<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: OCTOBER 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO _____________________
COMMISSION FILE NUMBER: 0-27887
COLLECTORS UNIVERSE, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0846191
- ----------------------------- ----------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NUMBER)
1936 DEERE STREET, 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 [X] No [ ]
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 DECEMBER 1, 1999:
- ----------------------------- --------------------------------
COMMON STOCK $.001 PAR VALUE. 24,425,076
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COLLECTORS UNIVERSE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets October 2, 1999 and June 30, 1999.. 3, 4
Condensed Consolidated Statements of Operations
Three months ended October 2, 1999 and September 30, 1998................ 5
Condensed Consolidated Statements of Cash Flows
Three months and ended October 2, 1999 and September 30, 1998............ 6
Notes to Condensed Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................... 10-15
PART II. OTHER INFORMATION
Item 5. Other Events ........................................................... 16
Item 6. Exhibits and Reports on Form 8-K ........................................ 16
SIGNATURES .............................................................................. 17
EXHIBIT INDEX ........................................................................... 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 2, 1999 AND JUNE 30, 1999
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
OCTOBER 2, JUNE 30,
1999 1999
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,058 $ 1,852
Accounts receivable, net 1,883 2,026
Inventories, net 3,462 3,148
Prepaid expenses and other 774 514
Deferred taxes 218 218
------- -------
Total current assets 8,395 7,758
Property and equipment, net 1,476 1,201
Notes receivable from related party 172 178
Other Assets 222 167
Goodwill, net 5,404 5,599
Deferred taxes 637 637
------- -------
$16,306 $15,540
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 2, 1999 AND JUNE 30, 1999
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
OCTOBER 2, JUNE 30,
1999 1999
---------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,628 $ 2,430
Accrued liabilities 723 856
Accrued compensation and benefits 654 524
Deferred revenue 2,897 1,616
Income taxes payable 43 16
-------- --------
Total current liabilities 5,945 5,442
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;
20,425 issued and outstanding at October 2, 1999
and 20,282 issued and outstanding at June 30, 1999 21 20
Additional paid-in capital 11,903 11,586
Retained earnings (deficit) (1,563) (1,508)
-------- --------
Total stockholders' equity 10,361 10,098
-------- --------
$ 16,306 $ 15,540
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
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COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
Net revenues $ 8,965 $ 3,957
Cost of revenues 4,037 1,337
-------- --------
Gross profit 4,928 2,620
Operating expenses:
Selling, general and administrative expenses 4,764 2,370
Amortization of intangibles 195 8
Stock-based compensation 15 --
-------- --------
Total operating expenses 4,974 2,378
Operating income (loss) (46) 242
Interest income, net 18 6
Minority interest -- (32)
-------- --------
Income (loss) before income taxes (28) 216
Provision for income taxes 27 3
-------- --------
Net income (loss) $ (55) $ 213
======== ========
Basic and diluted income (loss) per share $ (0.00) $ 0.01
======== ========
Shares used in computation of basic and
diluted earnings per share 20,329 16,093
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
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COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (55) $ 213
Adjustments to reconcile net income (loss) to net cash
provided from operating activities:
Depreciation and amortization 329 44
Stock-based compensation 15 --
Changes in assets and liabilities:
Accounts receivable 143 (520)
Inventories (314) (117)
Prepaids and other assets (315) (138)
Accounts payable and accrued liabilities (805) 65
Deferred revenue 1,281 536
Income taxes 27 --
------- -------
Net cash flows provided from operating activities 306 83
INVESTING ACTIVITIES:
Capital expenditures (408) (169)
Collections on note receivable 6 1
------- -------
Net cash used in investing activities (402) (168)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 302 --
Proceeds from sale of treasury stock -- 116
------- -------
Net cash provided from financing activities 302 116
------- -------
Net increase in cash and cash equivalents 206 31
Cash and cash equivalents at beginning of year 1,852 612
------- -------
Cash and cash equivalents at end of period $ 2,058 $ 643
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ --
Income taxes $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 7
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
(unaudited)
1. Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statement for the three-month
period ended September 30, 1998 includes the accounts of our
predecessor corporation, Professional Coin Grading Service, Inc. (PCGS)
and its majority-owned subsidiaries, Superior Sportscard Auctions
(Superior) and Internet Universe (IU), in which PCGS had a 60% and 55%
ownership interest, respectively. The consolidated financial statement
