:13)
acquisition was accounted for under the purchase method of accounting. As (cid:13)
there were no tangible or identified intangible assets acquired, the entire (cid:13)
purchase amount was allocated to goodwill to be amortized over 5 years. The (cid:13)
results of operations of PSE have been included in our consolidated (cid:13)
financial statements from the date of acquisition. During the fourth (cid:13)
quarter of fiscal year 2002, we determined that the goodwill associated (cid:13)
with this acquisition had become partially impaired, and accordingly the (cid:13)
Company recognized an impairment loss of $51,000 to reduce the carrying (cid:13)
value of the PSE goodwill to $89,000. (cid:13)
(cid:13)
On March 10, 2000, we acquired substantially all of the operating assets of (cid:13)
Auctions by Bowers and Merena, Inc., Bowers and Merena Galleries, Inc., and (cid:13)
Bowers and Merena Research, Inc., (collectively, Bowers and Merena), a (cid:13)
This document is compiled by Thomson Financial
48
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
business primarily engaged in the auction and retail sales of rare coins. (cid:13)
Total consideration was $10,003,000 in cash and 1,000,000 shares of (cid:13)
Collectors Universe, Inc.'s common stock valued at $7,625,000. The (cid:13)
acquisition was accounted for under the purchase method of accounting and, (cid:13)
accordingly, the Company has recorded the assets acquired and the (cid:13)
liabilities assumed based on their estimated fair value at the date of (cid:13)
acquisition. The total purchase price was allocated to tangible net assets (cid:13)
acquired of $4,542,000 and goodwill of $13,086,000 to be amortized over 15 (cid:13)
years. The results of operations of Bowers and Merena have been included in (cid:13)
our consolidated financial statements from the date of acquisition. (cid:13)
(cid:13)
On July 14, 2000, we acquired substantially all of the operating assets of (cid:13)
Odyssey Publications, Inc., a business primarily engaged in the retail (cid:13)
sales of entertainment and historical memorabilia. Total consideration was (cid:13)
$814,000 in cash and the assumption of $68,000 in liabilities. The (cid:13)
acquisition was accounted for under the purchase method of accounting, and (cid:13)
accordingly the Company has recorded the assets acquired and the (cid:13)
liabilities assumed based on their estimated fair value at the date of (cid:13)
acquisition. The purchase price was allocated to assets acquired of $25,000 (cid:13)
and goodwill of $857,000 to be amortized over 5 years. The results of (cid:13)
operations of Odyssey Publications, Inc. have been included in our (cid:13)
consolidated financial statements from the date of acquisition. (cid:13)
(cid:13)
Subsequent To June 30, 2001 (cid:13)
(cid:13)
On April 12, 2002, the Company acquired certain assets of Collectible (cid:13)
Properties, Inc. (CPI), the currency sales auction business of Lyn F. (cid:13)
Knight, former owner of Lyn F. Knight Rare Coins, Inc. and an employee of (cid:13)
the Company, for $1,034,000 in cash. As a result of the acquisition, the (cid:13)
Company gained a competitive position in the rare currency retail sales (cid:13)
market. In addition, the acquisition complements the Company's existing Lyn (cid:13)
Knight Rare Currency division, which is one of the leading rare currency (cid:13)
auction companies in the country. The acquisition was accounted for under (cid:13)
the purchase method of accounting and, accordingly, the Company has (cid:13)
recorded the assets acquired based on their estimated fair values at the (cid:13)
date of acquisition. The total purchase price of $1,034,000 was allocated (cid:13)
to tangible assets acquired of $549,000, identifiable intangible assets of (cid:13)
$40,000, and goodwill of $445,000. The goodwill of $445,000 was assigned to (cid:13)
the Collectible Sales segment. The full amount is expected to be deductible (cid:13)
for tax purposes. The results of operations of CPI have been included in (cid:13)
the consolidated financial statements from the date of acquisition. (cid:13)
(cid:13)
The following condensed balance sheet summarizes the estimated fair values (cid:13)
of the assets acquired at the date of acquisition. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Inventories $ 549,000 (cid:13)
Intangible assets 40,000 (cid:13)
Goodwill 445,000 (cid:13)
---------- (cid:13)
Total assets acquired $1,034,000 (cid:13)
---------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Had the acquisitions occurred at the beginning of the fiscal year in which (cid:13)
each acquisition was completed, or the beginning of the immediately (cid:13)
preceding year, combined pro forma net sales, net income, and net income (cid:13)
(loss) per common share would not have been materially different from that (cid:13)
currently being reported. (cid:13)
(cid:13)
38 (cid:13)
(cid:13)
This document is compiled by Thomson Financial
49
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
4. Inventories (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Inventories consist of the (cid:13)
following at June 30: (in thousands) (cid:13)
2002 2001 (cid:13)
------------- ---------- (cid:13)
Coins and currency $ 6,478 $ 5,791 (cid:13)
Sportscards and memorabilia 1,613 3,210 (cid:13)
Records 95 371 (cid:13)
Other collectibles 319 28 (cid:13)
-------------- ----------- (cid:13)
8,505 9,400 (cid:13)
Less inventory reserve (339) (312) (cid:13)
-------------- ----------- (cid:13)
$ 8,166 $ 9,088 (cid:13)
-------------- ----------- (cid:13)
(cid:13)
(cid:13)
Inventory reserve represents valuation allowance on certain items held in (cid:13)
inventory. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
5. Property and Equipment (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Property and equipment consists (cid:13)
of the following at June 30: (in thousands) (cid:13)
2002 2001 (cid:13)
-------------- ---------- (cid:13)
Coins and sportscard grading (cid:13)
reference sets, fair value of (cid:13)
$15 and $13 at June 30, 2002 (cid:13)
and 2001, respectively $ 15 $ 13 (cid:13)
Computer hardware and equipment 1,930 1,608 (cid:13)
Computer software 1,072 690 (cid:13)
Equipment 1,236 1,198 (cid:13)
Furniture and office equipment 866 796 (cid:13)
Leasehold improvements 455 379 (cid:13)
Construction in progress -- 189 (cid:13)
--------------- ----------- (cid:13)
5,574 4,873 (cid:13)
This document is compiled by Thomson Financial
50
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Less accumulated depreciation (cid:13)
and amortization (3,838) (2,975) (cid:13)
--------------- ----------- (cid:13)
Property and equipment, net $ 1,736 $ 1,898 (cid:13)
--------------- ----------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Depreciation and amortization expense of property and equipment for fiscal (cid:13)
