UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the quarter ended March 31, 2008
|
|
|
|
OR
|
|
|
q
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
|
|
|
|
For
the transition period from _______ to _____
|
Commission
file number 0-27887
|
|
COLLECTORS
UNIVERSE, INC.
(Exact
name of Registrant as specified in its
charter)
|
Delaware
|
33-0846191
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or organization)
|
|
|
1921
E. Alton Avenue, Santa Ana, California 92705
|
(address of principal executive
offices and zip code
)
|
|
|
Registrant's
telephone number, including area code: (949)
567-1234
|
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
ý
No
o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer”
in Rule
12b-2 of the Exchange Act, (Check one):
Large
accelerated filer
o
|
Accelerated
filer
ý
|
Non-accelerated
filer
o
|
Indicate
by check mark whether the Registrant is a shell company (as defined in
Securities Exchange Act Rule 12b-2).
YES [ ] NO
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
Class
|
Outstanding at April 24,
2008
|
|
Common
Stock $.001 Par Value
|
8,451,495
|
|
|
|
|
|
COLLECTORS
UNIVERSE, INC.
QUARTERLY
REPORT ON FORM 10-Q
FOR
THE QUARTER ENDED MARCH 31, 2008
TABLE
OF CONTENTS
PART
I
|
Financial
Information
|
Page
|
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Item
1.
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1
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2
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3
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4
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6
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Item
2.
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20
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20
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20
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21
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22
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24
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24
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30
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32
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Item
2A.
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34
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Item
3
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34
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PART
II
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Other
Information
|
|
|
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Item
1
|
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35
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|
Item
1A.
|
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35
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Item
2.
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36
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Item
6.
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36
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S-1
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E-1
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EXHIBITS
|
|
|
|
Certifications
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certifications
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
|
Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
PART
I - FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except per share data)
(unaudited)
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
28,167
|
|
|
$
|
42,386
|
|
Accounts receivable, net of
allowance of $74 at March 31, 2008 and $60 at June 30,
2007
|
|
|
1,744
|
|
|
|
1,276
|
|
Refundable income
taxes
|
|
|
1,100
|
|
|
|
1,220
|
|
Inventories, net
|
|
|
1,073
|
|
|
|
442
|
|
Prepaid expenses and other current
assets
|
|
|
1,380
|
|
|
|
1,060
|
|
Customer notes receivable, net of
allowance of $28 at March 31, 2008 and $23 at June 30,
2007
|
|
|
3,985
|
|
|
|
2,536
|
|
Net deferred income tax
asset
|
|
|
2,921
|
|
|
|
1,020
|
|
Receivable from sale of net assets
of discontinued operations
|
|
|
92
|
|
|
|
92
|
|
Total current
assets
|
|
|
40,462
|
|
|
|
50,032
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
4,544
|
|
|
|
4,081
|
|
Goodwill
|
|
|
13,038
|
|
|
|
12,884
|
|
Intangible
assets, net
|
|
|
10,181
|
|
|
|
10,365
|
|
Note
receivable from sale of discontinued operations
|
|
|
160
|
|
|
|
229
|
|
Other
assets
|
|
|
565
|
|
|
|
510
|
|
|
|
$
|
68,950
|
|
|
$
|
78,101
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,434
|
|
|
$
|
1,435
|
|
Accrued
liabilities
|
|
|
1,994
|
|
|
|
2,154
|
|
Accrued compensation and
benefits
|
|
|
1,486
|
|
|
|
1,988
|
|
Income taxes
payable
|
|
|
289
|
|
|
|
14
|
|
Deferred revenue
|
|
|
2,530
|
|
|
|
2,233
|
|
Current liabilities of
discontinued operations held for sale
|
|
|
4
|
|
|
|
-
|
|
Total current
liabilities
|
|
|
7,737
|
|
|
|
7,824
|
|
|
|
|
|
|
|
|
|
|
Deferred
rent and other long-term liabilities
|
|
|
554
|
|
|
|
517
|
|
Net
deferred income tax liability
|
|
|
1,118
|
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value;
5,000 shares authorized; no shares issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.001 par value;
45,000 shares authorized; 8,451 shares outstanding
at
March 31, 2008 and 8,496 at June 30, 2007
|
|
|
8
|
|
|
|
9
|
|
Additional paid-in
capital
|
|
|
76,481
|
|
|
|
76,737
|
|
Accumulated
deficit
|
|
|
(16,948
|
)
|
|
|
(7,855
|
)
|
Total stockholders'
equity
|
|
|
59,541
|
|
|
|
68,891
|
|
|
|
$
|
68,950
|
|
|
$
|
78,101
|
|
See
accompanying notes to condensed consolidated financial statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(in
thousands, except per share data)
(unaudited)
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
March
31,
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grading, authentication and
related services
|
|
$
|
10,875
|
|
|
$
|
11,068
|
|
|
$
|
30,757
|
|
|
$
|
29,629
|
|
Product sales
|
|
|
21
|
|
|
|
13
|
|
|
|
928
|
|
|
|
143
|
|
|
|
|
10,896
|
|
|
|
11,081
|
|
|
|
31,685
|
|
|
|
29,772
|
|
Cost
of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grading, authentication and
related services
|
|
|
5,977
|
|
|
|
5,130
|
|
|
|
17,153
|
|
|
|
13,753
|
|
Product sales
|
|
|
20
|
|
|
|
8
|
|
|
|
841
|
|
|
|
108
|
|
|
|
|
5,997
|
|
|
|
5,138
|
|
|
|
17,994
|
|
|
|
13,861
|
|
Gross
profit
|
|
|
4,899
|
|
|
|
5,943
|
|
|
|
13,691
|
|
|
|
15,911
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
expenses
|
|
|
2,164
|
|
|
|
2,411
|
|
|
|
6,043
|
|
|
|
5,106
|
|
General and administrative
expenses
|
|
|
3,960
|
|
|
|
3,729
|
|
|
|
11,637
|
|
|
|
11,389
|
|
Amortization of intangible
assets
|
|
|
317
|
|
|
|
219
|
|
|
|
873
|
|
|
|
577
|
|
Total operating
expenses
|
|
|
6,441
|
|
|
|
6,359
|
|
|
|
18,553
|
|
|
|
17,072
|
|
Operating
loss
|
|
|
(1,542
|
)
|
|
|
(416
|
)
|
|
|
(4,862
|
)
|
|
|
(1,161
|
)
|
Interest
income, net
|
|
|
239
|
|
|
|
511
|
|
|
|
979
|
|
|
|
1,624
|
|
Other
income
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
8
|
|
Income
(loss) before income taxes
|
|
|
(1,302
|
)
|
|
|
97
|
|
|
|
(3,879
|
)
|
|
|
471
|
|
Provision
(benefit) for income taxes
|
|
|
(336
|
)
|
|
|
165
|
|
|
|
(1,364
|
)
|
|
|
336
|
|
Income
(loss) from continuing operations
|
|
|
(966
|
)
|
|
|
(68
|
)
|
|
|
(2,515
|
)
|
|
|
135
|
|
Income
(loss) from discontinued operations, net of gains on sales of
discontinued
businesses (net of income taxes)
|
|
|
-
|
|
|
|
99
|
|
|
|
(4
|
)
|
|
|
190
|
|
Net
income (loss)
|
|
$
|
(966
|
)
|
|
$
|
31
|
|
|
$
|
(2,519
|
)
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per basic share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations, net of gains
on
sales of
discontinued
businesses (net of income taxes)
|
|
|
-
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.02
|
|
Net
income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations, net of gains
on
sales of
discontinued
businesses (net of income taxes)
|
|
|
-
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.02
|
|
Net
income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,470
|
|
|
|
8,381
|
|
|
|
8,475
|
|
|
|
8,346
|
|
Diluted
|
|
|
8,470
|
|
|
|
8,587
|
|
|
|
8,475
|
|
|
|
8,612
|
|
Dividends
declared per common share
|
|
$
|
0.25
|
|
|
$
|
0.12
|
|
|
$
|
0.75
|
|
|
$
|
0.28
|
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
(in
thousands)
Unaudited
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
Balance
at June 30, 2005
|
|
|
8,610
|
|
|
$
|
9
|
|
|
$
|
78,594
|
|
|
$
|
(7,016
|
)
|
|
|
(125
|
)
|
|
$
|
(1,021
|
)
|
|
$
|
70,566
|
|
Exercise
of stock options
|
|
|
47
|
|
|
|
-
|
|
|
|
243
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
243
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
670
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
670
|
|
Tax
benefit on exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
Shares
repurchased and cancelled under
the
Stock Repurchase Plan
|
|
|
(182
|
)
|
|
|
(1
|
)
|
|
|
(2,627
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,628
|
)
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,700
|
|
Dividends
paid to common stockholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(674
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(674
|
)
|
Balance
at June 30, 2006
|
|
|
8,475
|
|
|
|
8
|
|
|
|
76,909
|
|
|
|
(3,990
|
)
|
|
|
(125
|
)
|
|
|
(1,021
|
)
|
|
|
71,906
|
|
Exercise
of stock options
|
|
|
161
|
|
|
|
1
|
|
|
|
275
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
726
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
726
|
|
Issuance
of restricted shares
|
|
|
57
|
|
|
|
-
|
|
|
|
164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164
|
|
Tax
benefit on exercise of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
633
|
|
Shares
repurchased and cancelled
under the Stock Repurchase
Plan
|
|
|
(72
|
)
|
|
|
-
|
|
|
|
(949
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(949
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(515
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(515
|
)
|
Retirement
of treasury shares
|
|
|
(125
|
)
|
|
|
-
|
|
|
|
(1,021
|
)
|
|
|
-
|
|
|
|
125
|
|
|
|
1,021
|
|
|
|
-
|
|
Dividends
paid ($0.40 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,350
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,350
|
)
|
Balance
at June 30, 2007
|
|
|
8,496
|
|
|
|
9
|
|
|
|
76,737
|
|
|
|
(7,855
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,891
|
|
Cumulative
effect of adoption of
FIN
48 (see note 8)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(170
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(170
|
)
|
Exercise
of stock options
|
|
|
76
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
242
|
|
Issuance
of restricted shares
|
|
|
21
|
|
|
|
-
|
|
|
|
255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
575
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
575
|
|
Shares
repurchased and cancelled
under
the Stock Repurchase Plan
|
|
|
(142
|
)
|
|
|
(1
|
)
|
|
|
(1,328
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,329
|
)
|
Dividends
paid ($0.75 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,404
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,404
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,519
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,519
|
)
|
Balance
at March 31, 2008
|
|
|
8,451
|
|
|
$
|
8
|
|
|
$
|
76,481
|
|
|
$
|
(16,948
|
)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
59,541
|
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(in
thousands)
(unaudited)
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
(2,519
|
)
|
|
$
|
325
|
|
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
1,797
|
|
|
|
1,332
|
|
Loss on disposal of fixed
assets
|
|
|
(1
|
)
|
|
|
-
|
|
Interest on note
receivable
|
|
|
(7
|
)
|
|
|
-
|
|
Stock-based compensation
expense
|
|
|
830
|
|
|
|
661
|
|
Tax benefit from exercising of
stock options
|
|
|
-
|
|
|
|
623
|
|
Provision for bad debts and
credits
|
|
|
34
|
|
|
|
33
|
|
Provision for inventory write
down
|
|
|
10
|
|
|
|
1
|
|
Discontinued
operations
|
|
|
4
|
|
|
|
(190
|
)
|
Deferred income
taxes
|
|
|
(1,434
|
)
|
|
|
(201
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(495
|
)
|
|
|
213
|
|
Inventories
|
|
|
(641
|
)
|
|
|
(21
|
)
|
Prepaid expenses and other
current assets
|
|
|
(320
|
)
|
|
|
(602
|
)
|
Refundable income
taxes
|
|
|
120
|
|
|
|
-
|
|
Income taxes
payable
|
|
|
2
|
|
|
|
(579
|
)
|
Other assets
|
|
|
(64
|
)
|
|
|
(80
|
)
|
Accounts
payable
|
|
|
(1
|
)
|
|
|
365
|
|
Accrued
liabilities
|
|
|
(162
|
)
|
|
|
(44
|
)
|
Deferred rent and other
long-term liabilities
|
|
|
40
|
|
|
|
74
|
|
Accrued compensation and
benefits
|
|
|
(502
|
)
|
|
|
133
|
|
Deferred
revenue
|
|
|
297
|
|
|
|
295
|
|
Net cash provided by (used in)
operating activities
|
|
|
(3,012
|
)
|
|
|
2,338
|
|
Net
cash provided by operating activities of discontinued
businesses
|
|
|
-
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,436
|
)
|
|
|
(2,590
|
)
|
Proceeds
from sale of property and equipment
|
|
|
63
|
|
|
|
-
|
|
Purchase
of businesses, net of cash acquired
|
|
|
-
|
|
|
|
(6,316
|
)
|
Advances
on customer notes receivable
|
|
|
(5,343
|
)
|
|
|
(3,052
|
)
|
Proceeds
from collection of customer notes receivable
|
|
|
3,896
|
|
|
|
4,784
|
|
Purchase
of patents and other intangible assets
|
|
|
(20
|
)
|
|
|
(352
|
)
|
Capitalized
software
|
|
|
(943
|
)
|
|
|
(1,184
|
)
|
Cash
received on sale of discontinued businesses
|
|
|
67
|
|
|
|
324
|
|
Net
cash used in investing activities
|
|
|
(3,716
|
)
|
|
|
(8,386
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock
options
|
|
|
242
|
|
|
|
229
|
|
Payments for repurchase and
retirement of common stock
|
|
|
(1,329
|
)
|
|
|
(949
|
)
|
Dividends paid to common
stockholders
|
|
|
(6,404
|
)
|
|
|
(2,332
|
)
|
Net
cash used in financing activities
|
|
|
(7,491
|
)
|
|
|
(3,052
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(14,219
|
)
|
|
|
(9,035
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
42,386
|
|
|
|
52,110
|
|
Cash
and cash equivalents at end of period
|
|
$
|
28,167
|
|
|
$
|
43,075
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
15
|
|
|
$
|
15
|
|
Income taxes
paid
|
|
$
|
18
|
|
|
$
|
868
|
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in
thousands)
(unaudited)
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
July 1, 2006, the Company acquired Expos Unlimited, LLC (Expos) in a
transactionsummarized as follows:
|
|
|
|
|
|
|
Fair value of net liabilities
assumed
|
|
$
|
-
|
|
|
$
|
(385
|
)
|
Intangible
assets
|
|
|
-
|
|
|
|
1,810
|
|
Goodwill
|
|
|
-
|
|
|
|
1,001
|
|
Purchase price, net of $49 cash
acquired
|
|
$
|
-
|
|
|
$
|
2,426
|
|
|
|
|
|
|
|
|
|
|
Effective
August 18, 2006, the Company acquired American Gemological Laboratories,
Inc.(AGL) in a transaction summarized as follows:
|
|
|
|
|
|
|
|
|
Fair value of net liabilities
assumed
|
|
$
|
2
|
|
|
$
|
(42
|
)
|
Deferred tax liability
recognized at acquisition
|
|
|
110
|
|
|
|
(1,205
|
)
|
Intangible
assets
|
|
|
(274
|
)
|
|
|
3,030
|
|
Goodwill
|
|
|
162
|
|
|
|
2,083
|
|
Purchase price, net of $81
cash acquired
|
|
$
|
-
|
|
|
$
|
3,866
|
|
See
accompanying notes to condensed consolidated financial
statements.
COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying unaudited interim condensed consolidated financial statements
include the accounts of Collectors Universe, Inc. and its subsidiaries (the
“Company”). At March 31, 2008, such operating subsidiaries were
Professional Coin Grading Services, Inc., Collectors Finance Corporation,
Certified Asset Exchange, Inc., Gem Certification and Assurance Lab, Inc., Expos
Unlimited, Inc., and American Gemological Laboratories, Inc., all of which are
100% owned by Collectors Universe, Inc. All intercompany transactions
and accounts have been eliminated.
In the
first quarter of fiscal 2007, the Company acquired the following businesses, the
results of operations of which have been consolidated into the financial
statements of the Company from their respective dates of
acquisition:
Business
|
Acquisition
Date
|
Purchase
Price
|
Expos
Unlimited, LLC
|
July
1, 2006
|
$2.5
million
|
American
Gemological Laboratories, Inc.
|
August
18, 2006
|
$3.9
million
|
Unaudited
Interim Financial Information
The
accompanying interim condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim financial
reporting. These interim condensed consolidated financial
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals) necessary
to present fairly the Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Operations, Condensed Consolidated Statements of
Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the
periods presented in accordance with accounting principles generally accepted in
the United States of America (“GAAP”). Operating results for the
three and nine months ended March 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending June 30, 2008 or for any other
interim period during such year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with GAAP have been omitted in accordance with the rules and regulations of the
SEC. These interim condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and
notes thereto contained in the Company’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2007, as filed with the SEC. Amounts
related to disclosure of June 30, 2007 balances within these interim condensed
consolidated financial statements were derived from the aforementioned audited
consolidated financial statements and notes thereto included in
that Annual Report on Form 10-K.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period
presentation.
Revenue
Recognition
Net
revenues consist primarily of fees generated from the authentication and grading
of coins, sportscards, autographs, currency, diamonds, colored gemstones and
stamps. Authentication and grading revenues are recognized when those
services have been performed by us and the item is shipped back to the
customer. Authentication and grading fees generally are prepaid,
although we offer open account privileges to larger dealers. Advance
payments received for grading services are deferred until the service is
performed and the graded item is shipped to the customer. In the case
of dealers to whom we have extended credit, we record authentication and grading
revenues at the time the item is shipped back to the customer. With
the acquisition of Expos, the Company recognizes revenues earned from the
promotion, managing and operation of collectibles conventions in the period that
the conventions take place. Many of our customers pay us subscription
fees for membership in our Collectors Club, which entitles the member access to
our on-line and printed publications, and depending upon the membership chosen
certain members are entitled to a voucher for free grading
services. When applicable, we record revenue for this multi-element
arrangement by recognizing approximately 60% of the subscription fee, which
represents the portion of the fee allocated to the grading services provided to
members, in the month following the membership purchase. The balance
of the membership purchase price is recognized as revenue over the life of the
membership, which ranges from one to two years and represents the portion of the
fee allocated to the on-line and printed publication services made available to
members. We evaluate at least semi-annually the percentage factors
used to allocate the subscription fee between the grading and the publication
services provided under this membership service.
During
the three and nine months ended March 31, 2008, sales of products to customers,
of approximately $21,000 and $928,000, respectively, and related costs of
product sold are presented separately from net revenues from grading,
authentication and related services and related cost of revenues in the
Condensed Consolidated Statements of Operations. The products sold
consisted primarily of collectible coins that we purchased pursuant to our coin
authentication and grading warranty program and are not considered an integral
part of the Company’s on-going revenue generating activities. In the
Consolidated Statements of Operations contained in our Annual Report for the
fiscal year ended June 30, 2007 and in our Quarterly Report on Form 10-Q for the
three months ended September 30, 2007, we presented such revenues as part of net
revenues from grading, authentication and related services, as the amounts were
considered immaterial for separate disclosure. Product sales are
attributable to our sales of collectible inventory acquired in connection with
our warranty program. We recognize product sales when items are
shipped and all the requirements of Staff Accounting Bulletin No. 104,
Revenue Recognition
, issued
by the Securities and Exchange Commission (“SEC”), have been
satisfied.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates, and such differences could be material to the condensed consolidated
financial statements. Examples of such estimates that could be
material to the Condensed Consolidated Financial Statements include capitalized
software, the valuation of stock-based compensation awards, the amount of
goodwill and the existence or non-existence of goodwill impairments, warranty
reserves and income tax provisions. Each of these estimates are
discussed in more detail in notes 1 and 8 to the Condensed Consolidated
Financial Statements, in the Critical Accounting Policies and Estimates section
of Item 2,
Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contained herein, and in the Annual Report on Form 10-K for the fiscal
year ended June 30, 2007.
Long-Lived
Assets
Management
regularly reviews property and equipment and other long-lived assets, including
certain identifiable intangibles and goodwill, for possible
impairment. This review occurs annually, or more frequently if events
or changes in circumstances indicate the carrying amount of the asset may not be
recoverable in full. If there is indication of impairment of property
and equipment or amortizable intangible assets, then management prepares an
estimate of future undiscounted cash flows expected to result from the use of
that asset and its eventual disposition. If these cash flows are less
than the carrying amount of the asset, an impairment loss is recognized to write
down the asset to its estimated fair value. The fair value is
estimated at the present value of the future cash flows discounted at a rate
commensurate with management’s estimates of the business risks.
Stock-Based Compensation Expense
In
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
Share-Based Payment,
stock-based compensation cost is measured at the grant date of an award,
based on its fair value, and is recognized as expense over the employee’s
requisite service period, which is generally the vesting period. The
following table shows total stock-based compensation expense included in the
Condensed Consolidated Statements of Operations for the three and nine months
ended March 31, 2008 and 2007:
|
|
Three
Months Ended
March
31,
(in
thousands)
|
|
|
Nine
Months Ended
March
31,
(in
thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Included
in
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
$
|
101
|
|
|
$
|
77
|
|
|
$
|
223
|
|
|
$
|
229
|
|
Selling
and marketing expenses
(1)
|
|
|
-
|
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
6
|
|
General
and administrative expenses
(2)
|
|
|
217
|
|
|
|
161
|
|
|
|
614
|
|
|
|
426
|
|
Pre-tax
stock-based compensation expense
|
|
$
|
318
|
|
|
$
|
241
|
|
|
$
|
830
|
|
|
$
|
661
|
|
|
(1)
|
Includes
$8,000 related to a forfeiture of stock options during the nine months
ended March 31, 2008.
|
|
(2)
|
Includes
$88,000 and $255,000 in the three and nine months ended March 31, 2008,
respectively, and $66,000 and $104,000 in the three and nine months ended
March 31, 2007, respectively, for amortization of compensation expense
related to issuance of restricted
stock.
|
For the
nine months ended March 31, 2008 and 2007, the Company estimated the rates of
forfeiture of outstanding non-vested stock-based compensation awards to be 9%
and 10.5%, respectively.
Options
to purchase 30,200 shares of common stock were granted during the nine months
ended March 31, 2008; whereas, options to purchase a total of 10,000 and 32,000
shares of common stock were granted during the three and nine months ended March
31, 2007, respectively. The Company used the Black-Scholes option
pricing model and the assumptions set forth in the following table to determine
the fair values of the options granted.
|
|
Three
Months Ended
March
31
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Dividend
yield
|
|
|
-
|
|
|
|
3.4
|
%
|
|
|
6.9
|
%
|
|
|
2.5
|
%
|
Expected
volatility
|
|
|
-
|
|
|
|
49.0
|
%
|
|
|
48.4
|
%
|
|
|
51.1
|
%
|
Risk-free
interest rate
|
|
|
-
|
|
|
|
4.7
|
%
|
|
|
3.9
|
%
|
|
|
4.6
|
%
|
Expected
lives
|
|
|
-
|
|
|
5.1
yrs.
|
|
|
6.0
yrs
|
|
|
5.1
yrs.
|
|
The
following table presents information relative to the stock options outstanding
under all equity incentive plans as of and for the nine months ended March 31,
2008. The closing price of our common stock as of March 31, 2008 was $10.39 and
$15.29 at June 30, 2007.
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Options:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2007
|
|
|
912,000
|
|
|
$
|
12.98
|
|
6.4
yrs.
|
|
$
|
3,280,000
|
|
Granted
|
|
|
30,200
|
|
|
|
14.50
|
|
|
|
|
|
|
Exercised
|
|
|
(76,200
|
)
|
|
|
4.22
|
|
|
|
|
|
|
Forfeited
or cancelled
|
|
|
(23,100
|
)
|
|
|
14.35
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
842,900
|
|
|
$
|
13.79
|
|
5.8
yrs.
|
|
$
|
649,000
|
|
Exercisable
at March 31, 2008
|
|
|
604,700
|
|
|
$
|
13.74
|
|
5.2
yrs.
|
|
$
|
648,000
|
|
Unvested
at March 31, 2008
|
|
|
238,200
|
|
|
$
|
13.91
|
|
7.2
yrs.
|
|
$
|
2,000
|
|
Expect
to vest at March 31, 2008
|
|
|
209,000
|
|
|
$
|
13.91
|
|
7.2
yrs.
|
|
$
|
2,000
|
|
The
weighted average grant-date fair value of options, determined using the
Black-Scholes option pricing model, granted during the nine months ended March
31, 2007 and 2008 were $5.58 and $3.80, respectively. The aggregate
intrinsic values of the options exercised during the nine months ended March 31,
2007 and 2008 were $132,000 and $649,000, respectively.
The 209,000 options that were expected
to vest at March 31, 2008 are based on the current forfeiture rate of 9% and the
remaining vesting terms of the 238,000 unvested options at March 31,
2008.
During the nine months ended March 31,
2008, approximately 49,000 options were vested with an aggregate fair value of
approximately $401,000. During the nine months ended March 31, 2007,
approximately 56,000 options were vested with an aggregate fair value of
approximately $378,000.
The
following table presents the non-vested status of the restricted shares for the
nine months ended March 31, 2008 and the weighted average grant-date fair
values.
Non-Vested
Shares:
|
|
Shares
|
|
|
Weighted
Average
Grant-Date
Fair
Value
|
|
Non-vested
at June 30, 2007
|
|
|
50,230
|
|
|
$
|
13.68
|
|
Granted
|
|
|
21,359
|
|
|
|
14.12
|
|
Vested
|
|
|
(17,680
|
)
|
|
|
13.68
|
|
Forfeited or
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Non-vested
at March 31, 2008
|
|
|
53,909
|
|
|
$
|
13.86
|
|
The
following table sets forth total unrecognized compensation cost in the amount of
$1,210,000 related to non-vested stock-based awards expected to be recognized
through fiscal year 2012. That amount and time periods do not include
the cost or effect of the possible grant of any additional stock-based
compensation awards in the future or any change that may occur in the Company’s
forfeiture percentage.
Fiscal
Year Ending June 30,
|
|
Amount
|
|
2008
|
|
$
|
237,000
|
|
2009
|
|
|
592,000
|
|
2010
|
|
|
251,000
|
|
2011
|
|
|
116,000
|
|
2012
|
|
|
14,000
|
|
|
|
$
|
1,210,000
|
|
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash equivalents, accounts receivable and
notes receivables.
Financial Instruments and
Cash Balances.
At March 31, 2008, cash and cash equivalents,
totaling approximately $28.2 million, were comprised primarily of money market
funds. At March 31, 2008, the Company had approximately $500,000 in a
non-interest bearing bank account for general day-to-day
operations.
Accounts
Receivable
. A substantial portion of accounts receivable are
due from collectibles dealers. At March 31, 2008 two customers
accounted for approximately 25% of the total gross accounts receivable balance
of $1,818,000 outstanding on that date; whereas, at June 30, 2007, one customer
accounted for approximately 13% of total gross accounts receivable balances of
$1,336,000 outstanding on that date. The Company performs an analysis
of the expected collectibility of accounts receivable based on several factors,
including the age and extent of significant past due accounts and economic
conditions or trends that may adversely affect the ability of account debtors to
pay their account receivable balances. Based on that review, the
Company establishes an allowance for doubtful accounts, when
necessary. The allowance for doubtful accounts receivable was $74,000
at March 31, 2008 and $60,000 at June 30, 2007.
Customer Notes
Receivables.
At March 31, 2008, the outstanding principal
amount of customer notes receivable, which evidenced short term advances made to
customers, totaled $3,985,000, net of a $28,000 allowance for uncollectible
amounts, and three of those notes receivable represented 58% of the total
principal amounts outstanding. At June 30, 2007, two customers’ loan
balances represented 68% of the total principal balances outstanding of
$2,536,000. During the nine months ended March 31, 2008, the Company
made short-term advances to and recorded cash collections from all such
customers in the aggregate amounts of $5,343,000 and $3,896,000,
respectively. During the nine months ended March 31, 2007, the
Company made short-term advances of $3,052,000 and recorded cash collections of
$4,784,000, respectively. The Company performs an analysis of the
expected collectibility of customer notes receivables based on several factors,
including the age and extent of significant past due amounts, economic
conditions or trends that may adversely affect the ability of customers to pay
those notes and the value of collateral securing the repayment of the
outstanding balances. At March 31, 2008 and June 30, 2007, the
allowance of $28,000 and $23,000, respectively, reflected a deficiency in
collateral value securing the notes of one customer. At June 30,
2007, the carrying value of an additional note receivable in the amount of
$125,000, issued in September 2006 to a customer, became due and was repaid in
December 2007 in the amount of $131,000.
Sources of
Revenues
. The authentication, grading and sales of collectible
coins accounted for approximately 57% and 56% of our net revenues for the three
and nine months ended March 31, 2008, respectively, and 61% and 58% of our net
revenues for the three and nine months ended March 31, 2007,
respectively.
Comprehensive
Income
The
Company does not have any items of other comprehensive income requiring separate
disclosure.
Stock
Buyback
During
the three and nine months ended March 31, 2008, the Company repurchased a total
of 141,876 of its common stock in the open market and, as a result, recorded a
reduction of additional paid-in capital and common stock at par value in the
aggregate amount of approximately $1,329,000 during the three and nine months
ended March 31, 2008. In the nine months ended March 31, 2007, the
Company repurchased 72,517 shares in the open market at a cost of approximately
$949,000.
Dividends
During
the nine months ended March 31, 2008, the Company paid a quarterly cash dividend
of $0.25 per common share, in each quarter, aggregating approximately
$6,404,000. During the nine months ended March 31, 2007, quarterly
cash dividends of $0.08 per common share, for the first two quarter of fiscal
2007 and $0.12 per common share for the third quarter of fiscal year 2007,
aggregating approximately $2,332,000 were paid.
Capitalized
Software
Through
March 31, 2008, the Company has capitalized an aggregate of approximately
$2,217,000 of software development costs, net of accumulated amortization of
approximately $630,000, in accordance with Statement of Position (“SOP”)
98-1. Approximately $329,000 and $943,000 of such costs were
capitalized during the three and nine month periods ended March 31, 2008,
respectively, and $164,000 and $424,000 were recognized as amortization expense
during the same respective periods. During the three and nine month
periods ended March 31, 2007, approximately $407,000 and $1,184,000 of software
development costs were capitalized, respectively, and approximately $54,000 and
$81,000 were recognized as amortization expense,
respectively. Planning, training, support and maintenance costs
incurred either prior to or following the implementation phase of a software
project are recognized as expense in the period in which they
occur. The Company evaluates the carrying values of capitalized
software to determine if the carrying values are impaired, and, if necessary, an
impairment loss is recorded in the period in which an impairment
occurs. Management believes that no such impairments have
occurred.