for the three-month period ended October 2, 1999 includes the accounts
of PCGS and the accounts of Lyn F. Knight Rare Coins, Inc. and
Kingswood Coin Auctions, which were acquired on February 5, 1999. In
addition, on February 5, 1999 we acquired the remaining ownership
interests in Superior and IU, which resulted in the full consolidation
of these entities from the date of acquisition. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Unaudited Interim Financial Information
The interim consolidated financial statements as of October 2, 1999
have been prepared by Collectors Universe, Inc. (Collectors or the
company) pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC) for interim financial reporting. These
consolidated statements are unaudited and, in the opinion of
management, include all adjustments (consisting of normal recurring
adjustments and accruals) necessary to present fairly the consolidated
balance sheets, consolidated operating results, and consolidated cash
flows for the periods presented in accordance with generally accepted
accounting principles. The consolidated balance sheet at June 30, 1999
has been derived from the audited consolidated financial statements at
that date. Operating results for the three-month period ended October
2, 1999 are not necessarily indicative of the results that may be
expected for the year ending July 1, 2000. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
omitted in accordance with the rules and regulations of the SEC. These
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements, and accompanying notes,
included in the company's Registration Statement on Form S-1 for the
year ended June 30, 1999. Certain prior period amounts have been
reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
7
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COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share data)
(unaudited)
2. Inventories
Inventories consist of the following:
OCTOBER 2, JUNE 30,
1999 1999
---------- --------
Coins and currency $1,962 $1,551
Sportscards and sports memorabilia 665 837
Records 550 631
Other collectibles 374 290
------ ------
3,551 3,309
Less inventory reserve (89) (161)
------ ------
Inventories, net $3,462 $3,148
====== ======
3. Property and Equipment
Property and equipment consist of the following:
OCTOBER 2, JUNE 30,
1999 1999
---------- --------
Coins and sportscard grading reference sets $ 40 $ 40
Computer hardware and equipment 1,305 1,114
Computer software 387 298
Equipment 905 790
Furniture and office equipment 627 615
Leasehold improvements 106 106
------- -------
$ 3,370 $ 2,963
Less accumulated depreciation and amortization (1,894) (1,762)
------- -------
Property and equipment, net $ 1,476 $ 1,201
======= =======
4. Intangibles
Intangibles arise from business acquisitions and consist entirely of
goodwill. Goodwill was $5,404, net of accumulated amortization of $576
as of October 2, 1999. Net goodwill was $5,599 as of June 30, 1999.
8
<PAGE> 9
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share data)
(unaudited)
5. Net Income (Loss) Per Share
Net income (loss) per share is determined in accordance with Financial
Accounting Standards Board Statement on Financial Accounting Standards
No. 128, "Earnings Per Share." Net income (loss) per share for the
three-month periods ended October 2, 1999 and September 30, 1998 is
computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
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<S> <C> <C>
Net Income (Loss) Applicable to Common Stockholders $ (55) $ 213
======== =======
BASIC NET INCOME (LOSS) PER SHARE
Weighted average shares outstanding used in
computation of basic and diluted income (loss)
per share 20,329 16,093
Net income (loss) per share, basic and diluted $ (0.00) $ 0.01
======= =======
</TABLE>
6. Stock Compensation Expense
Stock-based compensation is composed of stock-based charges related to
the grant of stock options after June 30, 1999 and prior to our initial
public offering at a price that was lower than the initial offering
price.
7. Segment Information
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 2, 1998
-----------------------------------------
GRADING AUCTION TOTAL
------- ------- -------
<S> <C> <C> <C>
Net revenues $5,934 $ 3,031 $ 8,965
====== ======= =======
Operating income (loss) $1,867 $(1,790) $ 77
Unallocated operating expenses (123)
-------
Consolidated operating (loss) $ (46)
=======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
-----------------------------------------
GRADING AUCTION TOTAL
------- ------- -------
<S> <C> <C> <C>
Net revenues $3,480 $ 474 $ 3,957
====== ===== =======
Operating income (loss) $ 964 $(392) 572
Unallocated operating expenses (330)
-------
Consolidated operating income $ 242
=======
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. This Act provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this Form 10-Q are forward-looking. In particular, any statements that
we make in this Form 10Q regarding industry prospects or our future results of
operations or financial position are forward-looking statements. Forward-looking
statements reflect our current expectations and are inherently uncertain. Our
actual results may differ significantly from our expectations. The section
entitled "Additional Factors That May Affect Future Results" describes some, but
not all, of the factors that could cause these differences.