2002, 2001 and 2000 was $874,000, $754,000 and $619,000, respectively. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
6. Accrued Liabilities (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Accrued liabilities consist of (cid:13)
the following at June 30: (in thousands) (cid:13)
2002 2001 (cid:13)
-------------- ------------------ (cid:13)
Warranty costs $ 302 $ 280 (cid:13)
Professional fees 143 104 (cid:13)
Other 291 533 (cid:13)
-------------- ----------------- (cid:13)
$ 736 $ 917 (cid:13)
-------------- ----------------- (cid:13)
(cid:13)
(cid:13)
Activity and reserve balances related to the fiscal 2002, 2001, and 2000 (cid:13)
warranty reserve through June 30, 2002 are as follows (in thousands): (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Warranty reserve, July 1, 1999 $ 232 (cid:13)
Charged to cost of revenues 165 (cid:13)
Cash payments (116) (cid:13)
------- (cid:13)
Warranty reserve, June 30, 2000 281 (cid:13)
Charged to cost of revenues 159 (cid:13)
Cash payments (160) (cid:13)
------- (cid:13)
Warranty reserve, June 30, 2001 280 (cid:13)
Charged to cost of revenues 249 (cid:13)
Cash payments (227) (cid:13)
------- (cid:13)
Warranty reserve, June 30, 2002 $ 302 (cid:13)
------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
7. Line of Credit (cid:13)
(cid:13)
(cid:13)
(cid:13)
This document is compiled by Thomson Financial
51
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
In November 2001, the Company entered into an unsecured line of credit (cid:13)
agreement with a bank, which provides for borrowings of up to $1,500,000, (cid:13)
subject to certain borrowing base limitations. Borrowings under the line of (cid:13)
credit bear interest at the prime rate (4.75% at June 30, 2002) plus 1%, (cid:13)
and are due on demand. This agreement can be terminated by either the bank (cid:13)
or the company at any time. At June 30, 2002, there were no outstanding (cid:13)
borrowings under the line of credit. (cid:13)
(cid:13)
39 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
8. Income Taxes (cid:13)
(cid:13)
(cid:13)
(cid:13)
The provision (benefit) for income taxes for the years ended June 30 (cid:13)
consists of the following: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(in thousands) (cid:13)
----------------------------------- (cid:13)
2002 2001 2000 (cid:13)
----------- -------- -------- (cid:13)
Current: (cid:13)
Federal $ (1,085) $ 798 $ 1,359 (cid:13)
State (76) 232 347 (cid:13)
------------ --------- --------- (cid:13)
(1,161) 1,030 1,706 (cid:13)
Deferred: (cid:13)
Federal 4 (334) (143) (cid:13)
State (278) (103) (13) (cid:13)
------------ --------- --------- (cid:13)
(274) (437) (156) (cid:13)
------------ --------- --------- (cid:13)
Total provision (cid:13)
(benefit) for income (cid:13)
taxes $ (1,435) $ 593 $ 1,550 (cid:13)
------------ --------- --------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
The reconciliation of the provision (benefit) for income taxes computed at (cid:13)
federal statutory rates to the provision (benefit) for income taxes for the (cid:13)
years ended June 30, is as follows: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(in thousands) (cid:13)
------------------------------------- (cid:13)
2002 2001 2000 (cid:13)
---------- ------ ------------- (cid:13)
Tax (benefit) at federal (cid:13)
This document is compiled by Thomson Financial
52
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
statutory rates $ (1,381) $ (19) $ 1,082 (cid:13)
State income taxes (cid:13)
(benefit), net (231) 84 217 (cid:13)
Goodwill 127 436 168 (cid:13)
Other, net 50 92 83 (cid:13)
----------- ------- -------------- (cid:13)
$ (1,435) $ 593 $ 1,550 (cid:13)
----------- ------- -------------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
Deferred income taxes reflect the net tax effect of temporary differences (cid:13)
between the carrying amounts of assets and liabilities for financial (cid:13)
reporting purposes and the amounts used for income tax purposes. (cid:13)
Significant components of deferred taxes as of June 30, 2002 and 2001, are (cid:13)
as follows: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
2002 2001 (cid:13)
------------ --------- (cid:13)
Deferred tax assets: (cid:13)
Supplier compensation costs $ 546 $ 546 (cid:13)
Reserves 711 613 (cid:13)
Goodwill 420 292 (cid:13)
Property and equipment 79 18 (cid:13)
Net operating loss carryover 172 -- (cid:13)
Other 87 19 (cid:13)
------------- ---------- (cid:13)
Total deferred tax assets 2,015 1,488 (cid:13)
Deferred tax liabilities: (cid:13)
State taxes (224) (28) (cid:13)
Other (69) (12) (cid:13)
------------- ---------- (cid:13)
Total deferred tax (cid:13)
liabilities (294) (40) (cid:13)
------------- ---------- (cid:13)
Net deferred tax assets 1,722 1,448 (cid:13)
Less: Current portion (648) (645) (cid:13)
------------- ---------- (cid:13)
$ 1,074 $ 803 (cid:13)
------------- ---------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
At June 30, 2002, the Company had no federal tax net operating loss (cid:13)
carryforward as it will carryback all tax losses to 2000 and 1999. The (cid:13)
expected refunds are included in the Company's refundable income taxes at (cid:13)
June 30, 2002. At June 30, 2002, the Company had a state net operating loss (cid:13)
carryforward of $1,947,000. The Company's state net operating loss (cid:13)
carryforward begins to expire in the year ended June 30, 2014. (cid:13)
(cid:13)
40 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
9. Employee Benefit Plans (cid:13)
(cid:13)
This document is compiled by Thomson Financial
53
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
We established an employee benefit plan, effective July 1992, that features (cid:13)
a 401(k) salary reduction provision covering all employees who meet (cid:13)
eligibility requirements. Eligible employees may elect to defer up to 15% (cid:13)
of compensation or the statutorily prescribed annual limit. The Company, at (cid:13)
its discretion, may make contributions to the plan. To date, we have not (cid:13)
made contributions to the plan, and administrative costs have been nominal. (cid:13)
(cid:13)
On July 5, 2000, the Company implemented the previously approved Employee (cid:13)
Stock Purchase Plan (the "Plan") covering all employees who meet certain (cid:13)
eligibility requirements. The Plan allows employees to elect, at the (cid:13)
beginning of each six-month period, to contribute up to 15% of compensation (cid:13)
that will be applied to the purchase of Company stock at the end of the (cid:13)
six-month period. The purchase price is 85% of the stock price on the first (cid:13)
day of the six-month period or the last day of the six-month period, (cid:13)