Warranty
Costs
We offer
a limited warranty covering the coins, sportscards, stamps and currency that we
authenticate and grade. Under the warranty, if any collectible that
was previously authenticated and graded by us is later submitted to us for
re-grading at any time and either (i) receives a lower grade upon that
re-submittal or (ii) is determined not to have been authentic, we will
offer to purchase the collectible or, at our option, pay the difference in value
of the item at its original grade as compared with its lower
grade. However, this warranty is voided if the collectible, upon
re-submittal to us, is not in the same tamper resistant holder in which it was
placed at the time we last graded it. To the extent that we purchase
an item under a warranty claim, we recognize as a reduction in our warranty
reserve the difference in value of the item at its original grade and its
re-graded estimated value. We include in our inventory the re-graded
estimated value of the item. We offer a similar limited warranty of
two years duration on the diamonds we grade. We accrue for estimated
warranty costs based on historical trends and related
experience. During the second quarter of fiscal 2008, we recognized
approximately $822,000 in additional warranty expense in the Condensed
Consolidated Statements of Operations in connection with certain significant
warranty claims that occurred. In addition, management increased the
warranty accrual rate effective January 1, 2008. Increased future
claims experience under our warranty program could increase to levels higher
than in the past which could result in additional warranty accruals in
anticipation of these claims, and our ongoing warranty accrual rate could
increase to cover potential higher claims in the future, both of which could
have a material adverse impact on our future results of operations.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R),
Business Combinations
(Revised)
. This standard will replace SFAS No. 141,
Business Combinations
, but
will retain the fundamental requirements in Statement 141 that the acquisition
method (which Statement 141 called the
purchase method
) be used for
all business combinations and for an acquirer to be identified for each business
combination. Changes being made by Statement 141(R) to
previously issued authoritative guidance include requiring that: (i) assets
and liabilities arising from contingencies be recognized at fair value as of the
date of the acquisition as opposed to future periods when, or if, any or all of
the contingencies may be resolved, (ii) certain pre-acquisition related
costs (such as those that were previously accounted for as part of the
acquisition) be accounted for outside of the acquisition, and
(iii) tangible and intangible assets acquired at the time of the
acquisition related to in-process research and development be accounted for as
an asset and carried at fair value at the time of the acquisition and subject to
impairment testing. SFAS No. 141(R) will apply to all business
combinations for which the acquisition date occurs after the beginning of the
first reporting period following December 15, 2008. Earlier adoption
is prohibited. Statement 141(R) has no impact on recent
acquisitions completed by the Company.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
–
an Amendment of ARB
No. 51
. This Statement amends ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary, usually referred to as
minority interests
and for
the deconsolidation of such subsidiaries. This statement also
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This statement is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. Earlier adoption is
prohibited. Statement 160 has no impact on the Company, as all of our
subsidiaries are wholly-owned by us.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative
Instruments and Hedging Activities-an Amendment of FASB Statement No. 133.
SFAS No. 161 expands the current disclosure requirements of SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, such that entities must now provide
enhanced disclosures on a quarterly basis regarding how and why the entity uses
derivatives; how derivatives and related hedged items are accounted for under
SFAS No. 133 and how derivatives and related hedges items affect the entity’s
financial position, performance and cash flow. Pursuant to the
transition provisions of the Statement, the Company will adopt SFAS No. 161 in
fiscal year 2009. This Statement is not expected to have an impact on
the Company’s results of operations or financial condition.
On
November 5, 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 109 that supersedes SAB No. 105,
Application of Accounting Principles
to Loan Commitments
. SAB No. 105 stated that, in the view
of the SEC Staff, when measuring the fair value of a derivative loan commitment,
it would be inappropriate to incorporate the expected net future cash flows
related to the associated servicing of the loan. This SAB supersedes
SAB No. 105 and expresses the current view of the SEC Staff that,
consistent with the guidance in SFAS No. 156,
Accounting for Servicing of
Financial Assets
, and SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
, the expected net future cash flows
related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings. SAB No. 109 has no impact on the Company’s
operations or financial results of operations.
On
December 21, 2007, the SEC issued SAB No. 110 in which the SEC updated its
position in SAB 107 concerning the use of a “simplified” method to
calculate the expected term used in the determination of the fair value of a
stock option using the Black-Scholes-Merton closed-form model. Under
SAB No. 107, the SEC had limited the use of the “simplified” approach until
December 31, 2007 under the assumption that registrants would be able to develop
adequate factual histories instead of relying upon a simplified approach. Under
SAB No. 110, use of the simplified approach is permitted beyond December
31, 2007 under certain circumstances. SAB No. 110 has no impact
on our determination of the expected term assumption used in the
Black-Scholes-Merton model.
2. BUSINESS
ACQUISITIONS
Effective
July 1, 2006, the Company acquired the assets and business of Expos Unlimited
LLC (“Expos”), a trade show management company that operates the Long Beach and
the Santa Clara, California coin, stamp and collectibles
expositions. The Company paid a purchase price of $2,400,000 in cash
and $75,000 in other directly-related costs and may become obligated to make
payments of up to an additional $750,000 after five years, or July 2011, based
on the future revenues of Expos.
On August
18, 2006, the Company acquired all the common stock of American Gemological
Laboratories (“AGL”), an international colored gemstone certification and
grading laboratory. The Company paid a purchase price of $3,500,000,
plus additional costs and assumed obligations aggregating approximately $447,000
and may become obligated to make contingent payments of up to an aggregate of
$3,500,000 over the next five years.
The
operating results of each of these acquired businesses were consolidated into
the Company's financial statements from the respective dates of their
acquisition.
The
proforma statements of operations that are set forth in the following table are
prepared assuming that the AGL and Expos acquisitions had occurred on July 1,
2006.
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
$
|
10,896
|
|
|
$
|
11,081
|
|
|
$
|
31,685
|
|
|
$
|
29,979
|
|
Operating
loss
|
|
|
(1,542
|
)
|
|
|
(416
|
)
|
|
|
(4,862
|
)
|
|
|
(1,161
|
)
|
Interest
income, net
|
|
|
239
|
|
|
|
511
|
|
|
|
979
|
|
|
|
1,603
|
|
Other
income
|
|
|
1
|
|
|
|
2
|
|
|
|
4
|
|
|
|
8
|
|
Income
(loss) before provision for income taxes
|
|
|
(1,302
|
)
|
|
|
97
|
|
|
|
(3,879
|
)
|
|
|
450
|
|
Provision
(benefit) for income taxes
|
|
|
(336
|
)
|
|
|
165
|
|
|
|
(1,364
|
)
|
|
|
321
|
|
Income
(loss) from continuing operations
|
|
|
(966
|
)
|
|
|
(68
|
)
|
|
|
(2,515
|
)
|
|
|
129
|
|
Income
(loss) from discontinued operations
|
|
|
-
|
|
|
|
99
|
|
|
|
(4
|
)
|
|
|
190
|
|
Net
income (loss)
|
|
$
|
(966
|
)
|
|
$
|
31
|
|
|
$
|
(2,519
|
)
|
|
$
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per basic share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations
|
|
$
|
-
|
|
|
$
|
0.01
|
|
|
$
|
-
|
|
|
$
|
0.02
|
|
Net
income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations
|
|
$
|
-
|
|
|
$
|
0.01
|
|
|
$
|
-
|
|
|
$
|
0.02
|
|
Net
income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
3. CASH
AND CASH EQUIVALENTS
At June
30, 2007 and March 31, 2008, cash and cash equivalents consisted of
approximately $42.4 million and $28.2 million, respectively, invested primarily
in money market funds. During the third quarter of fiscal 2008, the Company
transferred its excess cash from a short-term, high-grade tax-free municipal
fund and a taxable government money market fund, in which the Company had
invested in for the first and second quarters of fiscal year 2008, to a
short-term, high-grade money market fund in compliance with the Company’s
established investment policies. Under the Company’s investment policies, the
minimum credit quality of a portfolio of trading securities must be rated no
less than single-A long-term or A1/P1 short-term, and the portfolio must contain
no more than 25% exposure to securities of issuers whose principal business
activities are in the same industry. However, the 25% limitation does not apply
to securities guaranteed by the U.S. government or to bank obligations, subject
to U.S. banking regulations. In addition, the weighted average maturity of the
portfolio must not exceed 90 days.
Inventories
consist of the following:
|
|
|
|
(in
thousands)
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Coins
|
|
$
|
870
|
|
|
$
|
253
|
|
Other
collectibles
|
|
|
28
|
|
|
|
33
|
|
Grading
raw materials consumable inventory
|
|
|
277
|
|
|
|
247
|
|
|
|
|
1,175
|
|
|
|
533
|
|
Less
inventory
reserve
|
|
|
(102
|
)
|
|
|
(91
|
)
|
Inventories,
net
|
|
$
|
1,073
|
|
|
$
|
442
|
|
5. PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following:
|
|
|
|
(in
thousands)
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Coins
and stamp grading reference sets
|
|
$
|
643
|
|
|
$
|
222
|
|
Computer
hardware and equipment
|
|
|
1,823
|
|
|
|
1,664
|
|
Computer
software
|
|
|
1,035
|
|
|
|
1,027
|
|
Equipment
|
|
|
3,969
|
|
|
|
3,366
|
|
Furniture
and office
equipment
|
|
|
1,115
|
|
|
|
1,064
|
|
Leasehold
improvements
|
|
|
1,586
|
|
|
|
1,452
|
|
Trading
card reference
library
|
|
|
52
|
|
|
|
52
|
|
|
|
|
10,223
|
|
|
|
8,847
|
|
Less
accumulated depreciation and amortization
|
|
|
(5,679
|
)
|
|
|
(4,766
|
)
|
Property
and equipment, net
|
|
$
|
4,544
|
|
|
$
|
4,081
|
|
6. ACCRUED
LIABILITIES
Accrued
liabilities consist of the following:
|
|
(in
thousands)
|
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2008
|
|
|
2007
|
|
Warranty
costs
|
|
$
|
687
|
|
|
$
|
735
|
|
Professional
fees
|
|
|
88
|
|
|
|
183
|
|
Other
|
|
|
1,219
|
|
|
|
1,236
|
|
|
|
$
|
1,994
|
|
|
$
|
2,154
|
|
The
following table presents the changes in the Company’s warranty reserve during
the nine months ended March 31, 2008 and 2007:
|
|
(in
thousands)
|
|
|
|
Nine
Months
Ended
March
31,
|
|
|
Nine
Months
Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Warranty
reserve, beginning of
period
|
|
$
|
735
|
|
|
$
|
710
|
|
Charged
to cost of
revenue
|
|
|
1,193
|
|
|
|
288
|
|
Payments
|
|
|
(1,241
|
)
|
|
|
(268
|
)
|
Warranty
reserve, end of
period
|
|
$
|
687
|
|
|
$
|
730
|
|
7.
|
DISCONTINUED
OPERATIONS
|
As
previously disclosed, on March 4, 2003, the Company’s Board of Directors
authorized management to implement a plan to focus the Company’s financial and
management resources, and collectibles expertise, on the operations and growth
of its grading and authentication businesses, by divesting the Company’s
collectibles auctions and direct sales businesses.
The
operating results of the discontinued collectible sales businesses that are
included in the accompanying Condensed Consolidated Statements of Operations,
are as follows:
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
revenues
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
18
|
|
|
$
|
54
|
|
Income
(loss) before income taxes
|
|
|
-
|
|
|
|
22
|
|
|
|
(7
|
)
|
|
|
63
|
|
Gain
on sale of discontinued businesses
|
|
|
-
|
|
|
|
101
|
|
|
|
-
|
|
|
|
252
|
|
|
|
|
-
|
|
|
|
123
|
|
|
|
(7
|
)
|
|
|
315
|
|
Income
tax (expense) benefit
|
|
|
-
|
|
|
|
(24
|
)
|
|
|
3
|
|
|
|
(125
|
)
|
Income
(loss) from discontinued operations
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
(4
|
)
|
|
$
|
190
|
|
The gains
realized on sales of discontinued businesses in the three and nine-month periods
ended March 31, 2007 related to contingent consideration that became
determinable in those periods.
The
income tax benefit was provided for at the rate of 26% and 35% for the three and
nine month periods ended March 31, 2008, respectively. The income tax
expense was provided at 170% and 71% for the three and nine months ended March
31, 2007. The decreased effective tax rate for the three and nine
months ended March 31, 2008, as compared to the same three and nine-month
periods in 2007, reflects an anticipated favorable tax impact in fiscal year
2008 due to the investment in a tax-free municipal money-market fund in the nine
months ended March 31, 2008. Following the adoption of SFAS No.
123(R) in fiscal 2006, the recognition of stock-based compensation has had a
generally adverse effect on the effective tax rates due to the non-deductibility
of certain stock-based compensation expense.
We
adopted the provisions of FASB Interpretation 48,
Accounting for Uncertainty in Income
Taxes
– An
Interpretation of FASB Statement No. 109
(“FIN 48”) effective July 1,
2007. FIN 48 clarifies the accounting for uncertainty in tax
positions and prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and, in addition, requires us to disclose
our policy for the classification of interest and penalties in our Statements of
Operations. FIN 48 requires that we adjust our financial statements
to reflect only those tax positions that are more-likely-than-not to be
sustained on audit, based on the technical merits of the position. FIN 48
requires that any necessary adjustment be recorded directly to the beginning
balance of retained earnings or accumulated deficit in the period of adoption
and reported as a change in accounting principle, if material. During the first
quarter of fiscal 2008, the cumulative effects of applying FIN 48 were recorded
as an increase of $170,000 to accumulated deficit, an increase to
income taxes payable of
$279,000 and a decrease to deferred tax liabilities of $109,000 and such
adjustments are included in the Condensed Consolidated Balance Sheets as of
March 31, 2008.
Interest
and penalties totaled $101,000 as of the date of adoption of FIN 48 and were
accounted for as part of the total adjustment to accumulated deficit of
$170,000. During the nine month period following the adoption of FIN
48, we have recorded approximately $11,000 in interest and penalties as
components of income tax expense.
The
Company files income tax returns in the U.S. federal jurisdiction and various
states and has open tax periods for federal taxes for the years ended June 30,
2005 through June 30, 2007 and for certain state tax jurisdictions for the years
ended June 30, 1999 through June 30, 2007.
9.