OVERVIEW
Collectors Universe provides authentication and grading services for rare coins
and sportscards and authentication services for autographs. In most instances,
fees for authentication and grading services are prepaid. We also conduct
Internet, telephone and in-person auctions of rare coins, sportscards, sports
memorabilia, rare currency, rare records and other high-end collectibles.
Collectibles constituting approximately 80% of the aggregate sales prices of
collectibles sold at our auctions are consigned to us by third parties and we
receive commissions, usually from both sellers and buyers, when the consigned
collectibles are sold. Approximately 20% of the dollar value of collectibles we
sell at our auctions is comprised of collectibles that we purchase for resale at
our auctions and we record the sales prices of those collectibles as revenues
when they are sold.
The gross margin on sales of consigned collectibles is significantly higher than
the gross margin on sales of purchased collectibles, because we realize
commissions on sales of consigned collectibles without having to incur any
significant associated costs. By contrast, upon the sale of purchased
collectibles, we record the costs of acquiring those collectibles, which are
usually a significant percentage of the selling price. As a result, the sale of
purchased collectibles reduces our overall auction margins to a level that is
below that realized for authentication and grading services. Consequently, our
gross margin in future periods will depend not only upon the mix between auction
revenues and grading revenues, but also upon the mix between consigned
collectibles and purchased collectibles sold at our auctions.
We originally incorporated in 1986 under the name Professional Coin Grading
Service, Inc., which we usually refer to as "PCGS". In February 1999 we
incorporated Collectors Universe, Inc. in Delaware to become the parent holding
company of PCGS and to acquire (i) the currency auction business of Lyn F.
Knight Rare Coins, Inc., (ii) the coin auction business of Kingswood Coin
Auctions, and (iii) the minority ownership interests in two of our
majority-owned subsidiaries, Superior Sportscard Auctions and Internet Universe,
thereby increasing our ownership in those two subsidiaries to 100%. The primary
purpose of those acquisitions was to expand the variety of collectibles that we
sell, bring us additional expertise from the former owners of these businesses,
who continue to manage the acquired businesses for our Company, and add to our
customer base and sources of supply. Those acquisitions were completed in a
single transaction, effective as of February 5, 1999, by means of a
reorganization intended to qualify for non-recognition treatment under Section
351 of the Internal Revenue Code of 1986. In the reorganization, Collectors
Universe paid $2,100,000 in cash and issued to the owners of the acquired
companies an aggregate of 1,689,648 shares of our common stock. In March 1999
the company sold 1,284,800 shares of our common stock in a private placement at
a price of $5.00 per share. On November 5, 1999, we sold 4,000,000 shares of our
common stock, at a price of $6.00 per share, in our initial public offering that
was registered under the Securities Act of 1933, as amended.
10
<PAGE> 11
Prior to the February 5, 1999, the date as of which the reorganization was
consummated, and throughout the quarter ended September 30, 1998, PCGS was an
"S" corporation for federal and state income tax purposes under the Internal
Revenue Code and, accordingly, all federal income taxes, and substantially all
state income taxes, were payable by our stockholders. The provision made for
income taxes in the quarter ended September 30, 1998 is the result of a 1.5%
California franchise tax assessed on S corporations. The "S" election terminated
as a result of the consummation of the reorganization. As a result, from and
after February 5, 1999, and including the quarter ended October 2, 1999, the
Company is subject to federal and state income taxation at applicable corporate
rates.
RESULTS OF OPERATIONS
Net Revenues
THREE MONTHS ENDED
--------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Net revenues $8,965 $3,957
Net revenues include grading and authentication fees for rare coins and
sportscards, sales of collectibles in our auctions and commissions on the sales
of consigned collectibles sold in our auctions. Net revenues increased 127% for
the first quarter of fiscal 2000 over the same prior year period. Grading and
authentication revenues increased 71% in the current quarter to $5,934 from
$3,480 in the first quarter of the prior fiscal year. This increase resulted
from significantly higher submission rates for sportscards. Auction revenue
increased 552% in the current quarter to $3,031 from $477 in the prior year.