whichever is lower. (cid:13)
(cid:13)
During fiscal 2002 and 2001, we issued 41,000 shares of common stock under (cid:13)
the Plan at an average purchase price of $1.35 per share in fiscal 2002 and (cid:13)
$1.30 per share in fiscal 2001. (cid:13)
(cid:13)
10. Stockholders' Equity (cid:13)
(cid:13)
In November 1999, we sold 4,000,000 shares of common stock in our initial (cid:13)
public stock offering. Net proceeds from the initial public stock offering (cid:13)
were approximately $21,400,000 after deducting offering expenses of (cid:13)
approximately $2,600,000. In March 2000, we issued 1,000,000 shares as (cid:13)
partial consideration in connection with a business acquisition (Note 3). (cid:13)
(cid:13)
During the quarter ended June 30, 2002, the trading prices of our shares (cid:13)
declined to less than $1.00 per share. As a result, the Company was (cid:13)
informed by NASDAQ on July 19, 2002, that its shares may be delisted from (cid:13)
trading on the NASDAQ Stock Market. (cid:13)
(cid:13)
Treasury Stock (cid:13)
(cid:13)
During fiscal 2001, we repurchased 500,000 shares of common stock at an (cid:13)
aggregate cost of $1,021,000. (cid:13)
(cid:13)
Consulting Agreement (cid:13)
(cid:13)
In July 1997, we granted options to an individual to purchase 532,000 (cid:13)
shares of our common stock at an exercise price of $0.33 per share as (cid:13)
consideration for a five-year consulting agreement commencing on July 1, (cid:13)
1997. The options vested 20% per year commencing December 31, 1997 through (cid:13)
December 31, 2001 and are exercisable on or before December 31, 2005. No (cid:13)
amount was recognized for the value of the options, as the amount was (cid:13)
insignificant. (cid:13)
(cid:13)
Warrant Agreement (cid:13)
(cid:13)
In May 1999, we granted a warrant to purchase 50,000 shares of our common (cid:13)
stock at an exercise price of $5.00 per share in connection with an (cid:13)
exclusive license agreement. No amount was recognized for the value of the (cid:13)
warrant, as the amount was insignificant. (cid:13)
(cid:13)
Non-Qualified Stock Option (cid:13)
(cid:13)
In March 2000, we granted a non-qualified stock option that was not under (cid:13)
the 1999 Stock Incentive Plan for 500,000 shares of common stock at an (cid:13)
exercise price of $7.63 in connection with an employment agreement. (cid:13)
(cid:13)
Supplier Compensation Cost (cid:13)
(cid:13)
During fiscal 1999 the Company granted 594,000 stock options to collectible (cid:13)
experts providing content for our websites, at an exercise price of $5.00 a (cid:13)
share. These options vested immediately and are exercisable over a ten-year (cid:13)
This document is compiled by Thomson Financial
54
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
term. The fair value of these options was expensed in fiscal 1999, and all (cid:13)
of these options are outstanding at June 30, 2002. (cid:13)
(cid:13)
11. Stock Option Plans (cid:13)
(cid:13)
In January 1999, we adopted the PCGS 1999 Stock Incentive Plan (the PCGS (cid:13)
Plan). The PCGS Plan covers an aggregate of 1,077,000 shares of our common (cid:13)
stock. In February 1999, we adopted the 1999 Stock Incentive Plan (the 1999 (cid:13)
Plan), which provides for grants of incentive stock options, nonstatutory (cid:13)
stock options, and restricted stock grants to directors, officers, (cid:13)
employees and consultants of Collectors Universe who provide valuable (cid:13)
services (cid:13)
(cid:13)
41 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
to Collectors Universe, entitling them to purchase up to 1,749,000 shares (cid:13)
of our common stock. On December 5, 2000, the stockholders, at the (cid:13)
Company's Annual Meeting, approved an amendment to the 1999 Plan to (cid:13)
increase the authorized number of Common Stock that is issuable under this (cid:13)
Plan from 1,749,000 to 2,999,000 shares. Each of these Plans provide that (cid:13)
the option price per share may not be less than 100% of the fair market (cid:13)
value of a share of common stock on the grant date, as determined by the (cid:13)
Board of Directors for incentive stock options, and 85% of fair market (cid:13)
value for nonstatutory stock options. For incentive stock options, the (cid:13)
exercise price may not be less than 110% of the fair market value of a (cid:13)
share of common stock on the grant date for any individual possessing 10% (cid:13)
or more of the voting power of all classes of stock of Collectors Universe. (cid:13)
The timing of exercise for individual option grants is at the discretion of (cid:13)
the Board of Directors, and the options expire no later than ten years (cid:13)
after the grant date (five years in the case of incentive stock options (cid:13)
granted to individuals possessing 10% or more of the voting power of all (cid:13)
classes of stock of Collectors Universe). In the event of a change in (cid:13)
control of Collectors Universe, an option or award under these Plans will (cid:13)
become fully exercisable if the option or award is not assumed by the (cid:13)
surviving corporation or the surviving corporation does not substitute (cid:13)
comparable awards for the awards granted under these Plans. (cid:13)
(cid:13)
The following is a summary of stock option activity for fiscal 2000, 2001 (cid:13)
and 2002 under the PCGS Plan and the 1999 Plan: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(in thousands, except per share data) (cid:13)
------------------------------------------------------------------------ (cid:13)
Weighted (cid:13)
Number Average Exercise (cid:13)
Of Shares Price Per Share Price Per Share (cid:13)
-------------------------------------------------------------------------------- (cid:13)
Options (cid:13)
outstanding (cid:13)
at June 30, (cid:13)
1999 2,156 $2.11 - $5.23 $3.53 (cid:13)
Granted 698 $3.62 - $7.75 $6.46 (cid:13)
Cancelled 262 $5.00 - $7.63 $5.14 (cid:13)
Exercised 147 $2.11 - $6.00 $2.19 (cid:13)
--------- --------------- ----------------- (cid:13)
Options (cid:13)
outstanding (cid:13)
at June 30, (cid:13)
This document is compiled by Thomson Financial
55
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
2000 2,445 $2.11 - $7.75 $4.30 (cid:13)
Granted 908 $2.00 - $4.50 $2.68 (cid:13)
Cancelled 338 $2.00 - $7.75 $4.36 (cid:13)
Exercised -- -- -- -- (cid:13)
--------- -------------- ----------------- (cid:13)
Options (cid:13)
outstanding (cid:13)
at June 30, (cid:13)
2001 3,015 $2.11 - $7.63 $3.81 (cid:13)
Granted 1,452 $0.77 - $2.00 $0.97 (cid:13)
Cancelled 1,692 $0.77 - $7.63 $3.15 (cid:13)
Exercised 15 $0.77 $0.77 (cid:13)
--------- -------------- ----------------- (cid:13)
Options (cid:13)
outstanding (cid:13)
at June 30, (cid:13)
2002 2,760 $0.77 - $7.63 $2.74 (cid:13)