NET
INCOME (LOSS) PER SHARE
Net
income (loss) per share is determined in accordance with SFAS No. 128,
Earnings Per
Share
. Net income (loss) per share for the three and
nine-month periods ended March 31, 2008 and 2007, respectively, are computed as
follows:
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Income
(loss) from continuing operations
|
|
$
|
(966
|
)
|
|
$
|
(68
|
)
|
|
$
|
(2,515
|
)
|
|
$
|
135
|
|
Income
(loss) from discontinued operations, net of gain
on
sales
of discontinued businesses
(net
of income taxes)
|
|
|
-
|
|
|
|
99
|
|
|
|
(4
|
)
|
|
|
190
|
|
Net
income (loss)
|
|
$
|
(966
|
)
|
|
$
|
31
|
|
|
$
|
(2,519
|
)
|
|
$
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE–BASIC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations, net of gain
on
sales
of discontinued businesses
(net
of income taxes)
|
|
|
-
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.02
|
|
Total
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER SHARE–DILUTED:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
0.02
|
|
Income from discontinued
operations, net of gain
on
sales of
discontinued
businesses
(net
of income taxes)
|
|
|
-
|
|
|
|
0.01
|
|
|
|
-
|
|
|
|
0.02
|
|
Total
|
|
$
|
(0.11
|
)
|
|
$
|
-
|
|
|
$
|
(0.30
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,470
|
|
|
|
8,381
|
|
|
|
8,475
|
|
|
|
8,346
|
|
Effect of dilutive
shares
|
|
|
-
|
|
|
|
206
|
|
|
|
-
|
|
|
|
266
|
|
Diluted
|
|
|
8,470
|
|
|
|
8,587
|
|
|
|
8,475
|
|
|
|
8,612
|
|
Options
and warrants to purchase shares of common stock and non-vested restricted shares
of common stock in the aggregate of approximately 1,082,000 and 1,083,000
for the three and nine months ended March 31, 2008, respectively, were excluded
from the computation of diluted loss per share as they would have been
anti-dilutive in the calculation of diluted earnings per share. For the three
and nine months ended March 31, 2007, approximately 736,000 and 723,000 options
and warrants, respectively, were excluded from the computation of diluted
earnings per share as their exercise prices were greater than the average market
prices for their respective periods and were anti-dilutive.
Operating
segments are defined as the components or “segments” of an enterprise for which
separate financial information is available that is evaluated regularly by the
Company’s chief operating decision maker, or decision-making group, in deciding
how to allocate resources to and in assessing performance of those components or
“segments.” The Company’s chief operating decision-maker is its Chief
Executive Officer. The operating segments of the Company are
organized based on the respective services that they offer to customers of the
Company. Similar operating segments have been aggregated to
reportable operating segments based on having similar services, types of
customers, and other criteria that are set forth in SFAS No. 131,
Disclosures About Segments of an
Enterprise and Related Information.
For our
continuing operations, we operate principally in four reportable service
segments: coins, sportscards, jewelry and other high-end
collectibles. Services provided by these segments include
authentication, grading, publication advertising and subscription-based
revenues. The other collectibles segment is comprised of autographs,
stamps, currency, the CCE subscription business and our collectibles conventions
business.
We
allocate operating expenses to each service segment based upon each segment’s
activity level. The following tables set forth on a business segment
basis, including reconciliation with the Condensed Consolidated Financial
Statements, (i) external revenues, (ii) amortization and depreciation, (iii)
stock-based compensation expense as a significant other non-cash transaction,
and (iv) operating income for the three and nine month periods ended March 31,
2008 and 2007. Net identifiable assets are provided by business segment as of
March 31, 2008 and June 30, 2007. All of our sales and identifiable assets are
located in the United States.
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
Net
revenues from external customers:
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coins
|
|
$
|
6,154
|
|
|
$
|
6,793
|
|
|
$
|
17,720
|
|
|
$
|
17,279
|
|
Sportscards
|
|
|
2,226
|
|
|
|
2,156
|
|
|
|
6,710
|
|
|
|
6,507
|
|
Jewelry
|
|
|
350
|
|
|
|
270
|
|
|
|
1,264
|
|
|
|
936
|
|
Other
|
|
|
2,166
|
|
|
|
1,862
|
|
|
|
5,991
|
|
|
|
5,050
|
|
Total revenue
|
|
$
|
10,896
|
|
|
$
|
11,081
|
|
|
$
|
31,685
|
|
|
$
|
29,772
|
|
Amortization
and depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coins
|
|
$
|
62
|
|
|
$
|
72
|
|
|
$
|
182
|
|
|
$
|
148
|
|
Sportscards
|
|
|
37
|
|
|
|
22
|
|
|
|
84
|
|
|
|
64
|
|
Jewelry
|
|
|
333
|
|
|
|
190
|
|
|
|
970
|
|
|
|
477
|
|
Other
|
|
|
113
|
|
|
|
121
|
|
|
|
307
|
|
|
|
408
|
|
Total
|
|
|
545
|
|
|
|
405
|
|
|
|
1,543
|
|
|
|
1,097
|
|
Unallocated amortization and
depreciation
|
|
|
87
|
|
|
|
75
|
|
|
|
254
|
|
|
|
235
|
|
Consolidated amortization and
depreciation
|
|
$
|
632
|
|
|
$
|
480
|
|
|
$
|
1,797
|
|
|
$
|
1,332
|
|
Stock-based
compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coins
|
|
$
|
63
|
|
|
$
|
55
|
|
|
$
|
131
|
|
|
$
|
168
|
|
Sportscards
|
|
|
9
|
|
|
|
3
|
|
|
|
18
|
|
|
|
23
|
|
Jewelry
|
|
|
3
|
|
|
|
2
|
|
|
|
9
|
|
|
|
4
|
|
Other
|
|
|
40
|
|
|
|
25
|
|
|
|
97
|
|
|
|
76
|
|
Total
|
|
|
115
|
|
|
|
85
|
|
|
|
255
|
|
|
|
271
|
|
Unallocated stock-based
compensation
|
|
|
203
|
|
|
|
156
|
|
|
|
575
|
|
|
|
390
|
|
Consolidated stock-based
compensation
|
|
$
|
318
|
|
|
$
|
241
|
|
|
$
|
830
|
|
|
$
|
661
|
|
Operating
loss before unallocated expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coins
|
|
$
|
1,984
|
|
|
$
|
2,976
|
|
|
$
|
4,925
|
|
|
$
|
7,098
|
|
Sportscards
|
|
|
374
|
|
|
|
292
|
|
|
|
1,317
|
|
|
|
1,044
|
|
Jewelry
|
|
|
(2,138
|
)
|
|
|
(1,845
|
)
|
|
|
(5,830
|
)
|
|
|
(3,387
|
)
|
Other
|
|
|
105
|
|
|
|
186
|
|
|
|
427
|
|
|
|
333
|
|
Total
|
|
|
325
|
|
|
|
1,609
|
|
|
|
839
|
|
|
|
5,088
|
|
Unallocated operating
expenses
|
|
|
(1,867
|
)
|
|
|
(2,025
|
)
|
|
|
(5,701
|
)
|
|
|
(6,249
|
)
|
Consolidated operating
loss
|
|
$
|
(1,542
|
)
|
|
$
|
(416
|
)
|
|
$
|
(4,862
|
)
|
|
$
|
(1,161
|
)
|
|
|
March
31,
|
|
|
June
30,
|
|
Identifiable
Assets:
|
|
2008
|
|
|
2007
|
|
Coins
|
|
$
|
3,748
|
|
|
$
|
2,622
|
|
Sportscards
|
|
|
825
|
|
|
|
582
|
|
Jewelry
|
|
|
20,431
|
|
|
|
20,453
|
|
Other
|
|
|
9,368
|
|
|
|
7,866
|
|
Total
|
|
|
34,372
|
|
|
|
31,523
|
|
Unallocated
assets
|
|
|
34,578
|
|
|
|
46,578
|
|
Consolidated
assets
|
|
$
|
68,950
|
|
|
$
|
78,101
|
|
|
|
March
31,
|
|
|
June
30,
|
|
Goodwill:
|
|
2008
|
|
|
2007
|
|
Coins
|
|
$
|
515
|
|
|
$
|
515
|
|
Jewelry
|
|
|
10,410
|
|
|
|
10,251
|
|
Other
|
|
|
2,113
|
|
|
|
2,118
|
|
Consolidated
assets
|
|
$
|
13,038
|
|
|
$
|
12,884
|
|
To
provide a source of funds for its Dealer Financing Program, in June 2005 our
wholly-owned subsidiary, Collectors Finance Corp. (“CFC”), entered into a
two-year revolving bank line of credit agreement, which has been extended to May
31, 2008. That agreement permits CFC to borrow, at any one time, up
to the lesser of (i) $7,000,000 or (ii) an amount equal to 85% of the
aggregate principal amount of customer receivables that meet the bank’s
eligibility criteria. Borrowings under this credit line bear interest
at rates based on the bank’s Prime Rate or LIBOR, as applicable, and are secured
by substantially all the assets of CFC (including customer receivables and CFC’s
security interests in customer-owned loan collateral). At June 30,
2007 and March 31, 2008, the amount outstanding under this line of credit was
$0. On a quarterly basis, CFC incurs an unused line fee of 0.25% per
annum, based on the average daily unused portion of the total facility during
the quarter.
CFC’s
obligations under this line of credit have been guaranteed by the Company
pursuant to a Continuing Guaranty Agreement with the bank lender. The
terms of that Agreement require the Company to be in compliance with certain
financial and other restrictive covenants, and require the consent of the lender
(i) for the Company to pay cash dividends or repurchase shares of its
common stock in amounts exceeding its annual net income in any year, and
(ii) to consummate more than $5 million of business acquisitions in any
year. The Company was in compliance or received waivers for all
covenants at March 31, 2008.
Bill Miller v. Collectors
Universe, Inc
. As previously reported, the Company was a
defendant in this legal action, which was brought in the Superior Court of
California, County of Orange, by Bill Miller, a former employee of the Company,
who was president of one of the Company’s collectibles sales businesses that was
sold in 2004 and an expert in the authentication of autographs and
memorabilia. Miller alleged that the Company had issued authentication
certificates bearing his name without his consent, in violation of a California
statute prohibiting unauthorized appropriation of a person’s name, signature or
likeness. The statute provides that a person whose name, signature or
likeness has been misappropriated, in violation of the statute, is entitled to
recover the greater of $750 or the actual damages suffered as a result of the
unauthorized use, and any profits that were attributable to that unauthorized
use that are not taken into account in computing the actual damages. The
Company denied Miller’s allegations and asserted that he was not entitled to any
recovery under the statute in excess of his actual damages and that he had not
suffered any actual damages as a result of the issuance of the
certificates.
Also, as
previously reported, at the conclusion of the trial, which took place in October
2005, (i) the jury found that the Company had used Miller’s name without
his consent on 14,060 authentication certificates, but that Miller had sustained
actual damages from that use totaling $14,060; and (ii) the parties entered
into a stipulated judgment in the case, which, among other things, provides that
Miller’s statutory damages arising from the actions of the Company were
zero. The court left unresolved and for future determination the issue of
which party, if any, was the prevailing party in the lawsuit, which would
determine which party, if any, is entitled to recover its attorney’s fees from
the other party.
In March,
2005, Miller filed a Notice of Appeal seeking an appellate court review, a
reversal of the judgment entered by the trial court and a finding, that as a
matter of law, he was entitled to statutory damages that should be determined by
multiplying $750 times the 14,060 authentication certificates on which his name
appeared without his consent, or approximately $10.5 million in
total.
On
February 1, 2008, a three-judge Appellate Court ruled unanimously in favor of
the Company, holding that (i) the use of Miller’s name by the Company
constituted, at most, a single violation of the statute in question and,
therefore, Miller was not entitled to multiply $750.00 by the number of times
his name was used; (ii) Miller has the right to file a new trial in an
effort to recover damages for the use by the Company of his name; however, in
that lawsuit he must prove that Collectors Universe violated the statute at
issue or common law and, if he succeeds in proving such a violation, he must
prove that he was damaged as a result of that violation in order to recover any
amounts against the Company and (iii) in any such retrial Miller cannot
seek, as a measure of damages, to multiply $750.00 by the number of times, if
any, that Collectors Universe used his name without his consent.
In
February, 2008, Miller filed a petition for review of the Appellate Court’s
decision by the California Supreme Court. On April 23, 2008, the
California Supreme Court denied Miller’s petition for review. Miller
has until July 7, 2008 to file for a new trial, in accordance with the ruling,
as described above, of the Appellate Court, or accept the judgment for $14,060
plus $750 statutory damages.
Based on
the Appellate Court’s ruling, the Company believes that, if Miller files a new
trial, the Company will not incur any material liability to Miller in such a
trial.
On April
28, 2008, we declared our fourth quarter fiscal 2008 cash dividend in the amount
of $0.25 per share of common stock to be paid on June 2, 2008 to stockholders of
record as of May 19, 2008.
ITEM
2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking Statements
The
discussion in this Item 2 and in Item 3 of this Quarterly Report (“Report”) on
Form 10-Q includes “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “1934
Act”). Those Sections of the 1933 Act and 1934 Act provide a “safe
harbor” for forward-looking statements to encourage companies to provide
prospective information about their financial performance so long as they
provide meaningful, cautionary statements identifying important factors that
could cause actual results to differ from projected or anticipated
results. Other than statements of historical fact, all statements in
this Report and, in particular, any projections of or statements as to our
expectations or beliefs concerning our future financial performance or financial
condition or as to trends in our business or in our markets, are forward-looking
statements. Forward-looking statements often include the words
"believe," "expect," "anticipate," "intend," "plan," "estimate," "project," or
words of similar meaning, or future or conditional verbs such as "will,"
"would," "should," "could," or "may." Our actual financial
performance in future periods may differ significantly from the currently
expected financial performance set forth in the forward-looking statements
contained in this Report. The sections below entitled “Factors That
Can Affect our Financial Position and Operating Results” and “Risks and
Uncertainties That Could Affect our Future Financial Performance” describe some,
but not all, of the factors and the risks and uncertainties that could cause
these differences, and readers of this Report are urged to read those sections
of this Report in their entirety and to review certain additional risk factors
that are described in Item 1A of our Annual Report on Form 10-K, as filed
by us with the Securities and Exchange Commission (the “SEC”), for the fiscal
year ended June 30, 2007.
Due to
these and other possible uncertainties and risks, readers are cautioned not to
place undue reliance on the forward-looking statements contained in this Report,
which speak only as of the date of this Report, or to make predictions about
future performance based solely on historical financial
performance. We also disclaim any obligation to update
forward-looking statements contained in this Report or in our Annual Report on
Form 10-K or any other prior filings with the SEC.
Our Business
Collectors
Universe, Inc. (the “Company”) provides grading and authentication services to
dealers and collectors of high-value coins, sportscards, autographs, stamps, and
U.S. currency notes and to sellers and purchasers of diamonds and colored
gemstones. We believe that our authentication and grading services
add value to these collectibles and to diamonds and colored gemstones by
enhancing their marketability and, thereby, providing increased liquidity to the
dealers, collectors and consumers that own, buy and sell them.
We
principally generate revenues from the fees paid for our authentication and
grading services. To a much lesser extent, we generate revenues from
other related services consisting of: (i) the sale of
advertising on our websites; (ii) the sale of printed publications and
collectibles price guides and advertising in such publications and on our
website; (iii) the sale of Collectors Club membership subscriptions;
(iv) the sale of subscriptions to our CCE dealer-to-dealer Internet bid-ask
market for certified coins; (v) interest income earned on loans made by our
dealer financing business; and (vi) the collectibles trade show conventions
that we conduct. On an on-going basis, we also generate revenue from
the sale of our collectibles inventory, which is comprised primarily of
collectible coins that we have purchased under our coin grading warranty
program. Sales of such coins occur on a regular basis and are
typically immaterial in value and are not considered integral to our on-going
revenue generating activities. However, in the three months ended
December 31, 2007, the Company purchased approximately $796,000 of spotted gold
coins under our warranty program and sold the majority of those coins at a loss
of approximately $29,000. Such loss was accounted for as a reduction
in our warranty reserve. Revenue from the sale of such coins and
other coins acquired under our warranty program and the related costs were
classified, respectively, as product revenues and product cost of revenues in
the Condensed Consolidated Statements of Operations for the nine months ended
March 31, 2008.
Recent Business Acquisitions
.