Continuous auctions of coins, sportscards and other collectibles conducted on
our Internet website increased by approximately 940% and premium auction
revenues increased by approximately 530%. The acquisition of Kingswood Coin
Auctions and Lyn F. Knight Rare Coins in February 1999 added approximately $960
in auction revenue to the first quarter ended October 2, 1999.
Gross Profit
THREE MONTHS ENDED
--------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Gross Profit $4,928 $2,620
Gross Profit Margin 55.0% 66.2%
Gross profit is the difference between net revenues and cost of revenues. Cost
of revenues consists of labor to grade coins and sportscards, production costs,
printing, credit cards fees, warranty expense and the cost of purchased
collectibles sold in our auctions. Gross profit increased 88% in the first
quarter of fiscal 2000, as compared to the corresponding period of fiscal 1999,
primarily because of higher revenue both from grading services and from auctions
of collectibles. The gross margin, which is gross profit stated as a percentage
of net revenue, decreased to 55.0% in the first quarter of fiscal 2000 from
66.2% in the first quarter of fiscal 1999. This decrease in gross margin was
largely attributable to the substantial increase in auction revenues, because
the margin on auction sales of collectibles is lower than on authentication and
grading services. Overall, our gross profit margin on auction activities
decreased to 24.7% for the quarter ended October 2, 1999, from 60.8% for the
corresponding quarter of the prior year. This decrease in auction gross profit
margin resulted from a higher percent of purchased collectibles sold in our
auction during the first quarter of the current fiscal year. Grading and
authentication gross profit margins increased for the current quarter to 70.7%
from 67.4% last year.
11
<PAGE> 12
Selling, General and Administrative Expenses
THREE MONTHS ENDED
----------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
SG&A $4,764 $2,370
Percent of Revenues 53.1% 59.9%
Selling, general and administrative (SG&A) expenses consist primarily of wages
and payroll related expenses, advertising and promotion, professional and
consulting expenses, travel and entertainment, facility related expenses and
security charges. In the quarter ended October 2, 1999 SG&A expenses, in
absolute dollars, doubled as compared to the same quarter of fiscal 1999.
However, as a percentage of net revenue SG&A expenses declined to 53.1% in the
first quarter of fiscal 2000 from 59.9% in the same quarter of fiscal 1999. We
have significantly enhanced our management and information systems
infrastructure over the past several quarters to accommodate projected revenue
growth and have invested heavily in the development of our website, Collectors
Universe.com, our website content and the Internet auction capabilities built
into our website. We anticipate that we will continue to report significant
increases in SG&A expenses during the balance of this fiscal year; however, we
expect the rate of the increases in those expenses will decrease,
quarter-over-quarter, during the current fiscal year.
Amortization of Intangibles
THREE MONTHS ENDED
------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Amortization of intangibles $195 $ 8
Percentage of revenues 2.2% 0.2%
Amortization of intangibles consists of goodwill charges relating to
acquisitions by the Company. The Company is amortization goodwill over periods
of 5 to 15 years.
Stock-Based Compensation
THREE MONTHS ENDED
------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Stock-based compensation $15 $0
Stock-based compensation relates to stock-based charges arising from stock
options granted after June 30, 1999 and prior to the consummation of the
Company's initial public offering, at an exercise price that was lower than the
initial public offering price.
12
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Interest Income
THREE MONTHS ENDED
-------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Interest income $18 $6
Interest income on cash and cash equivalents increased because of higher cash
balances resulting from the sale of shares of our common stock in our March 1999
private placement that raised $6,390. We anticipate higher interest income
during the balance of the current fiscal year as a result of the net proceeds
from our initial public offering of approximately $21.6 million, which will be
invested primarily in short term interest bearing securities pending the use of
those proceeds for corporate purposes.
Minority Interest
THREE MONTHS ENDED
-------------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
Minority interest $0 $(32)
We recorded a minority interest charge of $(32) in the first quarter of the
prior fiscal year resulting from the Company's elimination of minority ownership
in Internet Universe, LLC and in Superior Sports Auctions, LLC. We acquired the
minority interests in both of these entities in February 1999.