-------------------------------------------------------------------------------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
The following table summarizes information about stock options outstanding (cid:13)
at June 30, 2002: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(in thousands, except per share data) (cid:13)
---------------------------------------------------------------------------- (cid:13)
Options Outstanding Options Exercisable (cid:13)
-------------------------------------------------------------------------- (cid:13)
Weighted (cid:13)
Average (cid:13)
Remaining Weighted Weighted (cid:13)
Range of Number of Contractual Average Number of Average (cid:13)
Exercise Shares Life Exercise Shares Exercise (cid:13)
Price Outstanding (years) Price Exercisable Price (cid:13)
-------------------------------------------------------------------------- (cid:13)
$0.77 - $1.52 1,240 9.4 $0.98 460 $0.80 (cid:13)
$2.00 451 8.6 $2.00 386 $2.00 (cid:13)
$2.11 - $2.61 100 7.5 $2.56 100 $2.56 (cid:13)
$3.00 - $3.69 106 8.0 $3.05 52 $3.04 (cid:13)
$4.50 158 8.0 $4.50 34 $4.50 (cid:13)
$5.00 - $5.37 379 6.8 $5.02 298 $5.00 (cid:13)
$6.00 148 7.3 $6.00 112 $6.00 (cid:13)
$7.12 - $7.63 178 7.7 $7.63 91 $7.63 (cid:13)
----------- ----------- (cid:13)
2,760 8.5 $2.74 1,533 $2.98 (cid:13)
-------------------------------------------------------------------------- (cid:13)
(cid:13)
(cid:13)
42 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
The number of stock options exercisable and their weighted-average exercise (cid:13)
prices at June 30, 2002 and 2001 were 1,533,000 at $2.98 and 1,945,000 at (cid:13)
$3.42, respectively. (cid:13)
(cid:13)
This document is compiled by Thomson Financial
56
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
SFAS No. 123 encourages, but does not require, companies to record (cid:13)
compensation cost for employee stock option grants, using the fair value (cid:13)
method. As permitted by SFAS No. 123, we have chosen to account for (cid:13)
employee option grants using APB Opinion No. 25 and apply the (cid:13)
disclosure-only provisions of SFAS No. 123. Accordingly, no compensation (cid:13)
expense has been recognized for employee stock option grants, as such (cid:13)
grants have been made with exercise prices at fair market value. Had (cid:13)
compensation expense for the employee stock option grants been determined (cid:13)
using the provisions of SFAS No. 123, our net income (loss) for fiscal (cid:13)
2002, 2001 and 2000 would have been changed to the amounts indicated below: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
------------------------------------------------------------ (cid:13)
(In thousands, except per share (cid:13)
amounts) 2002 2001 2000 (cid:13)
------------------------------------------------------------ (cid:13)
Net income (loss): (cid:13)
As-reported (2,510) $ (649) $1,542 (cid:13)
Pro forma (3,013) $(2,465) $ 238 (cid:13)
Basic net income (loss) per (cid:13)
share: (cid:13)
As-reported $ (0.10) $ (0.03) $ 0.07 (cid:13)
Pro forma $ (0.12) $ (0.10) $ 0.01 (cid:13)
Diluted net income (loss) per (cid:13)
share: (cid:13)
As-reported $ (0.10) $ (0.03) $ 0.06 (cid:13)
Pro forma $ (0.12) $ (0.10) $ 0.01 (cid:13)
------------------------------------------------------------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
Because stock options vest over several years and additional option grants (cid:13)
are expected, the above pro forma effects of applying SFAS No. 123 are not (cid:13)
likely to be representative of the effects on net income (loss) for future (cid:13)
periods. (cid:13)
(cid:13)
The fair value of issued stock options is estimated on the date of grant (cid:13)
using the Black-Scholes option pricing model, incorporating the following (cid:13)
assumptions for stock options granted in fiscal 2002, 2001 and 2000, (cid:13)
respectively: expected volatility (the amount by which the stock price is (cid:13)
expected to fluctuate) of 81%, 333% and 237%; expected dividend yield of (cid:13)
0%, 0% and 0%; risk-free interest rate of 3.3%, 5.0% and 6.3% and expected (cid:13)
life of 1.5 years for fiscal 2002 and 5 years for fiscal 2001 and 2000, (cid:13)
respectively. The weighted average fair value of stock options granted (cid:13)
during fiscal 2002, 2001 and 2000 was $0.40, $2.68 and $6.90 per option (cid:13)
share, respectively. (cid:13)
(cid:13)
12. Related-Party Transactions (cid:13)
(cid:13)
During the ordinary course of business, we provide grading services to (cid:13)
certain entities that are owned, controlled or affiliated with our (cid:13)
stockholders. Grading revenues received from these related entities (cid:13)
amounted to $42,000, $9,000 and $144,000 during the years ended June 30, (cid:13)
2002, 2001 and 2000, respectively. In addition, we purchased inventories (cid:13)
from, and sold inventories to, certain of these related entities. Purchases (cid:13)
of inventories from these related entities amounted to $173,000, $20,000 (cid:13)
and $247,000 during the years ended June 30, 2002, 2001 and 2000, (cid:13)
respectively. (cid:13)
(cid:13)
J.D.R.C., Inc., an entity owned by one of our stockholders, provides (cid:13)
research-consulting services to us related to our coin grading and (cid:13)
authentication services. Amounts paid to J.D.R.C., Inc. related to these (cid:13)
consulting services were $37,000, $24,000 and $102,000 during the years (cid:13)
This document is compiled by Thomson Financial
57
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
ended June 30, 2002, 2001 and 2000, respectively. (cid:13)
(cid:13)
In October 1998, we loaned $180,000 to a former officer of the Company. The (cid:13)
loan bore interest at 9% per annum. Total outstanding principal and (cid:13)
interest was paid in December 2001. (cid:13)
(cid:13)
During fiscal 2002, key employees purchased $111,000 of rare coins and (cid:13)
sportscards from the Company. Accounts receivable balances at June 30, 2002 (cid:13)
from these employees totalled $8,000 and represented invoices less than 30 (cid:13)
days old. In fiscal 2001, certain employees bought rare coins and ingots (cid:13)
from the Company at cost. Total purchases were $363,000. Certain employees, (cid:13)
who made purchases from the Company during fiscal 2001 and 2000, had (cid:13)
outstanding accounts receivable balances at June 30, 2001 aggregating (cid:13)
$413,000. Subsequent to June 30, 2001, these balances were paid in full. (cid:13)
During the ordinary course of business, certain key employees consigned (cid:13)
(cid:13)
43 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
collectibles to our auctions and received the auction proceeds upon sale, (cid:13)
less commissions. Consignor payments to these employees aggregated $470,000 (cid:13)
and $252,000 in fiscal 2002 and 2001, respectively. One employee received (cid:13)