Effective July 1, 2006, for an aggregate cash purchase price of $2,475,000, we
acquired Expos Unlimited LLC (“Expos”), which is engaged in the business of
owning and conducting collectibles trade shows and
conventions. Depending on the future revenues of Expos, the Company
may become obligated to make additional payments to Expos’ former owners of up
to an aggregate of $750,000 in July 2011. Expos owns and operates the
Long Beach Coin, Stamp & Collectibles Expo (“Long Beach”) and the Santa
Clara Coin, Stamp & Collectibles Expo (“Santa Clara”), which comprise, in
total, five trade shows that are held annually. At those shows,
leading numismatic, philatelic and collectibles dealers offer rare and valuable
collectibles to the public, while auctions of coins and currency are conducted
by third party auction companies alongside exhibitions of major numismatic and
collectible interest.
On August
18, 2006, we acquired American Gemological Laboratories (“AGL”), an
international colored gemstone certification and grading
laboratory. AGL is one of the leading third party authentication and
grading services for colored gemstones, including colored gemstones that are
sold at auction through Sotheby’s and Christies and by jewelry retailers such as
Cartier and Fred Leighton. The Company paid an aggregate acquisition
price of $3,947,000 in cash for AGL, and, depending on the future revenue
performance of AGL, the Company may become obligated to make payments of up to
an aggregate of an additional $3,500,000 over the next five years.
The
operating results of these acquired businesses have been consolidated into our
operating results from the respective dates of their acquisition.
Discontinued
Operations
. As previously disclosed, the remaining activities
resulting from our divestiture of our collectibles auctions and sales businesses
have been classified as discontinued operations and the discussion that follows
focuses almost entirely on our authentication and grading businesses, which
comprise substantially all of our continuing operations. All of the
remaining assets of the collectibles auction and sales businesses were either
liquidated prior to or fully reserved for on our balance sheet at June 30,
2007. At March 31, 2008, accrued expenses of $4,000 were
outstanding.
Overview of Results of Operations for the Three and Nine Months
Ended March 31, 2008
The
following table sets forth certain financial data, expressed as a percentage of
net revenues, derived from our interim Condensed Consolidated Statements of
Operations (included earlier in this Report) for the respective periods
indicated below:
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of
revenues
|
|
|
55.0
|
%
|
|
|
46.4
|
%
|
|
|
56.8
|
%
|
|
|
46.6
|
%
|
Gross
profit
|
|
|
45.0
|
%
|
|
|
53.6
|
%
|
|
|
43.2
|
%
|
|
|
53.4
|
%
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing
expenses
|
|
|
19.9
|
%
|
|
|
21.8
|
%
|
|
|
19.1
|
%
|
|
|
17.1
|
%
|
General and administrative
expenses
|
|
|
36.3
|
%
|
|
|
33.6
|
%
|
|
|
36.7
|
%
|
|
|
38.3
|
%
|
Amortization of intangible
assets
|
|
|
2.9
|
%
|
|
|
2.0
|
%
|
|
|
2.8
|
%
|
|
|
1.9
|
%
|
Total operating
expenses
|
|
|
59.1
|
%
|
|
|
57.4
|
%
|
|
|
58.6
|
%
|
|
|
57.3
|
%
|
Operating
loss
|
|
|
(14.1
|
%)
|
|
|
(3.8
|
%)
|
|
|
(15.4
|
%)
|
|
|
(3.9
|
%)
|
Interest
income,
net
|
|
|
2.2
|
%
|
|
|
4.6
|
%
|
|
|
3.1
|
%
|
|
|
5.5
|
%
|
Other
income
|
|
|
-
|
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
-
|
|
Income
(loss) before provision for income
taxes
|
|
|
(11.9
|
%)
|
|
|
0.9
|
%
|
|
|
(12.2
|
%)
|
|
|
1.6
|
%
|
Provision
(benefit) for income
taxes
|
|
|
(3.0
|
%)
|
|
|
1.5
|
%
|
|
|
(4.2
|
%)
|
|
|
1.1
|
%
|
Income
(loss) from continuing operations after income taxes
|
|
|
(8.9
|
%)
|
|
|
(0.6
|
%)
|
|
|
(8.0
|
%)
|
|
|
0.5
|
%
|
Income
from discontinued operations, net of gain on sales
of
discontinued
businesses (net of income
taxes)
|
|
|
-
|
|
|
|
0.9
|
%
|
|
|
-
|
|
|
|
0.6
|
%
|
Net
income
(loss)
|
|
|
(8.9
|
%)
|
|
|
0.3
|
%
|
|
|
(8.0
|
%)
|
|
|
1.1
|
%
|
Our
service revenues, which consist of grading and authentication fees and other
related services, decreased by $193,000 or 1.7% in the three months ended March
31, 2008 compared to the same period of the prior fiscal year. That
decrease was primarily the result of a decrease of $519,000 or 5.4% in grading
and authentication fees, partially offset by an increase of $326,000 or 21.1% in
other service related revenues. On the other hand, our service
revenues increased by $1,128,000 or 3.8% in the nine months ended March 31,
2008, as compared to the same nine months of fiscal 2007, primarily as a result
of (i) increases of $362,000, or 1.4%, in grading and authentication
service fees and (ii) increases of $766,000, or 17.7%, in other related
services. Revenues from sales of collectibles, consisting principally
of collectible coins acquired by us under our grading warranty program, also
increased in the three and nine months ended March 31, 2008 by $8,000 and
$785,000, respectively.
We
incurred operating losses of $1,542,000 and $4,862,000 in the three and nine
month periods ended March 31, 2008, respectively, as compared to operating
losses of $416,000 and $1,161,000 in the same respective three month and nine
month periods ended March 31, 2007. Those losses were primarily
attributable to (i) decreases of $977,000 and $2,158,000 in operating
income generated by our coin grading business in the three and nine months ended
March 31, 2008, respectively, as a result of a decline in trade show revenues of
approximately $950,000 in this year’s third quarter, and higher
costs, including warranty costs of $822,000 recognized in the second quarter as
a result of certain significant coin warranty claims, and (ii) increased
operating losses of $293,000 and $2,443,000 for the three and nine months ended
March 31, 2008 incurred by the Company’s diamond and colored gemstones
operations, as we continued to invest in and develop those businesses, including
increased selling and marketing costs to further develop our brand names and
extend our service offerings in our jewelry markets. Partially
offsetting these amounts was a net improvement in the performance of our other
businesses. These, as well as other factors affecting our operating
results in the three and nine months ended March 31, 2008 are described in more
detail below.
Factors That Can Affect our Financial Position and Operating
Results
Factors that Can Affect our
Revenues
. Our authentication and grading revenues, which
accounted for approximately 83% and 81% of our total net revenues in the three
and nine months ended March 31, 2008, respectively, are primarily affected by
(i) the volume and mix, among coins, sportscards and other collectibles and
high value assets, of authentication and grading submissions; (ii) in the
case of coins and sportscards, the “turn-around” times requested by our
customers, because we charge higher fees for faster service times; and
(iii) the mix of authentication and grading submissions between vintage or
“classic” coins and sportscards, on the one hand, and modern coins and
sportscards, on the other hand, because dealers generally request faster
turn-around times for vintage or classic coins and sports cards than they do for
modern submissions, as vintage or classic collectibles are of significantly
higher value and are more saleable by dealers than modern coins and
sportscards.
Five of
our coin authentication and grading customers accounted, in the aggregate, for
approximately 11% of our total net revenues in the nine months ended March 31,
2008, as compared to 14% in year ended June 30, 2007. As a result,
the loss of any of those customers, or a decrease in the volume of grading
submissions from any of them to us, would cause our net revenues to decline and,
therefore, could adversely affect the profitability of our grading and
authentication operations. Our revenues are also impacted by the
level of submissions and revenue earned from submissions at collectibles trade
shows where we provide on-site grading and authentication services to show
attendees who typically request same-day turn-around. The level of
such revenues can vary depending upon a number of factors, including the timing
of the shows or short-term decisions made by dealers during shows. In
addition, the level of our revenues can be impacted by short-term changes in the
price of gold that may occur around the time of the show, which can affect the
volume of coin transactions at the shows and which, in turn, can affect the
volume of submissions to us for on-site grading and same-day
turn-around.
Factors Affecting our Gross Profit
Margins
. The gross profit margins on authentication and
grading submissions also are primarily affected by (i) the volume and mix,
among coins, sportscards and other collectibles and high value assets, of
authentication and grading submissions, because we generally realize higher
margins on coin submissions than on submissions of other collectibles and
high-value assets; (ii) in the case of coins and sportscards, the
“turn-around” times requested by our customers, because we charge higher fees
for faster service times, (iii) the mix of authentication and grading
submissions between vintage or “classic” coins and sportscards, on the one hand,
and modern coins and sportscards, on the other hand, because dealers generally
request faster turn-around times for vintage or classic coins and sports cards
than they do for modern submissions, and (iv) the stage of development and
the seasonality of our newer businesses. Furthermore, because a
significant proportion of our direct costs are generally fixed in nature, our
gross profit is also affected by the overall volume of collectibles
authenticated and graded in any period.
Impact of Economic Conditions on
Financial Performance
. We generate substantially all of our
revenues from the collectibles and the diamond and colored gemstone
markets. Accordingly, our operating results are affected by the
financial performance of those markets, which depends to a great extent on
(i) discretionary consumer spending and, hence, on the availability of
disposable income, (ii) on other economic conditions, including prevailing
interest and inflation rates, which affect consumer confidence, and
(iii) the performance and volatility of the gold and other precious metals
markets and the stock markets. These conditions primarily affect the
volume of purchases and sales of collectibles and high value assets which, in
turn, affects the volume of authentication and grading submissions to us,
because our services facilitate commerce in
collectibles. Accordingly, factors such as improving economic
conditions which usually result in increases in disposable income and consumer
confidence, and volatility in and declines in the prices of stocks and a
weakening in the value of the U.S. Dollar, which often lead investors to
increase their purchases of precious metals, such as gold bullion and other
coins and collectibles, may result in increases in submissions of collectibles
for our services. By contrast, the volume of collectibles sales and
purchases and, therefore, the volume of authentication and grading submissions,
may decline during periods characterized by recessionary economic conditions and
by declines in disposable income and consumer confidence or by increasing stock
prices and relative stability in the stock markets.
The
following tables provide information regarding the respective numbers of coins,
sportscards, autographs, currency, diamonds and colored gemstones that were
graded or authenticated by us in the three and nine months ended March 31, 2008
and 2007 and their estimated values, which are the amounts at which those coins,
sportscards and stamps and other high value assets were insured by the dealers
and collectors who submitted them to us for grading and
authentication.
|
|
Units
Processed
Three
Months Ended March 31,
|
|
|
Declared
Value (000)
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coins
|
|
|
484,100
|
|
|
|
54.2
|
%
|
|
|
400,000
|
|
|
|
50.4
|
%
|
|
$
|
336,683
|
|
|
|
69.6
|
%
|
|
$
|
365,597
|
|
|
|
83.8
|
%
|
Sportscards
|
|
|
327,000
|
|
|
|
36.6
|
%
|
|
|
321,600
|
|
|
|
40.6
|
%
|
|
|
25,865
|
|
|
|
5.3
|
%
|
|
|
22,503
|
|
|
|
5.2
|
%
|
Autographs
|
|
|
49,000
|
|
|
|
5.5
|
%
|
|
|
39,800
|
|
|
|
5.0
|
%
|
|
|
4,514
|
|
|
|
0.9
|
%
|
|
|
5,488
|
|
|
|
1.3
|
%
|
Stamps
|
|
|
12,400
|
|
|
|
1.4
|
%
|
|
|
16,900
|
|
|
|
2.1
|
%
|
|
|
5,321
|
|
|
|
1.1
|
%
|
|
|
3,077
|
|
|
|
0.6
|
%
|
Currency
|
|
|
14,400
|
|
|
|
1.6
|
%
|
|
|
9,000
|
|
|
|
1.1
|
%
|
|
|
9,855
|
|
|
|
2.1
|
%
|
|
|
8,201
|
|
|
|
1.9
|
%
|
Diamonds
|
|
|
4,900
|
|
|
|
0.5
|
%
|
|
|
5,100
|
|
|
|
0.7
|
%
|
|
|
56,375
|
|
|
|
11.6
|
%
|
|
|
17,661
|
|
|
|
4.0
|
%
|
Colored
Gemstones*
|
|
|
1,400
|
|
|
|
0.2
|
%
|
|
|
800
|
|
|
|
0.1
|
%
|
|
|
45,542
|
|
|
|
9.4
|
%
|
|
|
13,924
|
|
|
|
3.2
|
%
|
Total
|
|
|
893,200
|
|
|
|
100.0
|
%
|
|
|
793,200
|
|
|
|
100.0
|
%
|
|
$
|
484,155
|
|
|
|
100.0
|
%
|
|
$
|
436,451
|
|
|
|
100.0
|
%
|
|
|
Units
Processed
Nine
Months Ended March 31,
|
|
|
Declared
Value (000)
Nine
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Coins
|
|
|
1,144,000
|
|
|
|
48.2
|
%
|
|
|
1,162,700
|
|
|
|
50.3
|
%
|
|
$
|
1,048,444
|
|
|
|
72.3
|
%
|
|
$
|
1,153,192
|
|
|
|
82.9
|
%
|
Sportscards
|
|
|
978,500
|
|
|
|
41.2
|
%
|
|
|
938,700
|
|
|
|
40.6
|
%
|
|
|
67,863
|
|
|
|
4.7
|
%
|
|
|
66,666
|
|
|
|
4.8
|
%
|
Autographs
|
|
|
143,800
|
|
|
|
6.1
|
%
|
|
|
117,800
|
|
|
|
5.1
|
%
|
|
|
21,148
|
|
|
|
1.5
|
%
|
|
|
20,114
|
|
|
|
1.4
|
%
|
Stamps
|
|
|
43,800
|
|
|
|
1.8
|
%
|
|
|
47,200
|
|
|
|
2.0
|
%
|
|
|
17,308
|
|
|
|
1.2
|
%
|
|
|
8,433
|
|
|
|
0.6
|
%
|
Currency
|
|
|
36,200
|
|
|
|
1.5
|
%
|
|
|
25,200
|
|
|
|
1.1
|
%
|
|
|
31,783
|
|
|
|
2.2
|
%
|
|
|
24,096
|
|
|
|
1.7
|
%
|
Diamonds
|
|
|
24,600
|
|
|
|
1.1
|
%
|
|
|
20,000
|
|
|
|
0.9
|
%
|
|
|
195,002
|
|
|
|
13.4
|
%
|
|
|
74,795
|
|
|
|
5.4
|
%
|
Colored
Gemstones*
|
|
|
3,400
|
|
|
|
0.1
|
%
|
|
|
1,000
|
|
|
|
-
|
|
|
|
67,904
|
|
|
|
4.7
|
%
|
|
|
44,111
|
|
|
|
3.2
|
%
|
Total
|
|
|
2,374,300
|
|
|
|
100.0
|
%
|
|
|
2,312,600
|
|
|
|
100.0
|
%
|
|
$
|
1,449,453
|
|
|
|
100.0
|
%
|
|
$
|
1,391,407
|
|
|
|
100.0
|
%
|
*
We
began offering colored gemstones grading and authentication services in late
August 2006.
Critical Accounting Policies and
Estimates
With the
exception of FASB Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes - An Interpretation of FASB Statement No. 109 (“FIN 48”),
as
described in note 8 of the Notes to Condensed Consolidated Financial Statements,
and an updated Grading Warranty Costs policy that is summarized below, we
reaffirm our critical accounting policies and estimates as described in Item 7
of our Annual Report on Form 10-K, filed with the SEC, for the fiscal year ended
June 30, 2007 and readers of this report are urged to read that Section of that
Annual Report for a more complete understanding of our critical accounting
policies and estimates.