Income Taxes
Prior to February 4, 1999, we were an S corporation for federal and state income
tax purposes. As such, federal income taxes were payable by our stockholders
individually and no provision for federal income taxes was recorded. A provision
for California franchise tax was provided at the statutory rate of 1.5%, which
is assessed against all California based S corporations. Accordingly, a tax
provision of $3, covering the California income tax obligation, was made in the
first quarter of fiscal 1999. On February 5, 1999, Collectors Universe became a
C corporation for federal income tax purposes and, as a result, since that date
Collectors has the obligation to pay federal and state income taxes at
applicable corporate rates of taxation. In the first quarter of fiscal 2000, the
Company recorded a tax provision of $27 due to the non-deductibility, for income
tax purposes, of certain goodwill expense and amortization charges.
Pro Forma Results of Operations
Pro forma information regarding the company's results, excluding amortization of
intangibles charges and stock-based compensation (as discussed above) are
presented for informational purposes only and are not in accordance with
generally accepted accounting principles.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
OCTOBER 2, SEPTEMBER 30,
1999 1998
---------- -------------
<S> <C> <C>
Pro forma income from operations, excluding amortization of
intangibles and stock-based compensation $ 164 $ 250
====== =======
Pro forma net income, excluding amortization of intangibles
and stock-based compensation $ 108 $ 221
====== =======
Pro forma basic and diluted income per share, excluding
amortization of intangibles and stock-based compensation $ 0.01 $ 0.01
====== =======
Shares used in computation of pro forma basic and diluted
income per share 20,329 16,093
====== =======
</TABLE>
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1999 our sole source of liquidity was $2,058 of cash and cash
equivalents compared to $1,852 of cash and cash equivalents at June 30, 1999.
However, our authentication and grading services provide us with a steady source
of cash because, in most instances, our customers prepay our authentication and
grading fees at the time that they submit their collectibles to us for
authentication and grading. As a result, historically, Collectors Universe has
relied on internally generated funds, rather than borrowings, as its primary
sources of funds for its operations. We do not have a credit agreement and, as a
result, we have no borrowing availability. Following the quarter ended October
2, 1999, our available cash was increased by the net proceeds of our initial
public offering of approximately $21.6 million.
Cash provided by operating activities was $306 for the three-month period ended
October 2, 1999 as compared with $83 for the three-month period ended September
30, 1998. For the current three-month period, cash was provided by increases in
deferred revenue, which is comprised primarily of prepaid authentication and
grading fees, and non-cash charges for depreciation and amortization. Cash was
used to increase inventories and prepaid assets and to liquidate accounts
payable balances. For the prior year three-month period, cash was provided by
net income and an increase in deferred revenue while cash was used to increase
accounts receivable, inventories and prepaid assets.
Net cash used in investing activities was $402 for the three-month period ended
October 2, 1999 and consisted almost exclusively of expenditures for capital
assets. For the prior year period, $169 was used for the acquisition of capital
assets.
Net cash provided by financing activities was $302 for the three-month period
ended October 2, 1999 and consisted of proceeds from the exercise of stock
options. In the prior year period, cash was provided by sales of treasury
shares.
On November 4, 1999, the Company sold 4 million shares of its common stock in an
initial public offering. Net proceeds to the company totaled approximately $21.6
million.
We believe that the net proceeds from the sale of common stock in our initial
public offering and existing cash balances will be sufficient to finance our
operations and financing requirements for at least the next twelve months.
However, our capital requirements will depend on several factors, including our
growth rate, the need to increase inventories of collectibles for auction,
capital expenditures for computer equipment to support e-commerce and various
other factors. Depending on our growth and working capital requirements, we may
require additional financing in the future through equity or debt financings,
which may or may not be available or may be dilutive to our shareholders. Our
ability to obtain additional capital will depend on our operating results,
financial condition, future business prospects and conditions then prevailing in
the relevant capital markets.
YEAR 2000 ISSUE
Many currently installed computer systems and software products are dependent
upon internal calendars coded to accept only two digit entries in the date code
field. In order to distinguish 21st century dates from 20th century dates,
computer systems and software products must accept four digit entries in the
date code field. As a result, computer systems and software used by many
companies may need to be upgraded to comply with Year 2000 requirements.
During the first quarter of fiscal 2000, we successfully completed Year 2000
compliance testing of and corrections to the computer systems we use in the
grading of rare coins and sportscards. The cost of making those systems Year
2000 compliant was approximately $50,000. Nevertheless, if we encounter any Year
2000 problems with these computer systems, we believe that our coin and
sportscard graders have sufficient knowledge, skills and experience to continue
providing grading services without having to rely on those computer systems
until the problems are resolved. However, during any such period, the time
required to grade coins and sportscards would increase and, as a result, we
would experience a reduction in our revenues.
