<PAGE> 1
================================================================================
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: APRIL 1, 2000
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 MAY 1, 2000:
COMMON STOCK $.001 PAR VALUE. 25,428,131
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<PAGE> 2
COLLECTORS UNIVERSE, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets ............................3
April 1, 2000 and June 30, 1999
Condensed Consolidated Statements of Income.......................4
Three months and nine months ended April 1, 2000
and March 31, 1999
Condensed Consolidated Statements of Cash Flows...................5
Nine months ended April 1, 2000 and March 31, 1999
Notes to Condensed Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................16
SIGNATURES................................................................... 17
EXHIBIT INDEX.................................................................18
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF APRIL 1, 2000 AND JUNE 30, 1999
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
APRIL 1, JUNE 30,
2000 1999
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,781 $ 1,852
Accounts receivable, net 3,500 2,026
Inventories, net 6,701 3,148
Prepaid expenses and other 944 514
Deferred taxes 218 218
-------- --------
Total current assets 25,144 7,758
Property and equipment, net 1,739 1,201
Note receivable from related party 164 178
Other assets 376 167
Goodwill, net 18,267 5,599
Deferred taxes 1,187 637
-------- --------
$ 46,877 $ 15,540
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,935 $ 2,430
Accrued liabilities 636 856
Accrued compensation and benefits 525 524
Deferred revenue 1,439 1,616
Income taxes payable 822 16
-------- --------
Total current liabilities 6,357 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; 25,428
issued and outstanding at April 1, 2000 and
20,282 issued and outstanding at June 30, 1999 25 20
Additional paid-in capital 40,377 11,586
Retained earnings 118 (1,508)
-------- --------
Total stockholders' equity 40,520 10,098
-------- --------
$ 46,877 $ 15,540
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ------------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues $12,321 $ 6,193 $31,048 $ 14,344
Cost of revenues 6,870 1,869 15,162 4,721
------- -------- ------- --------
Gross profit 5,451 4,324 15,886 9,623
Operating expenses:
Selling, general and administrative
expenses 4,346 3,483 13,666 8,588
Amortization of goodwill 243 129 637 139
Stock-based compensation 15 -- 48 --
------- -------- ------- --------
Total operating expenses 4,604 3,612 14,351 8,727
Operating income 847 712 1,535 896
Interest income, net 292 (13) 542 --
Minority interest -- 16 -- (28)
------- -------- ------- --------
Income before income taxes 1,139 715 2,077 868
Provision for income taxes 518 93 1,002 95
------- -------- ------- --------
Net income $ 621 $ 622 $ 1,075 $ 773
======= ======== ======= ========
Net income per share:
Basic $ 0.03 $ 0.03 $ 0.05 $ 0.05
======= ======== ======= ========
Diluted $ 0.02 $ 0.03 $ 0.04 $ 0.05
======= ======== ======= ========
Weighted average shares outstanding:
Basic 24,649 18,104 22,631 16,765
Diluted 26,212 18,104 23,985 16,765
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
APRIL 1, MARCH 31,
2000 1999
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,075 $ 773
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,101 234
Stock-based compensation 48 --
Changes in assets and liabilities:
Accounts receivable (1,474) (874)
Inventories (1,053) (1,100)
Prepaids and other assets (1,184) 11
Accounts payable and accrued liabilities 285 1,681
Minority Interest -- (65)
Deferred revenue (177) 1,207
Income taxes 806 239
-------- -------
Net cash flows (used in) provided by operating activities (573) 2,106
INVESTING ACTIVITIES:
Capital expenditures (890) (681)
Advances on notes receivable -- (261)
Collections on note receivable 14 --
-------- -------
Net cash used in investing activities (876) (942)
FINANCING ACTIVITIES:
Cash paid for acquisition (8,300) (262)
Proceeds from exercise of stock options 318 --
Proceeds from short term borrowing -- 2,574
Proceeds from sale of treasury stock 21,360 116
-------- -------
Net cash provided from financing activities 13,378 2,428
-------- -------
Net increase in cash and cash equivalents 11,929 3,592
Cash and cash equivalents at beginning of year 1,852 612
-------- -------
Cash and cash equivalents at end of period $ 13,781 $ 4,204
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ -- $ 17
Income taxes $ 747 $ --
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
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 statements for the three-month and
nine-month periods ended March 31, 1999, 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 statements for the three-month and
nine-month periods ended April 1, 2000, include 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, and Bowers and Merena from the date of
acquisition, April 11, 2000. 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 April 1, 2000, 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 and nine-month periods ended April 1, 2000, 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 as of
and for the fiscal year ended June 30, 1999, and accompanying notes, included
in the Company's Prospectus dated November 4, 1999, filed with the SEC under
Rule 424(b) of the Securities Act of 1933. 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.