Income Taxes.
We
account for income taxes in accordance with SFAS No. 109
, Accounting for Income Taxes
and FIN 48. SFAS No. 109 requires the recording of deferred tax
assets and liabilities for the future consequences of events that have been
recognized in the Company’s financial statements or tax
returns. Measurement of the deferred items is based on enacted tax
laws. In the event the future consequences of differences between
financial reporting bases and tax bases of the Company’s assets or liabilities
result in a deferred tax asset, SFAS No. 109 requires that we evaluate the
probability of realizing the future benefits comprising that
asset. FIN 48 clarifies the accounting for uncertainty in tax
positions and prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return and, in addition, requires us to disclose
our policy for the classification of interest and penalties in our Statements of
Operations. FIN 48 requires that we adjust our financial
statements to reflect only those tax positions that are more-likely-than-not to
be sustained on audit, based on the technical merits of the
position. FIN 48 requires that any necessary adjustment be
recorded directly to the beginning balance of retained earnings or accumulated
deficit in the period of adoption of FIN 48 and reported as a change in
accounting principle, if material. During the first quarter of fiscal
2008, the cumulative effects of applying FIN 48 were recorded as an
increase of $170,000 to accumulated deficit, an increase to income taxes payable
of $279,000 and a decrease in deferred tax liabilities of $109,000 and such
adjustments are reflected in the Condensed Consolidated Balance Sheets as of
March 31, 2008. Interest and penalties totaled $101,000 as of July 1,
2007, the date of the adoption of FIN 48, and were accounted for as part of
the total adjustment to accumulated deficit of $170,000. During the
nine month period ended March 31, 2008, which followed the adoption of
FIN 48, we recorded approximately $11,000 in interest and penalties as
components of income tax expense.
Grading Warranty
Costs
. We offer a limited warranty covering the coins,
sportscards, stamps and currency that we authenticate and
grade. Under the warranty, if any collectible that was previously
authenticated and graded by us is later submitted to us for re-grading at any
time and either (i) receives a lower grade upon resubmittal or (ii) is
determined not to have been authentic, we will offer to purchase the collectible
or, at our option, pay the difference in value of the item at its original grade
as compared with its lower grade. However this warranty is voided if
the collectible, upon resubmittal to us, is not in the same tamper-resistant
holder in which it was placed at the time we last graded the item. If
we purchase an item under a warranty claim we recognize, as a reduction in our
warranty reserve, the difference in value of the item at its original grade and
its re-graded estimated value. We include the purchased item in our
inventory at the re-graded estimated value of the item. We offer a
similar limited warranty of two years’ duration on the diamonds we
grade. We accrue for estimated warranty costs based on historical
trends and related experience. Through September 30, 2007, our
warranty reserves have proved to be adequate. However, certain
significant warranty claims were received by us in the second quarter and early
in the third quarter of the current fiscal year, such that we
re-evaluated
the adequacy of our warranty reserve and recognized, in this year’s second
quarter, an additional expense of $822,000 for those claims. In
addition, effective January 1, 2008, we increased our warranty accrual rate to
reflect this higher warranty claims experience, and we will continue to monitor
the adequacy of our warranty reserves on an on-going basis.
Results of Operations – Three and Nine Months Ended March 31, 2008
versus the Three and Nine Months Ended March 31, 2007
Net
Revenues
Grading
and authentication fees consist primarily of fees generated from the
authentication and grading of high-value collectibles, including coins,
sportscards, autographs, stamps and currency, and high-value assets
consisting of diamonds and colored gemstones. To a lesser extent, we
also generate revenues from sales of collectibles club memberships; the sale of
advertising on our websites and in printed publications and collectibles price
guides; interest earned from our CFC financing business; subscription-based
revenues primarily related to our CCE dealer-to-dealer Internet bid-ask market
for certified coins; and fees earned from promotion, management and operation of
collectibles trade shows and conventions. Product revenues represent
the sale, primarily of coins, that are purchased under our warranty
policy. Such product revenues are not an integral part of our
on-going revenue generating activities. Net revenues are determined
net of discounts and allowances.
The
following tables breakout total net revenues for the three and nine months ended
March 31, 2008 and 2007 by product revenues, grading and authentication services
revenues, and other related services revenues:
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Product
revenues
|
|
$
|
21
|
|
|
|
0.2
|
%
|
|
$
|
13
|
|
|
|
0.1
|
%
|
|
$
|
8
|
|
|
|
61.5
|
%
|
Grading
and authentication fees
|
|
|
9,007
|
|
|
|
82.7
|
%
|
|
|
9,526
|
|
|
|
86.0
|
%
|
|
|
(519
|
)
|
|
|
(5.4
|
%)
|
Other
related services
|
|
|
1,868
|
|
|
|
17.1
|
%
|
|
|
1,542
|
|
|
|
13.9
|
%
|
|
|
326
|
|
|
|
21.1
|
%
|
Total
services
|
|
|
10,875
|
|
|
|
99.8
|
%
|
|
|
11,068
|
|
|
|
99.9
|
%
|
|
|
(193
|
)
|
|
|
(1.7
|
%)
|
Total
net revenues
|
|
$
|
10,896
|
|
|
|
100.0
|
%
|
|
$
|
11,081
|
|
|
|
100.0
|
%
|
|
$
|
(185
|
)
|
|
|
(1.7
|
%)
|
|
|
Nine
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
(Decrease)
|
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
%
of Net
Revenues
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
Product
revenues
|
|
$
|
928
|
|
|
|
2.9
|
%
|
|
$
|
143
|
|
|
|
0.5
|
%
|
|
$
|
785
|
|
|
|
549.0
|
%
|
Grading
and authentication fees
|
|
|
25,658
|
|
|
|
81.0
|
%
|
|
|
25,296
|
|
|
|
85.0
|
%
|
|
|
362
|
|
|
|
1.4
|
%
|
Other
related services
|
|
|
5,099
|
|
|
|
16.1
|
%
|
|
|
4,333
|
|
|
|
14.5
|
%
|
|
|
766
|
|
|
|
17.7
|
%
|
Total
services
|
|
|
30,757
|
|
|
|
97.1
|
%
|
|
|
29,629
|
|
|
|
99.5
|
%
|
|
|
1,128
|
|
|
|
3.8
|
%
|
Total
net revenues
|
|
$
|
31,685
|
|
|
|
100.0
|
%
|
|
$
|
29,772
|
|
|
|
100.0
|
%
|
|
$
|
1,913
|
|
|
|
6.4
|
%
|
The
following tables set forth certain information regarding the increases
(decreases) in net revenues in our larger markets (which are inclusive of
revenues from our other related services) and in the number of units graded and
authenticated in the three and nine months ended March 31, 2008 and
2007.
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
vs. 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Revenues
|
|
|
Units
Processed
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Product
revenues
|
|
$
|
21
|
|
|
|
0.2
|
%
|
|
$
|
13
|
|
|
|
0.1
|
%
|
|
$
|
8
|
|
|
|
61.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Coins
|
|
|
6,133
|
|
|
|
56.3
|
%
|
|
|
6,780
|
|
|
|
61.2
|
%
|
|
|
(647
|
)
|
|
|
(9.5
|
%)
|
|
|
84
|
|
|
|
21.0
|
%
|
Sportscards
|
|
|
2,226
|
|
|
|
20.4
|
%
|
|
|
2,156
|
|
|
|
19.5
|
%
|
|
|
70
|
|
|
|
3.2
|
%
|
|
|
5
|
|
|
|
1.7
|
%
|
Other
(1)
|
|
|
2,516
|
|
|
|
23.1
|
%
|
|
|
2,132
|
|
|
|
19.2
|
%
|
|
|
384
|
|
|
|
18.0
|
%
|
|
|
11
|
|
|
|
14.7
|
%
|
Net
Revenues
|
|
$
|
10,896
|
|
|
|
100.0
|
%
|
|
$
|
11,081
|
|
|
|
100.0
|
%
|
|
$
|
(185
|
)
|
|
|
(1.7
|
%)
|
|
|
100
|
|
|
|
12.6
|
%
|
|
|
Nine
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
vs. 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
|
|
|
|
|
|
|
%
of Net
|
|
|
|
|
|
%
of Net
|
|
|
Revenues
|
|
|
Units
Processed
|
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Revenues
|
|
|
Amount
|
|
|
Percent
|
|
|
Number
|
|
Percent
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Product
revenues
|
|
$
|
928
|
|
|
|
2.9
|
%
|
|
$
|
143
|
|
|
|
0.5
|
%
|
|
$
|
785
|
|
|
|
549.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Coins
|
|
|
16,792
|
|
|
|
53.0
|
%
|
|
|
17,136
|
|
|
|
57.6
|
%
|
|
|
(344
|
)
|
|
|
(2.0
|
%)
|
|
|
(19
|
)
|
|
|
(1.6
|
%)
|
Sportscards
|
|
|
6,710
|
|
|
|
21.2
|
%
|
|
|
6,507
|
|
|
|
21.8
|
%
|
|
|
203
|
|
|
|
3.1
|
%
|
|
|
40
|
|
|
|
4.2
|
%
|
Other
(1)
|
|
|
7,255
|
|
|
|
22.9
|
%
|
|
|
5,986
|
|
|
|
20.1
|
%
|
|
|
1,269
|
|
|
|
21.2
|
%
|
|
|
41
|
|
|
|
19.2
|
%
|
Net
Revenues
|
|
$
|
31,685
|
|
|
|
100.0
|
%
|
|
$
|
29,772
|
|
|
|
100.0
|
%
|
|
$
|
1,913
|
|
|
|
6.4
|
%
|
|
|
62
|
|
|
|
2.7
|
%
|
(
1)
|
Consists
of autographs, stamps, currency, diamonds and colored gemstones, CCE
subscription business, our CFC dealer financing business, and our
collectibles convention business.
|
Compared
to the corresponding period of the prior fiscal year, our net revenues decreased
by $185,000 or 1.7% in the three months ended March 31, 2008. The
decrease was primarily attributable to a decrease in grading and authentication
service fees of $519,000, or 5.4%, partially offset by an increase of $326,000,
or 21.1%, in other service related revenues. On the other hand, net
revenue increased by $1,913,000, or 6.4%, in the nine months ended March 31,
2008 due primarily to (i) an increase of $362,000, or 1.4%, in
authentication and grading service fees, (ii) an increase of $766,000, or
17.7%,
in other
service related revenues, and (iii) the increase of $785,000 in revenues
from product sales, primarily in this year’s second quarter, of collectible
coins acquired by us under our grading warranty program and resold into the
marketplace. As discussed above, the revenues from product sales are
not considered to be an integral part of our primary revenue generating
activities. Therefore, excluding such product revenues, total service
revenues decreased by 1.7% in the three months ended March 31, 2008 and
increased by 3.8% in the nine months ended March 31, 2008, compared to the same
respective periods of the prior fiscal year.
The
$519,000, or 5.4%, decrease in authentication and grading and authentication
fees in the three months ended March 31, 2008 was primarily attributable to a
net decrease of $729,000, or 11%, in coin grading and authentication revenues,
partially offset by increases of $222,000 or 18% in fees earned by our
authentication and grading businesses other than coins and
sportscards. The decrease in coin grading and authentication fees was
primarily due to the following: (i) there was one less trade
show held in this year’s third quarter than in the same quarter of the prior
year, and (ii) we believe that the volume of submissions at trade shows
during this year’s third quarter was adversely affected by the dramatic upward
movement in the price of gold from March 2007 to March 2008 (an increase of 38%)
and the affect this increase had on the related unit volume of gold coins
submitted at trade shows (the largest volume of any type of coin submitted at
such shows) because of (a) the relatively fixed amount of equity capital in the
market to acquire and then submit gold coins for authentication and grading, (b)
the limited financial leverage available to dealers and retail buyers for gold
coins that could be used to increase the capital for acquisitions of gold coins
and (c) the coin dealers re-evaluating trade show services with respect to gold
coins and the relatively higher cost of submissions at such trade shows as
compared to other avenues for such submissions. Notwithstanding the decrease in
coin authentication and grading fees at trade shows, revenues from coin
authentication and grading in our vintage and modern sectors increased by
approximately $220,000 or 5% in the three months ended March 31, 2008 over the
corresponding revenues from the three months ended March 31,
2007. The increase of $362,000 or 1.4% in grading and authentication
fees in the nine months ended March 31, 2008 was primarily attributable to
increases of $945,000 or 26% in fees earned in our grading and authentication
businesses other than coins and sportscards, partially offset by a decrease of
$592,000 or 4% in coin grading and authentications fees attributable to the
factors, described above, that resulted in a decline in coin grading submissions
at trade shows in this year’s third quarter. We believe the increases
in fees earned in our grading and authentication businesses, other than coins
and sportscards, reflects the development stage of these
businesses.
The
increases in revenues from other related services of $326,000 and $766,000 in
the three and nine months ended March 31, 2008, respectively, compared to the
same respective periods of the prior year, were primarily attributable to
increased advertising revenues earned on the Company’s coin and sportscards
publications, increased collector club memberships and increased revenues earned
by our CCE business.
Gross
Profit
Gross
profit is calculated by subtracting the costs of revenues from net
revenues. Costs of grading and authentication revenues primarily
consist of labor to grade and authenticate collectibles and diamonds and colored
gemstones, production costs, credit cards fees, warranty expense and occupancy,
and security and insurance costs that directly relate to providing
authentication and grading services. Costs of revenues also include
printing and other direct costs incurred in support of our other related
revenues. The cost of product revenues represents the carrying value
of the inventory that we sold. In addition, costs of revenue include
stock-based compensation earned by employees whose compensation is classified as
part of costs of revenues. Gross profit margin is gross profit stated
as a percent of net revenues.
Set forth
below is information regarding our gross profits in the three and nine months
ended March 31, 2008 and 2007.
|
|
Three
Months Ended March 31,
|
|
|
Nine
Months Ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
Gross
Profit
|
|
|
|
|
|
Gross
Profit
|
|
|
|
Amount
|
|
|
Margin
|
|
|
Amount
|
|
|
Margin
|
|
|
Amounts
|
|
|
Margin
|
|
|
Amount
|
|
|
Margin
|
|
Gross
profit-products
|
|
$
|
1
|
|
|
|
4.8
|
%
|
|
$
|
5
|
|
|
|
38.5
|
%
|
|
$
|
87
|
|
|
|
9.4
|
%
|
|
$
|
35
|
|
|
|
24.5
|
%
|
Gross
profit-services
|
|
|
4,898
|
|
|
|
45.0
|
%
|
|
|
5,938
|
|
|
|
53.6
|
%
|
|
|
13,604
|
|
|
|
44.2
|
%
|
|
|
15,876
|
|
|
|
53.6
|
%
|
Gross
profit-totals
|
|
$
|
4,899
|
|
|
|
45.0
|
%
|
|
$
|
5,943
|
|
|
|
53.6
|
%
|
|
$
|
13,691
|
|
|
|
43.2
|
%
|
|
$
|
15,911
|
|
|
|
53.4
|
%
|
As
indicated in the above table, our total gross profit margin declined from 53.6%
and 53.4% in the three and nine months ended March 31, 2007, respectively, to
45.0% and 43.2% in the three and nine months ended March 31, 2008,
respectively. Excluding gross profit on revenues generated by product
sales, which are not an integral part of our core revenue generating activities,
the gross profit margin for grading and authentication and other related
services for the nine months ended March 31, 2008 was 44.2%, compared with 53.6%
for the nine months ended March 31, 2007.