multiple consignor advances during fiscal 2001 that aggregated $245,000. (cid:13)
This amount was outstanding at June 30, 2001 but was subsequently paid in (cid:13)
full following the settlement of an auction. Consignor advances to this (cid:13)
employee did not bear interest. In addition, certain key employees sold (cid:13)
collectibles to our Company during the year ended June 30, 2001, (cid:13)
aggregating $742,000. (cid:13)
(cid:13)
In October 2000, we loaned $300,000 to our then chief executive officer, (cid:13)
Mr. David G. Hall, and additional borrowings subsequently increased the (cid:13)
loan to $500,000. In June 2001, Mr. Hall repaid $300,000 and reduced the (cid:13)
outstanding loan balance to $200,000 at June 30, 2001. The Company (cid:13)
increased the loan to Mr. Hall during fiscal 2002 to $381,000. The loan, (cid:13)
which was for a stated term, accrued interest at 10% per annum and was (cid:13)
collateralized by 1,000,000 shares of our common stock owned by him. All (cid:13)
accrued interest under this loan was paid at June 30, 2001. Accrued and (cid:13)
unpaid interest at June 30, 2002 was $31,000. On September 10, 2002, Mr. (cid:13)
Hall transferred to the Company 520,830 shares of the Company's common (cid:13)
stock owned by him, with a fair value of $385,000 or at $0.74 per share, in (cid:13)
full satisfaction of the then outstanding principal and interest under the (cid:13)
loan. (cid:13)
(cid:13)
A member of the Board of Directors is also a partner in a professional (cid:13)
services firm providing service to the Company. For the years ended June (cid:13)
30, 2002 and 2001, the member was paid $26,000 and $15,000, respectively, (cid:13)
as Board fees and the professional services firm was paid $110,000 and (cid:13)
$134,000, respectively for services rendered. (cid:13)
(cid:13)
13. Commitments and Contingencies (cid:13)
(cid:13)
Leases (cid:13)
(cid:13)
The Company has various operating lease commitments for facilities and (cid:13)
equipment that expire through November 2009. Total rent expense, net of (cid:13)
sublease income, for the years ended June 30, 2002, 2001 and 2000 was (cid:13)
approximately $1,860,000, $1,674,000 and $871,000, respectively. At June (cid:13)
30, 2001, future minimum lease payments under these agreements are as (cid:13)
follows: (cid:13)
(cid:13)
(cid:13)
This document is compiled by Thomson Financial
58
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
2003 $ 1,345 (cid:13)
2004 1,285 (cid:13)
2005 1,175 (cid:13)
2006 1,125 (cid:13)
2007 1,151 (cid:13)
Thereafter 2,817 (cid:13)
------------------ (cid:13)
8,898 (cid:13)
------------------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
Employment Agreements (cid:13)
(cid:13)
The Company has entered into employment agreements with certain executive (cid:13)
officers and other key employees. The employment agreements provide for (cid:13)
minimum salary levels, incentive compensation and severance benefits, among (cid:13)
other items. (cid:13)
(cid:13)
Consulting Agreement (cid:13)
(cid:13)
The Company has entered into a consulting agreement with a former executive (cid:13)
officer. The agreement provides for payments of $15,000 per month over a (cid:13)
20-month period, effective April 2000. In fiscal 2002, 2001 and 2000, (cid:13)
$75,000, $180,000 and $45,000 respectively, was recorded as an operating (cid:13)
expense under this consulting agreement. (cid:13)
(cid:13)
14. Segment, Geographic and Major Customer Information (cid:13)
(cid:13)
Operating segments are defined as components of an enterprise about which (cid:13)
separate financial information is available that is evaluated regularly by (cid:13)
the Company's chief operating decision maker, or decision making group, in (cid:13)
deciding how to allocate resources and in assessing performance. The (cid:13)
Company's chief decision maker is its Chief Executive Officer. The (cid:13)
operating segments of the Company are organized based on the services it (cid:13)
offers. Similar operating segments have been aggregated to reportable (cid:13)
operating segments based on having similar products or services, types of (cid:13)
customers, and other criteria under SFAS No. 131, Disclosures about (cid:13)
Segments of an Enterprise and Related Information. (cid:13)
(cid:13)
We operate principally in two service segments: the authentication and (cid:13)
grading of collectibles and sales of collectibles through auctions and (cid:13)
direct sales. Effective for the fiscal year ended June 30, 2001, the (cid:13)
Company changed the description of its "Auction" business segment to (cid:13)
"Collectible Sales" to reflect the increase in retail collectible sales (cid:13)
within this segment that occurred in fiscal 2001. Accordingly, the (cid:13)
description of the business segments for the fiscal year ended June 30, (cid:13)
2000 has been changed to conform to the presentation for the fiscal years (cid:13)
ended June 30, 2002 and 2001. (cid:13)
(cid:13)
44 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES (cid:13)
(cid:13)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (cid:13)
(cid:13)
(cid:13)
We allocate operating expenses to each business segment based upon activity (cid:13)
levels. In the fiscal year ended June 30, 2000, we allocated operating (cid:13)
expenses to our business segments based upon head count. Accordingly, we (cid:13)
have restated the operating income and unallocated operating expenses (cid:13)
This document is compiled by Thomson Financial
59
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
included in the business segment data for the fiscal year ended June 30, (cid:13)
2000 to conform to the presentation for the fiscal years ended June 30, (cid:13)
2002 and 2001. We do not allocate specific assets to these service (cid:13)
segments. All of our sales and identifiable assets are located in the (cid:13)
United States. No individual customer accounted for 10% or more of revenue (cid:13)
for the years ended June 30, 2002, 2001 and 2000. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Year Ended June 30, 2002 (in thousands) (cid:13)
---------------------------------------------- (cid:13)
Collectible Grading and (cid:13)
Sales Authentication Total (cid:13)
Net revenues from (cid:13)
external customers $ 26,454 $ 18,327 $ 44,781 (cid:13)
--------------- ----------------- --------- (cid:13)
Operating income (cid:13)
(loss) before (cid:13)
unallocated operating (cid:13)
expenses (2,949) 3,476 527 (cid:13)
Unallocated operating (cid:13)
expenses -- -- (4,874) (cid:13)
--------- (cid:13)
Operating loss, (cid:13)
consolidated -- -- (4,347) (cid:13)
--------- (cid:13)
Goodwill amortization (cid:13)
and impairment $ 1,559 $ 141 $ 1,700 (cid:13)
(cid:13)