6
<PAGE> 7
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:
<TABLE>
<CAPTION>
APRIL 1, JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
Coins and currency $ 4,174 $ 1,551
Sportscards and sports memorabilia 1,778 837
Records 731 631
Other collectibles 212 290
------- -------
6,895 3,309
Less inventory reserve (194) (161)
------- -------
Inventories, net $ 6,701 $ 3,148
======= =======
</TABLE>
3. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 1, JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
Coins and sportscard grading reference sets $ 40 $ 40
Computer hardware and equipment 1,473 1,114
Computer software 683 298
Equipment 1,004 790
Furniture and office equipment 631 615
Leasehold improvements 111 106
------- -------
$ 3,942 $ 2,963
Less accumulated depreciation and amortization (2,203) (1,762)
------- -------
Property and equipment, net $ 1,739 $ 1,201
======= =======
</TABLE>
4. Acquisition of Bowers and Merena
On March 10, 2000, the Company consummated the purchase of substantially all
of the assets of Auctions by Bowers and Merena, Inc., Bowers and Merena
Galleries, Inc. and Bowers and Merena Research, Inc., collectively ("Bowers
and Merena"). The effect of these simultaneous transactions was the
acquisition of the coin auction and coin retail sales businesses conducted by
Bowers and Merena. Total consideration was $8.0 million in cash and 1,000,000
shares of Company common stock. The acquisition was accounted for under
purchase accounting and the goodwill recorded in connection with this
acquisition is $13,006. The operating results of Bowers and Merena have been
included in the Company's operating results from the date of the acquisition.
7
<PAGE> 8
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share data)
(unaudited)
The following unaudited pro forma consolidated statements of income give effect
to the above acquisition as though such acquisition had occurred as of the
beginning of each period presented. The pro forma information is provided for
informational purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred and is not
necessarily indicative of future results of operations of the combined
companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- ---------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Total reviews $13,618 $ 8,905 $40,305 $20,616
------- ------- ------- -------
Net Income $ 680 $ 1,465 $ 2,869 552
------- ------- ------- -------
Pro forma net income per share:
Basic $ 0.03 $ 0.08 $ 0.12 $ 0.03
------- ------- ------- -------
Diluted $ 0.03 $ 0.08 $ 0.12 $ 0.03
------- ------- ------- -------
</TABLE>
5. Goodwill
Goodwill arises from business acquisitions. Goodwill was $18,267 net of
accumulated amortization of $1,019, as of April 1, 2000. Goodwill was $5,599,
net of accumulated amortization of $382, as of June 30, 1999.
6. Net Income Per Share
Net income per share is determined in accordance with Financial Accounting
Standards Board Statement on Financial Accounting Standards No. 128,
"Earnings Per Share." Net income per share for the three-month and nine-month
periods ended April 1, 2000 and March 31, 1999 is computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income Applicable to Common
Stockholders $ 621 $ 622 $ 1,075 $ 773
======= ======= ======= =======
Net Income Per Share
Weighted average shares outstanding used
in computation of net income per share:
Basic 24,649 18,104 22,631 16,765
Diluted 26,212 18,104 23,985 16,765
Net income per share:
Basic $ 0.03 $ 0.03 $ 0.05 $ 0.05
------- ------- ------- -------
Diluted $ 0.02 $ 0.03 $ 0.04 $ 0.05
======= ======= ======= =======
</TABLE>
7. 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.