The declines,
during the three and nine months ended March 31, 2008, in our gross profit
margins on service revenues were primarily attributable to decreases in gross
profit margins in coin and diamonds and colored gemstone grading
revenues. In the case of our coin business, that decline reflects
(i) the decrease, for the reasons discussed above, in our trade show
grading submissions, on which we earn a higher average service fee and,
therefore, generate higher gross profit margins, because show customers
generally request faster turnaround times; (ii) the $822,000 increase in
warranty costs recognized in this year’s second quarter as a result of the
increase in the dollar amount of warranty claims described above; and
(iii) an increase in personnel, travel, printing, and on-going warranty
costs in support of our coin grading activities. The declines in
gross profit margins in our diamond business were primarily attributable to an
increase in costs of revenues due to our occupancy of a larger facility to
provide increased grading capacity, which resulted in a higher level of fixed
costs than in the three and nine months ended March 31, 2008, compared to the
same period of the prior year. The decline in gross profit margins in
our colored gemstone grading business, which we acquired in August, 2006, was
primarily due to the addition of personnel to increase our grading capacity, as
we focused attention on growing our colored gemstone grading business and
launching additional colored gemstone grading services.
Selling
and Marketing Expenses
Selling
and marketing expenses include advertising and promotions costs, trade-show
related expenses, customer service personnel costs and third party consulting
costs. Set forth below is information regarding our selling and
marketing expenses in the three and nine months ended March 31, 2008 and
2007.
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Selling
and marketing expenses
|
|
$
|
2,164,000
|
|
|
$
|
2,411,000
|
|
|
$
|
6,043,000
|
|
|
$
|
5,106,000
|
|
Percent
of net
revenue
|
|
|
19.9
|
%
|
|
|
21.8
|
%
|
|
|
19.1
|
%
|
|
|
17.1
|
%
|
The
decrease of $247,000 in selling and marketing expenses in the three months ended
March 31, 2008 was primarily attributable to a decrease of $329,000 in selling
and marketing expenses incurred by our diamond and colored gemstones grading
businesses, due primarily to the timing of certain marketing programs that the
Company participated in during the three months ended March 31, 2008, compared
to the same period of the prior year. That decrease was partially offset by
increases related to business development activities of our collectibles grading
businesses during this year’s third quarter.
The
$937,000 increase in selling and marketing expenses in the nine months ended
March 31, 2008 was primarily attributable to (i) an increase of $446,000 in
such expenses to foster brand awareness and to attract increased submissions for
our diamond and colored gemstone businesses in the first and second quarters of
our fiscal year which coincide with the traditional holiday buying season in
those markets; (ii) an increase of $394,000 in selling and marketing
expenses related primarily to business development activities by our
collectibles grading divisions, which included increased participation at
tradeshows, and (iii) increased corporate marketing personnel
costs.
General
and Administrative Expenses
General
and administrative (“G&A”) expenses are comprised primarily of compensation
paid to general and administrative personnel, including executive management,
finance and accounting and information technology personnel, and facilities
management costs and other miscellaneous expenses.
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
General
and administrative expenses
|
|
$
|
3,960,000
|
|
|
$
|
3,729,000
|
|
|
$
|
11,637,000
|
|
|
$
|
11,389,000
|
|
Percent
of net revenues
|
|
|
36.3
|
%
|
|
|
33.6
|
%
|
|
|
36.7
|
%
|
|
|
38.3
|
%
|
G&A
expenses increased by $231,000 and $248,000 in the three and nine months ended
March 31, 2008, respectively, compared to the same respective periods last
year. Those increases were primarily attributable to increased
G&A expenses incurred by our colored gemstone business and increased
stock-based compensation costs. The increased costs incurred by our
colored gemstone business reflects our ownership of that business for the
entirety of the nine months ended March 31, 2008, compared with seven and a half
months in the corresponding nine month period of fiscal 2007, and infrastructure
costs incurred to support the growth of that business. The increases
in stock-based compensation costs included in G&A expenses for the three and
nine months ended March 31, 2008 totaled $217,000 and $614,000, respectively, as
compared to $161,000 and $426,000 in the same respective periods of the prior
year, and were due primarily to the issuance, during fiscal 2007 and 2008, of
restricted stock awards to our CEO and the independent members of the Board of
Directors. We also invested in additional accounting and information
technology personnel to support the Company’s expanded businesses, the costs of
which were partially offset by savings in legal expenses in the three and nine
months ended March 31, 2008, compared to the same respective periods of the
prior year.
Amortization
of Intangible Assets
Amortization
of intangible assets is comprised of amortization of intangible assets that were
acquired through acquisitions and amortization of software development
costs.
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Amortization
expense
|
|
$
|
317,000
|
|
|
$
|
219,000
|
|
|
$
|
873,000
|
|
|
$
|
577,000
|
|
Percent
of net revenues
|
|
|
2.9
|
%
|
|
|
2.0
|
%
|
|
|
2.8
|
%
|
|
|
1.9
|
%
|
The
increase in the amortization expense was primarily related to the amortization
of capitalized software costs incurred in prior fiscal quarters and for which
amortization commenced as the development projects were completed. In
addition, in the three and nine months ended March 31, 2008, we incurred nine
months of amortization in connection with the intangible assets acquired in the
acquisition of our colored gemstone business.
Stock-Based
Compensation
As
discussed in Note 1 to the Company’s Condensed Consolidated Financial
Statements, in accordance with SFAS 123(R) for share-based payments, the Company
recognized stock-based compensation as follows:
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
Included
in:
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Cost
of revenues
|
|
$
|
101,000
|
|
|
$
|
77,000
|
|
|
$
|
223,000
|
|
|
$
|
229,000
|
|
Selling
and marketing expenses
|
|
|
-
|
|
|
|
3,000
|
|
|
|
(7,000
|
)
|
|
|
6,000
|
|
General
and administrative expenses
|
|
|
217,000
|
|
|
|
161,000
|
|
|
|
614,000
|
|
|
|
426,000
|
|
|
|
$
|
318,000
|
|
|
$
|
241,000
|
|
|
$
|
830,000
|
|
|
$
|
661,000
|
|
Stock-based
compensation expense is recorded over the vesting period, or the service period,
of the stock-based award. The increases in stock-based compensation
expense in the three and nine months ended March 31, 2008 primarily related to
restricted stock awards granted to our CEO and independent directors during
fiscal 2007 and 2008.
The total
amount of compensation cost related to non-vested awards not yet recognized at
March 31, 2007 was $1,210,000, which is expected to be recognized as
compensation expense through fiscal 2012, as set forth in the following table,
assuming the employees to whom the options or restricted stock awards were
granted continue to be employed by us. However, such amounts do
not include any additional options or restricted stock awards that may be
granted in the future or any changes that may occur in our forfeiture
percentage.
Fiscal
Year Ending June 30,
|
|
Amount
|
|
2008
|
|
$
|
237,000
|
|
2009
|
|
|
592,000
|
|
2010
|
|
|
251,000
|
|
2011
|
|
|
116,000
|
|
2012
|
|
|
14,000
|
|
|
|
$
|
1,210,000
|
|
Interest
Income, Net
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Interest
income,
net
|
|
$
|
239,000
|
|
|
$
|
511,000
|
|
|
$
|
979,000
|
|
|
$
|
1,624,000
|
|
Percent
of net
revenue
|
|
|
2.2
|
%
|
|
|
4.6
|
%
|
|
|
3.1
|
%
|
|
|
5.5
|
%
|
Interest
income is generated on cash and cash equivalent balances that we invest
primarily in highly liquid money market accounts, commercial paper instruments
and tax-free securities. Interest income, net was $239,000 and
$979,000 in the three and nine months ended March 31, 2008, respectively,
compared with $511,000 and $1,624,000, respectively, in the three and nine
months ended March 31, 2007. These decreases in interest income were
primarily attributable to (i) a shift, during the three and nine months
ended March 31, 2008, of our cash and cash equivalent balances into liquid tax
free money market accounts from taxable investments in which such cash and cash
equivalent balances had been held in the corresponding periods of fiscal 2007,
(ii) a decrease in our average cash balances in the three and nine months
ended March 31, 2008, compared to the three and nine months ended March 31,
2007, due to our use of a portion of our available cash to fund payments of
quarterly dividends, capital expenditures and the purchase of our colored
gemstone business in August, 2006; and (iii) a decrease in interest rates
earned on our cash and cash equivalent balances in the nine months ended March
31, 2008, compared to the nine months ended March 31, 2007, due to reductions in
prevailing market rates of interest as a result of actions taken by the Federal
Reserve Board.
Income
Tax (Benefit) Expense
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Provision
(benefit) for income taxes
|
|
$
|
(336,000
|
)
|
|
$
|
165,000
|
|
|
$
|
(1,364,000
|
)
|
|
$
|
336,000
|
|
Percent
of net
revenues
|
|
|
(3.0
|
%)
|
|
|
1.5
|
%
|
|
|
(4.2
|
%)
|
|
|
1.1
|
%
|
The
income tax benefits recorded in the three and nine months ended March 31, 2008
were calculated based on our expected combined federal and state effective
income tax rates of approximately 26% and 35% for those periods,
respectively. By comparison, the income tax provision recorded in the
three and nine months ended March 31, 2007 were calculated based on our expected
combined federal and state effective income tax rates of approximately 170% and
71% for those periods, respectively. That reduction in our effective
tax rate in the first nine months of the current fiscal year was due to our
investment of excess cash in a short-term, high-grade tax-free municipal money
market fund during the nine months ended March 31, 2008 and the lower percentage
effect of stock-based compensation due to the level of losses incurred in the
current nine month period.
Discontinued
Operations
|
|
Three
Months Ended
March
31,
|
|
|
Nine
Months Ended
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Income
(loss) from discontinued operations, net of gain on sales of discontinued
businesses (net of income taxes).
|
|
$
|
-
|
|
|
$
|
99,000
|
|
|
$
|
(4,000
|
)
|
|
$
|
190,000
|
|
Percent
of net revenues
|
|
|
-
|
|
|
|
0.9
|
%
|
|
|
-
|
|
|
|
0.6
|
%
|
The
results of our discontinued operations (net of taxes), which were attributable
to the remaining activities of the collectibles sales businesses that we
disposed of in fiscal 2004, are expected to be immaterial going
forward.
Liquidity and Capital Resources
At March
31, 2008, we had cash and cash equivalents of $28,167,000, as compared to cash
and cash equivalents of $42,386,000 at June 30, 2007. That decrease
was primarily attributable to our use of cash to fund quarterly dividend
payments, capital expenditures and the purchase of our colored gemstone business
in August, 2006.
Historically,
we have relied on internally-generated funds, rather than borrowings, as our
primary source of funds to support our grading operations.
During
the nine months ended March 31, 2008, our operating activities used net cash of
$3,012,000, reflecting losses for the period, an increased accounts receivable
balance at March 31, 2008 due to the timing of collections, and increased coin
inventory balances at March 31, 2008 due to a higher level of coin purchases
under our warranty program during fiscal 2008. In addition, there
were changes in the level of our prepaid expenses, accounts payable, accrued
expenses and accrued compensation balances, due to the timing of activities in
the period.
Net cash
used in investing activities was $3,716,000 during the nine months ended March
31, 2008 and consisted primarily of net cash used for short term advances
totaling $1,447,000 made to dealers pursuant to our CFC finance program, capital
expenditures of $1,436,000, and capitalized software of $943,000.
In the
nine months ended March 31, 2008, financing activities used net cash of
$7,491,000, primarily related to the payment of $6,404,000 of cash dividends to
stockholders and $1,329,000 of repurchases of common stock under the Company’s
stock buyback program, partially offset by $242,000 of proceeds from exercise of
stock options.
Bank Line of
Credit
. As previously reported, in fiscal 2005, we organized
Collectors Finance Corporation (“CFC”), as a wholly-owned subsidiary, to engage
in the business of making loans primarily to coin or sportscards dealers and
collectors. All such loans are required to be collateralized by the
delivery to us of collectibles that have a fair market value at least equal to
the amount of the loans. The loans are required to be repaid to us
when those collectibles are returned to the dealers. To provide a
source of funding for those loans, in June 2005, CFC obtained a revolving bank
line of credit for the original term of two years pursuant to a loan and
security agreement that permits CFC to borrow, at any one time, up to the lesser
of (i) $7,000,000 or (ii) an amount equal to 85% of the aggregate
principal amount of those of its loan receivables that meet the bank’s
eligibility criteria. Borrowings under that credit line, the term of
which was extended to May 31, 2008, are to bear interest at rates based on the
bank’s prime rate or LIBOR, as applicable, and are to be secured by the loan
receivables due CFC. There were no borrowings outstanding under that
line of credit at any time during the fiscal year ended at June 30, 2007 or the
three and nine month periods ended March 31, 2008.
CFC’s
obligations under this line of credit have been guaranteed by the Company
pursuant to a Continuing Guaranty Agreement with the bank lender. The
terms of that Agreement require the Company to be in compliance with certain
financial and other restrictive covenants, and require the consent of the lender
(i) for the payment of cash dividends or repurchases of our common stock in
an aggregate amount exceeding its annual net income in any year, and
(ii) to consummate more than $5,000,000 of business acquisitions in any
year. The Company was in compliance with all covenants at March 31,
2008 or received waivers from the lender.
Outstanding
Financial Obligations
In
December 2007, the Company entered into a new lease obligation of approximately
$3,800,000 over a 10-year period for space for its colored gemstone
business. Under the terms of the lease, the Company is expected to
extend this space by December 31, 2008, such that gross lease obligations over
the remaining term of that lease will increase to approximately
$5,700,000. We had the following outstanding obligations under
operating leases, net of sublease income, at March 31, 2008 (assuming that the
additional space will be occupied on January 1, 2009):
Fiscal
Year
|
|
Amount
|
|
2008(remaining
3 months)
|
|
$
|
455,000
|
|
2009
|
|
|
2,212,000
|
|
2010
|
|
|
1,415,000
|
|
2011
|
|
|
979,000
|
|
2012
|
|
|
985,000
|
|
Thereafter
|
|
|
5,066,000
|
|
|
|
$
|
11,112,000
|
|
With the
exception of those obligations, we do not have any material financial
obligations, such as long-term debt, capital lease, or purchase
obligations. In the event CFC incurs any borrowings under its line of
credit, we will have an obligation to repay such borrowings; however, there were
no borrowings outstanding under this line of credit at March 31,
2008.
Dividends
. The
Company’s current policy calls for the payment of quarterly cash dividends of
$0.25 per common share, for an expected annual cash dividend of $1.00 per common
share. This dividend policy was approved by the Board of Directors in
June 2007 and dividends paid under this policy to stockholders for the nine
months ended March 31, 2008 totaled $6,404,000. For the nine months
ended March 31, 2007, the Company paid quarterly dividends
$2,332,000.
The
declaration of cash dividends in the future, pursuant to the Company’s dividend
policy, is subject to final determination each quarter by the Board of Directors
based on a number of factors, including the Company’s financial performance and
its available cash resources, its cash requirements and alternative uses of cash
that the Board may conclude would represent an opportunity to generate a greater
return on investment for the Company. For these reasons, as well as
others, there can be no assurance that the amount of the quarterly cash dividend
will not be reduced, or that the Board of Directors will not decide to suspend
or discontinue the payment of cash dividends, in the future.