Year Ended June 30, 2001 (in thousands) (cid:13)
---------------------------------------------- (cid:13)
Collectible Grading and (cid:13)
Sales Authentication Total (cid:13)
Net revenues from (cid:13)
external customers $ 31,422 $ 20,962 $ 52,384 (cid:13)
--------------- ----------------- --------- (cid:13)
Operating income (cid:13)
(loss) before (cid:13)
unallocated operating (cid:13)
expenses $ (3,019) $ 4,796 $ 1,777 (cid:13)
Unallocated operating (cid:13)
expenses -- -- (2,655) (cid:13)
--------- (cid:13)
Operating income, (cid:13)
consolidated -- -- (878) (cid:13)
--------- (cid:13)
Goodwill amortization $ 2,644 $ 60 $ 2,704 (cid:13)
(cid:13)
Year Ended June 30, 2000 (in thousands) (cid:13)
---------------------------------------------- (cid:13)
Collectible Grading and (cid:13)
Sales Authentication Total (cid:13)
Net revenues from (cid:13)
external customers $ 18,011 $ 24,363 $ 42,374 (cid:13)
--------------- ----------------- --------- (cid:13)
Operating (loss) (cid:13)
income before (cid:13)
unallocated operating (cid:13)
expenses ($ 3,891) $ 8,862 $ 4,971 (cid:13)
Unallocated operating (cid:13)
expenses -- -- (2,466) (cid:13)
--------- (cid:13)
Operating loss, (cid:13)
consolidated -- -- $ 2,505 (cid:13)
--------- (cid:13)
This document is compiled by Thomson Financial
60
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Goodwill amortization $ 1,030 $ 40 $ 1,070 (cid:13)
(cid:13)
(cid:13)
45 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND (cid:13)
FINANCIAL DISCLOSURE (cid:13)
(cid:13)
(cid:13)
(cid:13)
Not Applicable (cid:13)
(cid:13)
PART III (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 10. DIRECTORS AND EXECUTIVE OFFICERS (cid:13)
(cid:13)
(cid:13)
(cid:13)
Except for information concerning the Company's executive officers, which (cid:13)
is included in Part I of this Report, the information required by Item 10 (cid:13)
is incorporated by reference from the Company's definitive proxy statement (cid:13)
for its annual stockholders' meeting expected to be filed with the (cid:13)
Commission on or before October 28, 2002. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 11. EXECUTIVE COMPENSATION (cid:13)
(cid:13)
(cid:13)
(cid:13)
The information required by Item 11 is incorporated herein by reference (cid:13)
from the Company's definitive proxy statement for its annual stockholders' (cid:13)
meeting expected to be filed with the Commission on or before October 28, (cid:13)
2002. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (cid:13)
(cid:13)
(cid:13)
(cid:13)
The information required by Item 12 is incorporated herein by reference (cid:13)
from the Company's definitive proxy statement for its annual stockholders' (cid:13)
meeting expected to be filed with the Commission on or before October 28, (cid:13)
2002. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (cid:13)
(cid:13)
This document is compiled by Thomson Financial
61
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
The information required by Item 13 is incorporated herein by reference (cid:13)
from the Company's definitive proxy statement for its annual stockholders' (cid:13)
meeting expected to be filed with the Commission on or before October 28, (cid:13)
2002. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
Item 14. CONTROLS AND PROCEDURES (cid:13)
(cid:13)
(cid:13)
(cid:13)
Not applicable. (cid:13)
(cid:13)
46 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
PART IV (cid:13)
(cid:13)
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM (cid:13)
8-K. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
A. The following financial statements are included in Item 8 of Form (cid:13)
10-K: (cid:13)
(cid:13)
1. Financial Statements (cid:13)
Independent Auditors' Report (cid:13)
Consolidated Balance Sheets as of June 30, 2002 and 2001 (cid:13)
(cid:13)
Consolidated Statements of Operations for the years ended June 30, (cid:13)
2002, 2001 and 2000 (cid:13)
(cid:13)
Consolidated Statements of Stockholders' Equity for the years ended (cid:13)
June 30, 2002, 2001 and 2000 (cid:13)
(cid:13)
Consolidated Statements of Cash Flows for the years ended June 30, (cid:13)
2002, 2001 and 2000 (cid:13)
Notes to the Consolidated Financial Statements (cid:13)
(cid:13)
2. Financial Statement Schedule (cid:13)
Schedule II Valuation and Qualifying Accounts (cid:13)
The other schedules are omitted because the required information is (cid:13)
either inapplicable or has been disclosed in the consolidated (cid:13)
financial statements and notes thereto. (cid:13)
(cid:13)
3. Exhibits (cid:13)
(cid:13)
See Index to Exhibits immediately following the Signature Page of (cid:13)
this Report (cid:13)
(cid:13)
B. Reports on Form 8-K (cid:13)
(cid:13)
No current reports on Form 8-K were filed during the quarter ended (cid:13)
June 30, 2002. (cid:13)
(cid:13)
(cid:13)
47 (cid:13)
This document is compiled by Thomson Financial
62
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
---------------------------------------------------------------------------- (cid:13)
Schedule II (cid:13)
Valuation and Qualifying Accounts (cid:13)
For the Years Ended June 30, 2000, 2001 and 2002 (cid:13)
----------------------------------------------------------- (cid:13)
Charged Balance (cid:13)
Balance at Charged to to Cost at (cid:13)
Beginning Operating of End of (cid:13)
Description of Period Expenses Revenues Deductions Period (cid:13)
--------- ----------- ---------- ---------- ---------- --------- (cid:13)
Allowance for (cid:13)
doubtful (cid:13)
accounts $ 37,500 $ 182,372 $ -- $ (114,650) $105,222 (cid:13)
Inventory (cid:13)
reserve 160,500 -- 16,889 (71,705) 105,684 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
Total at June (cid:13)
30, 2000 $ 198,000 $ 182,372 $ 16,889 $ (186,355) $210,906 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
(cid:13)
Allowance for (cid:13)
doubtful (cid:13)
accounts $ 105,222 $ 502,301 $ -- $ (37,812) $569,711 (cid:13)
Inventory (cid:13)
reserve 105,684 -- 233,874 (27,099) 312,459 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
Total at June (cid:13)
30, 2001 $ 210,906 $ 502,301 $ 233,874 $ (64,911) $882,170 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
(cid:13)
Allowance for (cid:13)
doubtful (cid:13)
accounts $ 569,711 $ 137,053 $ -- $ (413,764) $293,000 (cid:13)
Inventory (cid:13)
reserve 312,459 -- 31,253 (4,712) 339,000 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
Total at June (cid:13)
30, 2002 $ 882,170 $ 137,053 $ 31,253 $ (418,476) $632,000 (cid:13)
----------- ---------- ---------- ----------- --------- (cid:13)
(cid:13)
(cid:13)
48 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
SIGNATURES (cid:13)
(cid:13)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act (cid:13)
of 1934, the registrant has duly caused this report to be signed on its (cid:13)