14
<PAGE> 15
In addition to our internally developed software, we utilize computer software
and hardware developed by third parties for both our network and internal
information systems. To date, we have not performed any testing of these third
party products to determine Year 2000 compliance. We have, however, obtained a
"statement of Year 2000 compliance" from most third party providers or other
forms of assurance that their software and/or hardware is Year 2000 compliant.
We are aware that all of these third party providers are in the process of
reviewing and implementing their own Year 2000 compliance programs, and we will
continue to work with these providers to address any remaining Year 2000 issues
and to continue to seek their assurance that their software and hardware systems
are Year 2000 compliant.
We rely on third party network infrastructure providers to gain access to the
Internet. If such providers experience business interruptions as a result of
their failure to achieve Year 2000 compliance, our ability to maintain access
and functionality for our website could be impaired, which could requires us to
incur unanticipated expenses and disrupt our auction business and our ability to
process customer credit card transactions. Such expenses and disruptions could
have a material adverse effect on our business, results of operations and
financial condition.
We do not have any contingency plan in place if one of our third party
providers, such as Internet backbone providers, should experience system failure
due to their failure or inability to achieve Year 2000 compliance, and we do not
intend to establish such a contingency plan.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No.130, "Reporting Comprehensive Income"("SFAS No. 130"). SFAS No. 130 requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
does not have any items of comprehensive income requiring separate disclosure.
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company adopted SOP 98-1 during the
first quarter of fiscal 2000 and has determined that certain costs for software
development should be capitalized and amortized over a two-year useful life. For
the first quarter of the current fiscal year, the company capitalized $55.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
There are a number of factors that could affect the Company's future operating
results and financial condition. Those factors include the factors discussed in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and on pages 8 to 17 in the Company's Final Prospectus dated
November 4, 1999, filed with the Securities and Exchange Commission on November
4, 1999 pursuant to Rule 424(b) under the Securities Act of 1933, as amended, to
which reference is hereby made for additional information regarding these
factors. In particular, among the factors described in the Final Prospectus that
could adversely affect the Company's performance include the risk that the
popularity of collectibles will decline; the risk that our operating results
will fluctuate; the risk that our auction business will not become profitable;
the risk that we will be unable to sell purchased collectibles in sufficient
time or at a sufficient price to prevent having to absorb write-downs in the
carrying value of our inventory of collectibles; the inability to obtain or
increases in the cost of obtaining consignments of collectibles for our
auctions; competition from other internet and from traditional auction companies
and from other authentication and grading companies; the risk that we will incur
unanticipated liabilities under our authentication and grading warranties and
our dependence on the continued growth of commerce on the Internet.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 5. OTHER EVENTS
On November 4, 1999, the Company completed an initial public offering of its
shares of common stock that was registered under the Securities Act of 1933, as
amended. The Company sold a total of 4,000,000 shares, at $6.00 per share, in
that offering and received net proceeds (after deducting underwriters'
commissions and other offering expenses) totaling approximately $21.6 million.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS
(a) Exhibits.
Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended October 2, 1999.
16
<PAGE> 17
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: December 1, 1999 /s/ Louis M. Crain
----------------------------------
Louis M. Crain, President and
Chief Executive Officer
Date: December 1, 1999 /s/ Gary N. Patten
----------------------------------
Gary N. Patten, Vice President
and Chief Financial Officer
17
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF, AND THE STATEMENT OF OPERATIONS FOR THE PERIOD ENDED OCTOBER 2,
1999 INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
BALANCE SHEET AND STATEMENT OF OPERATIONS AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> JUN-30-2000
<CASH> 2,058
<SECURITIES> 0
<RECEIVABLES> 1,883
<ALLOWANCES> 0
<INVENTORY> 3,462
<CURRENT-ASSETS> 8,395
<PP&E> 1,476
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,306
<CURRENT-LIABILITIES> 5,945
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 10,340
<TOTAL-LIABILITY-AND-EQUITY> 16,306
<SALES> 8,965
<TOTAL-REVENUES> 8,965
<CGS> 4,037
<TOTAL-COSTS> 4,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18)
<INCOME-PRETAX> (28)
<INCOME-TAX> 27
<INCOME-CONTINUING> (55)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