Future Uses and Sources of
Cash
. We plan to use our cash resources, consisting of
available cash and cash equivalent balances, together with internally generated
cash flows, to (i) expand our existing and implement new marketing
programs, (ii) introduce new services for our customers, (iii) acquire
or start-up other high-value collectibles or high-value asset authentication and
grading businesses, (iv) continue paying dividends to our stockholders, as
determined by the Board of Directors, and (v) fund working capital
requirements, and for other general corporate purposes. Although we
have no current plans to do so, we also may seek borrowings, and we may issue
additional shares of our stock, to finance acquisitions of additional
authentication or grading businesses.
Risks and Uncertainties That Could Affect Our Future Financial
Performance
There are
a number of risks and uncertainties that could affect our future operating
results and financial condition and which could cause our future operating
results to differ materially from those expected at this time. Those
risks and uncertainties include, but are not limited to:
·
|
changes
in general economic conditions generally or changes in conditions in the
collectibles or high-value assets markets in which we operate, such as a
possible decline in the popularity of some high-value collectibles or
assets, either of which could reduce the volume of authentication and
grading submissions and, therefore, the grading fees we
generate;
|
·
|
a
lack of diversity in our sources of revenues and, more particularly, our
dependence on collectible coin authentication and grading for a
significant percentage of our total revenues, which makes us more
vulnerable to adverse changes in economic conditions, including volatility
in the value of precious metals or recessionary or other conditions that
could lead to reduced coin and other collectibles submissions or trade
show activities that would, in turn, result in reductions in our revenues
and income;
|
·
|
our
dependence on certain key executives and collectibles experts, the loss of
the services of any of which could adversely affect our ability to obtain
authentication and grading submissions and, therefore, could harm our
operating results;
|
·
|
the
fact that for the fiscal year ended June 30, 2007 and the nine months
ended March 31, 2008, our five largest coin authentication and grading
customers accounted, in the aggregate, for approximately 14% and 11% of
our net revenues, respectively, which means that the loss of any of those
customers, or a reduction in their grading submissions to us, would result
in a decline in our revenues and a reduction in our operating
income;
|
·
|
increased
competition from other collectibles’ authentication and grading companies
that could result in reductions in collectibles submissions to us or could
require us to reduce the prices we charge for our services, either of
which could result in reductions in our revenue and
income;
|
·
|
the
risk that we will incur unanticipated liabilities under our authentication
and grading warranties that would increase our operating
expenses;
|
·
|
the
risk that warranty claims will increase to a higher level than in the past
such that we will have to recognize additional warranty accruals in
anticipation of these claims and our ongoing warranty accrual rate will
need to be increased to cover potential higher claims in the
future;
|
·
|
the
risk that new collectibles service offerings and business initiatives,
such as autograph, stamp and paper currency grading services, diamonds and
colored gemstones, and our dealer financing program, will not gain market
acceptance or will be unsuccessful and will, as a result, increase our
operating expenses and reduce our overall profitability or cause us to
incur losses;
|
·
|
the
risks involved in acquiring existing or commencing new authentication and
grading businesses, including the risks that we will be unable to
successfully integrate new businesses into our operations; that our new
businesses (in particular our diamond and colored gemstones businesses)
may not gain market acceptance; that business expansion may result in a
costly diversion of management time and resources from our existing
businesses and increase our operating expenses; that acquisition-related
goodwill and intangible assets may become impaired, which could adversely
impact our financial statements and results of operations; and that we
will not achieve adequate returns on the investments we may make in
acquiring other or establishing new businesses, any of which would harm
our profitability or cause us to incur
losses;
|
·
|
the
risks that we will encounter problems with or failures of our computer
systems that would interrupt our services or result in loss of data that
we need for our business; and
|
·
|
the
potential of increased government regulation of our businesses that could
cause operating costs to increase.
|
Certain
of these risks and uncertainties, as well as other risks, are more fully
described above in this Section of this Report (entitled “Management's
Discussion and Analysis of Financial Condition and Results of Operations”), and
in Item 1A of Part 1, entitled “Risk Factors” in our Annual Report on Form 10-K
for our fiscal year ended June 30, 2007, as filed with the SEC under the
Securities Exchange Act of 1934.
Due to
these and other possible uncertainties and risks, you are cautioned not to place
undue reliance on the forward-looking statements contained in this Report, which
speak only as of the date of this Report. We also disclaim any
obligation to update forward-looking statements contained in this Report or in
our
2007 Annual
Report on
Form 10-K.
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R),
Business Combinations
(Revised)
. This standard replaces SFAS No. 141,
Business Combinations
, but
retains the fundamental requirements in Statement 141 that the acquisition
method (which Statement 141 called the
purchase method
) be used for
all business combinations and for an acquirer to be identified for each business
combination. Statement 141(R) changes previously issued authoritative
guidance by (i) requiring that assets and liabilities arising from
contingencies be recognized at fair value as of the date of the acquisition as
opposed to future periods when, or if, any or all of the contingencies may be
resolved, (ii) certain pre-acquisition related costs such as those that
were previously accounted for as part of the acquisition are now accounted for
outside of the acquisition, and (iii) tangible and intangible assets
acquired at the time of the acquisition related to in-process research and
development are now accounted for as an asset and carried at fair value at the
time of the acquisition and subject to impairment testing. SFAS
No. 141(R) applies to all new business combinations in which the
acquisition date occurs after the start of the first reporting period following
March 15, 2008. Earlier adoption is
prohibited. Statement 141(R) has no impact on recent
acquisitions completed by the Company.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements
–
an Amendment of ARB
No. 51.
This Statement amends ARB No. 51 to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary, usually referred to as
minority interests
and for
the deconsolidation of a subsidiary. This statement also clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after March 15, 2008. Earlier
adoption is prohibited.
Statement 160 has
no impact on the Company, as all of our subsidiaries are wholly-owned by
us.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative
Instruments and Hedging Activities-an Amendment of FASB Statement No. 133.
SFAS No. 161 expands the current disclosure requirements of SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, such that entities must now provide
enhanced disclosures on a quarterly basis regarding how and why the entity uses
derivatives; how derivatives and related hedged items are accounted for under
SFAS No. 133 and how derivatives and related hedges items affect the entity’s
financial position, performance and cash flow. Pursuant to the
transition provisions of the Statement, the Company will adopt SFAS No. 161 in
fiscal year 2009. This Statement is not expected to have an impact on
the Company’s results of operations or financial condition.
On
November 5, 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin (“SAB”) No. 109 that supersedes SAB No. 105,
Application of Accounting Principles
to Loan Commitments
. SAB No. 105 stated that in measuring the fair
value of a derivative loan commitment, the staff believed that it would be
inappropriate to incorporate the expected net future cash flows related to the
associated servicing of the loan. This SAB supersedes SAB No. 105 and
expresses the current view of the staff that, consistent with the guidance in
SFAS No. 156,
Accounting
for Servicing of Financial Assets
, and SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
, the expected net future cash flows
related to the associated servicing of the loan should be included in the
measurement of all written loan commitments that are accounted for at fair value
through earnings. SAB No. 109 has no impact on the Company’s
operations or financial results of operations.
On
December 21, 2007, the SEC issued SAB No. 110 in which the SEC updated its
position in SAB 107 concerning the use of a “simplified” method to
calculate the expected term used in the determination of the fair value of a
stock option using the Black-Scholes-Merton closed-form model. Under SAB
No. 107, the SEC had limited the use of the “simplified” approach until
March 31, 2007 under the assumption that registrants would be able to develop
adequate factual histories instead of relying upon a simplified approach. Under
SAB No. 110, use of the simplified approach is permitted beyond March 31,
2007 under certain circumstances. SAB No. 110 has no impact on our
determination of the expected term assumption used in the Black-Scholes-Merton
model.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Market
risk represents the risk of loss that may impact our financial position, results
of operations or cash flows due to adverse changes in financial market prices,
including interest rate risk, foreign currency exchange rate risk, commodity
price risk and other relevant market rate or price risks.
Due to
the cash and cash equivalent balances that we maintain, we are exposed to risk
of changes in short-term interest rates. At March 31, 2008, we had
$28,167,000 in cash and cash equivalents, primarily invested in a low-yield
government money market fund. Reductions in short-term interest rates
could result in reductions in the amount of that income. However, the
impact on our operating results of such changes is not expected to be
material.
The
Company has no activities that would expose it to foreign currency exchange rate
risk or commodity price risks.
ITEM 3. CONTROLS AND PROCEDURES
Our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are
designed to provide reasonable assurance that information required to be
disclosed in our reports filed under that Act, such as this Quarterly Report, is
recorded, processed, summarized and reported within the time periods specified
in the rules of the Securities and Exchange Commission. Our
disclosure controls and procedures also are designed to ensure that such
information is accumulated and communicated to our management, including our CEO
and CFO, to allow timely decisions regarding required disclosures.
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures in effect as of March 31,
2008. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of March 31, 2008, our disclosure controls
and procedures were effective to provide reasonable assurance that material
information, relating to the Company and its consolidated subsidiaries, required
to be included in our Exchange Act reports, including this Quarterly Report on
Form 10−Q, is made known to management, including the CEO and CFO, on a timely
basis.
There
were no changes in our internal control over financial reporting that occurred
during the quarter ended March 31, 2008, that has materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II – OTHER INFORMATION
ITEM
1.
|
LEGAL
PROCEEDINGS
|
Bill Miller v. Collectors
Universe, Inc
. As previously reported, the Company was a
defendant in this legal action, which was brought in the Superior Court of
California, County of Orange, by Bill Miller, a former employee of the Company,
who was president of one of the Company’s collectibles sales businesses that was
sold in 2004 and an expert in the authentication of autographs and
memorabilia. Miller alleged that the Company had issued authentication
certificates bearing his name without his consent, in violation of a California
statute prohibiting unauthorized appropriation of a person’s name, signature or
likeness. The statute provides that a person whose name, signature or
likeness has been misappropriated, in violation of the statute, is entitled to
recover the greater of $750 or the actual damages suffered as a result of the
unauthorized use, and any profits that were attributable to that unauthorized
use that are not taken into account in computing the actual damages. The
Company denied Miller’s allegations and asserted that he was not entitled to any
recovery under the statute in excess of his actual damages and that he had not
suffered any actual damages as a result of the issuance of the
certificates.
Also, as
previously reported, at the conclusion of the trial, which took place in October
2005, (i) the jury found that the Company had used Miller’s name without
his consent on 14,060 authentication certificates, but that Miller had sustained
actual damages from that use totaling $14,060; and (ii) the parties entered
into a stipulated judgment in the case, which, among other things, provides that
Miller’s statutory damages arising from the actions of the Company were
zero. The court left unresolved and for future determination the issue of
which party, if any, was the prevailing party in the lawsuit, which would
determine which party, if any, is entitled to recover its attorney’s fees from
the other party.
In March,
2005, Miller filed a Notice of Appeal seeking an appellate court review, a
reversal of the judgment entered by the trial court and a finding, that as a
matter of law, he was entitled to statutory damages that should be determined by
multiplying $750 times the 14,060 authentication certificates on which his name
appeared without his consent, or approximately $10.5 million in
total.
On
February 1, 2008, a three-judge Appellate Court ruled unanimously in favor of
the Company, holding that (i) the use of Miller’s name by the Company
constituted, at most, a single violation of the statute in question and,
therefore, Miller was not entitled to multiply $750.00 by the number of times
his name was used; (ii) Miller has the right to file a new trial in an
effort to recover damages for the use by the Company of his name; however, in
that lawsuit he must prove that Collectors Universe violated the statute at
issue or common law and, if he succeeds in proving such a violation, he must
prove that he was damaged as a result of that violation in order to recover any
amounts against the Company and (iii) in any such retrial Miller cannot
seek, as a measure of damages, to multiply $750.00 by the number of times, if
any, that Collectors Universe used his name without his consent.
In
February, 2008, Miller filed a petition for review of the Appellate Court’s
decision by the California Supreme Court. On April 23, 2008, the
California Supreme Court denied Miller’s petition for review. Miller
has until July 7, 2008 to file for a new trial, in accordance with the ruling,
as described above, of the Appellate Court, or accept the judgment for $14,060
plus $750 statutory damages.
Based on
the Appellate Court’s ruling, the Company believes that, if Miller files a new
trial, the Company will not incur any material liability to Miller in such a
trial.
There were no material changes in the risk factors that were disclosed under the
caption “Risk Factors” in Part IA of our Annual Report on Form 10-K for our
fiscal year ended June 30, 2007, except as may otherwise be set forth above
under the caption “Risks and Uncertainties That Could Affect Our Future
Financial Performance” in Item 2 of Part I of this Report.
ITEM
2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(c)
Share
Repurchases
.
On
December 6, 2005, we reported that our Board of Directors had authorized a
stock buyback program, pursuant to which the Company may, from time to time, in
accordance with the applicable Securities and Exchange Commission rules,
purchase up to an aggregate of $10 million of its shares of common stock in open
market and private transactions, when opportunities to makes such purchases
become available at attractive prices. The Company is under no
obligation to repurchase any shares under the stock buyback program and the
timing, actual number and value of shares that may be repurchased under this
program will depend on a number of factors, including the Company’s future
financial performance, the Company’s available cash resources and competing uses
for the cash that may arise in the future, prevailing market prices of the
Company’s common stock, and the number of shares that become available for sale
at prices that the Company believes are attractive. In addition the
Company may suspend or terminate this program at any time, without
notice. Through December 31, 2007, the Company had repurchased
approximately 254,000 shares of common stock at a purchase price of
approximately $3,600,000.
The
following table sets forth information regarding our share repurchases in each
of the months during the quarter ended March 31, 2008.
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
Monthly
Periods
Through
March 31, 2008
|
|
Total
Number
of
Shares Purchased
|
|
|
Average Price
Paid
per Share
|
|
|
Total Number
of
Shares
Purchased
a
s
Part of Publicly
Announced
Program
|
|
|
Approximate
Dollar
Value
of Shares that
May
Yet Be
Purchased
under
the Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
1 to January 31, 2008
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
6,437,372
|
|
February
1 to February 28, 2008
|
|
|
42,865
|
|
|
$
|
9.62
|
|
|
|
412,450
|
|
|
$
|
6,024,922
|
|
March
1 to March 31, 2008
|
|
|
99,011
|
|
|
$
|
9.18
|
|
|
|
908,614
|
|
|
$
|
5,116,308
|
|
Total
|
|
|
141,876
|
|
|
$
|
9.31
|
|
|
|
1,321,064
|
|
|
|
|
|
(a)
|
Exhibits
:
|
|
|
|
|
|
Exhibit
31.1
|
Certification
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
Exhibit
32.1
|
Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
|
Exhibit
32.2
|
Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
SIGNATURES
Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
COLLECTORS
UNIVERSE, INC.
|
|
|
|
Date: May
9, 2008
|
|
/s/
MICHAEL R. HAYNES
|
|
|
Michael
R. Haynes
|
|
|
Chief
Executive Officer
|
|
|
COLLECTORS
UNIVERSE, INC.
|
|
|
|
Date: May
9, 2008
|
|
/s/
JOSEPH J. WALLACE
|
|
|
Joseph
J. Wallace
|
|
|
Chief
Financial Officer
|
Number
|
Description
|
|
|
Exhibit
31.1
|
Certification
of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Exhibit
31.2
|
Certification
of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Exhibit
32.1
|
Chief
Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
Exhibit
32.2
|
Chief
Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
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