behalf by the undersigned thereunto duly authorized. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE, INC. (cid:13)
(cid:13)
Date: September 27, 2002 By: /s/ MICHAEL J. (cid:13)
LEWIS (cid:13)
--------------------------- (cid:13)
Chief Financial Officer (cid:13)
This document is compiled by Thomson Financial
63
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
(cid:13)
(cid:13)
POWER OF ATTORNEY (cid:13)
(cid:13)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature (cid:13)
appears below constitutes and appoints Roger W. Johnson and Michael J. (cid:13)
Lewis, jointly and severally, his or her respective attorneys-in-fact, each (cid:13)
with the power of substitution, for each other in any and all capacities, (cid:13)
to sign any amendments to this Report on Form 10-K, and to file the same, (cid:13)
with exhibits thereto and other documents in connection therewith, with the (cid:13)
Securities and Exchange Commission, hereby ratifying and confirming all (cid:13)
that each of said attorneys-in-fact, or his or her respective substitute or (cid:13)
substitutes, may do or cause to be done by virtue hereof. (cid:13)
(cid:13)
Pursuant to the requirements of the Securities Exchange Act of 1934, this (cid:13)
report has been signed by the following persons on behalf of the Registrant (cid:13)
and in the capacities and on the dates indicated. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
--------------------------------------------------------------------------- (cid:13)
Signature Title Date (cid:13)
--------------------------------------------------------------------------- (cid:13)
(cid:13)
/s/ JAMES H. Chairman/Director September 27, 2002 (cid:13)
O'NEAL (cid:13)
-------------------------- (cid:13)
James H. O'Neal (cid:13)
(cid:13)
/s/ ROGER W. Chief Executive Officer September 27, 2002 (cid:13)
JOHNSON (cid:13)
-------------------------- (cid:13)
Roger W. Johnson (cid:13)
(cid:13)
/s/ DAVID G. President and Director September 27, 2002 (cid:13)
HALL (cid:13)
-------------------------- (cid:13)
David G. Hall (cid:13)
(cid:13)
/s/ MICHAEL J. Chief Financial Officer September 27, 2002 (cid:13)
LEWIS (Principal Financial and (cid:13)
-------------------------- Principal Accounting (cid:13)
Michael J. Lewis Officer) (cid:13)
(cid:13)
/s/ Q. DAVID Director September 27, 2002 (cid:13)
BOWERS (cid:13)
-------------------------- (cid:13)
Q. David Bowers (cid:13)
(cid:13)
/s/ BEN A. Director/Secretary September 27, 2002 (cid:13)
FRYDMAN (cid:13)
-------------------------- (cid:13)
Ben A. Frydman (cid:13)
(cid:13)
/s/ VAN D. Director September 27, 2002 (cid:13)
SIMMONS (cid:13)
-------------------------- (cid:13)
Van D. Simmons (cid:13)
(cid:13)
/s/ A. CLINTON Director September 27, 2002 (cid:13)
ALLEN (cid:13)
-------------------------- (cid:13)
A. Clinton Allen (cid:13)
This document is compiled by Thomson Financial
64
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
--------------------------------------------------------------------------- (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
S-1 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER (cid:13)
UNDER (cid:13)
SECTION 302 OF THE SARBANES-OXLEY ACT (cid:13)
(cid:13)
I, Roger W. Johnson, Chief Executive Officer of Collectors Universe, Inc., (cid:13)
certify that: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
1. I have reviewed this annual report on Form 10-K of Collectors (cid:13)
Universe, Inc.; (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
2. Based on my knowledge, this annual report does not contain any (cid:13)
untrue statement of a material fact or omit to state a material fact (cid:13)
necessary to make the statements made, in light of the circumstances (cid:13)
under which such statements were made, not misleading with respect (cid:13)
to the period covered by this annual report; (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
3. Based on my knowledge, the financial statements, and other financial (cid:13)
information included in this annual report, fairly present in all (cid:13)
material respects the financial condition, results of operations and (cid:13)
cash flows of the registrant as of, and for, the periods presented (cid:13)
in this annual report. (cid:13)
(cid:13)
(cid:13)
(cid:13)
Date: September 27, 2002 (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
/s/ ROGER W. (cid:13)
JOHNSON (cid:13)
------------------------------ (cid:13)
Roger W. Johnson (cid:13)
Chief Executive Officer (cid:13)
(cid:13)
(cid:13)
S-2 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
This document is compiled by Thomson Financial
65
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER (cid:13)
UNDER (cid:13)
SECTION 302 OF THE SARBANES-OXLEY ACT (cid:13)
(cid:13)
I, Michael J. Lewis, Chief Financial Officer of Collectors Universe, Inc., (cid:13)
certify that: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
1. I have reviewed this annual report on Form 10-K of Collectors (cid:13)
Universe, Inc.; (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
2. Based on my knowledge, this annual report does not contain any (cid:13)
untrue statement of a material fact or omit to state a material fact (cid:13)
necessary to make the statements made, in light of the circumstances (cid:13)
under which such statements were made, not misleading with respect (cid:13)
to the period covered by this annual report; (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
3. Based on my knowledge, the financial statements, and other financial (cid:13)
information included in this annual report, fairly present in all (cid:13)
material respects the financial condition, results of operations and (cid:13)
cash flows of the registrant as of, and for, the periods presented (cid:13)
in this annual report. (cid:13)
(cid:13)
(cid:13)
(cid:13)
Date: September 27, 2002 (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
/s/ MICHAEL J. (cid:13)
LEWIS (cid:13)
------------------------------ (cid:13)
Michael J. Lewis (cid:13)
Chief Financial Officer (cid:13)
(cid:13)
(cid:13)
S-3 (cid:13)
(cid:13)
------------------------------------------------------------------------ (cid:13)
(cid:13)
INDEX TO EXHIBITS (cid:13)
(cid:13)
(cid:13)
(cid:13)
Exhibit (cid:13)
No. Description (cid:13)
------- --------- (cid:13)
1.1 Form of Underwriting Agreement.* (cid:13)
3.2 Form of Amended and Restated Certificate of Incorporation of (cid:13)
This document is compiled by Thomson Financial
66
(cid:13)
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Collectors Universe, as currently in effect.* (cid:13)
3.3 Amended and Restated Bylaws of Collectors Universe, as adopted (cid:13)
September 1, 1999.* (cid:13)
4.1 Registration Rights Agreement.* (cid:13)
4.2 Form of Registration Rights Agreement for Stockholders pursuant (cid:13)
to private placement.* (cid:13)
5.1 Opinion of Stradling Yocca Carlson & Rauth, a Professional (cid:13)
Corporation.* (cid:13)
10.1 Collectors Universe 1999 Stock Incentive Plan.* (cid:13)
10.2 Form of Stock Option Agreement for the Collectors Universe 1999 (cid:13)
Plan.* (cid:13)
10.4 PCGS 1999 Stock Incentive Plan.* (cid:13)
10.5 Form of Stock Option Agreement for the PCGS 1999 Plan.* (cid:13)
10.6 Employee Stock Purchase Plan.* (cid:13)
10.7 Form of indemnification Agreement.* (cid:13)
10.8 Asset Acquisition Agreement dated January 25,1999 between (cid:13)
Professional Coin Grading Service, Inc., Info Exchange, Inc. and (cid:13)
Brent Gutekunst.* (cid:13)
10.9 Collectors Universe/eBay Mutual Services Term Sheet dated (cid:13)
February 10,1999, between the Company and eBay, Inc.* (cid:13)
10.10 Net Lease between Orix Searls Santa Ana Venture and Collectors (cid:13)
Universe, dated June, 1999.* (cid:13)
10.11 Agreement for the Sale of Goods and Services dated March 31,1999, (cid:13)
between the Company and DNA Technologies, * (cid:13)
10.12 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company and Hugh Sconyers.* (cid:13)
10.13 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company and BJ Searls.* (cid:13)
10.14 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company and Greg Bussineau.* (cid:13)
10.15 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company and Lyn F. Knight Rare Coins* (cid:13)
10.16 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company, Kingswood Coin Auction, LLC and the Members (cid:13)
of Kingswood.* (cid:13)
10.17 Contribution and Acquisition Agreement dated February 3,1999, (cid:13)
between the Company and Professional Coin Grading Service, Inc.* (cid:13)
10.18 Employment Agreement dated March 1999, between Superior (cid:13)
Sportscard Auctions, LLC and Greg Bussineau.* (cid:13)
10.19 Employment Agreement dated March 5,1999, between Lyn F. Knight, (cid:13)
Lyn Knight Currency Auctions, Inc. and Collectors Universe.* (cid:13)
10.24 Asset Purchase Agreements between Collectors Universe, Inc. and (cid:13)
Auctions by Bowers and Merena, Inc., Bowers and Merena Galleries, (cid:13)
Inc. and Bowers and Merena Research, Inc. (Incorporated by (cid:13)
reference to Exhibit 10-1 to Registrant's Current Report on Form (cid:13)
8-K, dated March 21, 2000).* (cid:13)
21.1 Subsidiaries of the Company. (cid:13)
23.1 Consent of Independent Auditors. (cid:13)
99.1 CEO Certifications under Section 906 of the Sarbanes-Oxley Act (cid:13)
99.2 CFO Certifications under Section 906 of the Sarbanes-Oxley Act (cid:13)
(cid:13)
(cid:13)
------ (cid:13)
(cid:13)
(cid:13)
(cid:13)
* Incorporated by reference to the same numbered exhibit to the Company's (cid:13)
Registration Statement (No. 333-86449) on Form S-1 filed with the (cid:13)
Commission on September 2, 1999. (cid:13)
(cid:13)
(cid:13)
E-1 (cid:13)
This document is compiled by Thomson Financial
67
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
EXHIBIT 21.1 (cid:13)
(cid:13)
SUBSIDIARIES (cid:13)
OF THE (cid:13)
COMPANY (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
State of Collectors Universe (cid:13)
Name Incorporation/Organization Ownership Percentage (cid:13)
------------------ -------------------------- ------------------------ (cid:13)
Lyn Knight (cid:13)
Currency Auction, (cid:13)
Inc. Delaware 100% (cid:13)
(cid:13)
This document is compiled by Thomson Financial
68
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
EXHIBIT 23.1 (cid:13)
(cid:13)
INDEPENDENT AUDITORS' CONSENT (cid:13)
(cid:13)
To the Stockholders and Board of Directors of (cid:13)
Collectors Universe, Inc. (cid:13)
(cid:13)
We consent to the incorporation by reference in Registration Statements No. (cid:13)
333-85962, No. 333-34554, No. 333-34556 and No. 333-34558 of Collectors (cid:13)
Universe, Inc. on Form S-8 of our report dated August 26, 2002, except for (cid:13)
paragraph 5 of Note 12, as to which the date is September 10, 2002, (cid:13)
appearing in this Annual Report on Form 10-K of Collectors Universe, Inc. (cid:13)
for the year ended June 30, 2002. (cid:13)
(cid:13)
(cid:13)
(cid:13)
DELOITTE & TOUCHE LLP (cid:13)
(cid:13)
Costa Mesa, California (cid:13)
September 27, 2002 (cid:13)
This document is compiled by Thomson Financial
69
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
(cid:13)
Exhibit 99.1 (cid:13)
(cid:13)
CERTIFICATION OF PERIODIC REPORT (cid:13)
(cid:13)
I, Roger W. Johnson, Chief Executive Officer of Collectors Universe, Inc. (cid:13)
(the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act (cid:13)
of 2002, 18 U.S.C. Sections 1350, that: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(1) the Annual Report on Form 10-K of the Company for the fiscal year (cid:13)
ended June 30, 2002 (the "Annual Report") fully complies with the (cid:13)
requirements of Section 13(a) or 15(d) of the Securities Exchange (cid:13)
Act of 1934 (15 U.S.C. 78m or 78o(d)); and (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(2) the information contained in the Annual Report fairly presents, in (cid:13)
all material respects, the financial condition and results of (cid:13)
operations for the Company. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
September 27, 2002 (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
/s/ ROGER W. (cid:13)
JOHNSON (cid:13)
------------------------------ (cid:13)
Roger W. Johnson (cid:13)
Chief Executive Officer (cid:13)
(cid:13)
This document is compiled by Thomson Financial
70
(cid:13)
(cid:13)
(cid:13)
COLLECTORS UNIVERSE INC - 10-K
Filing Date: 06/30/02
Exhibit 99.2 (cid:13)
(cid:13)
CERTIFICATION OF PERIODIC REPORT (cid:13)
(cid:13)
I, Michael J. Lewis, Chief Financial Officer of Collectors Universe, Inc. (cid:13)
(the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act (cid:13)
of 2002, 18 U.S.C. Sections 1350, that: (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(1) the Annual Report on Form 10-K of the Company for the fiscal year (cid:13)
ended June 30, 2002 (the "Annual Report") fully complies with the (cid:13)
requirements of Section 13(a) or 15(d) of the Securities Exchange (cid:13)
Act of 1934 (15 U.S.C. 78m or 78o(d)); and (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(2) the information contained in the Annual Report fairly presents, in (cid:13)
all material respects, the financial condition and results of (cid:13)
operations for the Company. (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
September 27, 2002 (cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
(cid:13)
/s/ MICHAEL J. (cid:13)
LEWIS (cid:13)
------------------------------ (cid:13)
Michael J. Lewis (cid:13)
Chief Financial Officer (cid:13)
(cid:13)
This document is compiled by Thomson Financial
71
(cid:13)
(cid:13)
(cid:13)