8
<PAGE> 9
COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(amounts in thousands, except share data)
(unaudited)
8. Segment Information
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 1, 2000
--------------------------------------
GRADING AUCTION TOTAL
------- ------- -----
<S> <C> <C> <C>
Net revenues $ 6,425 $ 5,896 $12,321
======= ======= =======
Operating income (loss) $ 2,317 $(1,403) $ 914
Unallocated operating expenses (67)
-------
Consolidated operating income $ 847
=======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------
GRADING AUCTION TOTAL
------- ------- -----
<S> <C> <C> <C>
Net revenues $4,990 $ 1,203 $6,193
====== ======= ======
Operating income (loss) $1,594 $ (998) 596
Unallocated operating income 119
------
Consolidated operating income $ 712
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL 1, 2000
---------------------------------------
GRADING AUCTION TOTAL
------- ------- -----
<S> <C> <C> <C>
Net revenues $ 18,095 $ 12,953 $31,048
======== ======== =======
Operating income (loss) $ 6,141 $ (4,537) 1,604
Unallocated operating expenses (69)
-------
Consolidated operating income $ 1,535
=======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1999
---------------------------------------
GRADING AUCTION TOTAL
------- ------- -----
<S> <C> <C> <C>
Net revenues $ 12,099 $ 2,245 $14,344
======== ======= =======
Operating income (loss) $ 3,309 $(1,891) 1,418
Unallocated operating expense (522)
-------
Consolidated operating income $ 896
=======
</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.
Generally, collectibles constituting approximately 65% of the aggregate sales
prices of collectibles sold at our auctions are consigned to us by third
parties, and the other approximately 35% is comprised of collectibles that we
purchase for resale at our auctions. We receive commissions, usually both from
sellers and buyers, when the consigned collectibles are sold and we record the
sale prices of purchased 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 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. ("Lyn Knight Currency Auctions"), (ii) the coin auction business of
Kingswood Coin Auctions ("Kingswood"), and (iii) the minority ownership
interests in two of our majority-owned subsidiaries, Superior Sportscard
Auctions ("Superior") and Internet Universe ("IU"), 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. Additionally, prior to that reorganization , we were
an "S" corporation for federal and state income tax purposes under the Internal
Revenue Code and, therefore, our income was not subject to federal income taxes
and we paid state income taxes at a statutory rate of 1.5%. The reorganization
resulted in the termination of our status as an "S" corporation, and since
February 5, 1999 we have paid income taxes at corporate rates.
That reorganization affects the comparability of our operating results for
the quarter and nine months ended April 1, 2000 to our operating results for the
quarter and nine months ended March 31, 1999. Our operating results for the
quarter and nine months ended April 1, 2000 includes the operations of PCGS, Lyn
Knight Currency Auctions, Kingswood, Superior and IU for the entirety of those
periods. In addition, we were taxed at corporate tax rates throughout those
periods. By contrast, although our operating results for the quarter and nine
months ended March 31, 1999 includes the operations of PCGS and a portion of the
operations of Superior and IU for the entirety
10
<PAGE> 11
of those periods, they include the operations of Lyn Knight Currency Auctions,
Kingswood and all of the operations of Superior and IU for only about seven
weeks. Additionally, we had to provide for income taxes at corporate tax rates
for only the last seven weeks of those periods of 1999 and, as a result, our
effective tax rates for the quarter and nine months ended March 31, 1999, were
only 13% and 10.9%, respectively, as compared to 45.5% and 48.2%, respectively,
for the corresponding periods of fiscal 2000.
Additionally, on March 11, 2000, we purchased substantially all of the
assets of the coin auction and retail coin businesses of Bowers and Merena
("Bowers and Merena"), for $8.0 million in cash and 1,000,000 of our shares. As
a result, the operating results of those businesses for the period from March
11, 2000 to April 1, 2000 are included in our operating results both for the
quarter and nine months ended April 1, 2000.
RESULTS OF OPERATIONS
Net Revenues
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- -----------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
Net Revenues $12,321 $6,193 $31,048 $14,344
Net revenues include fees for grading and authentication of rare coins and
sportscards, revenues from sales of purchased collectibles and commissions on
sales of consigned collectibles at our auctions. Net revenues for the third
fiscal quarter and nine months ended April 1, 2000 increased by 99% and by 116%,
respectively, over the corresponding periods of fiscal 1999. Grading and
authentication revenues increased by 29% in the third quarter ended April 1,
2000 to $6,425 from $4,990 in the same quarter of the prior fiscal year and by
50%, to $18,095, in the nine months ended April 1, 2000 from $12,099 in the
corresponding nine months of fiscal 1999. These increases resulted from
significantly higher submission rates for sportscards, while submission rates
for coins were stable and for significantly higher auction revenues. In the
quarter ended April 1, 2000, auction revenue increased by 389% to $5,896 from
$1,203 in the prior year and in the nine months ended April 1, 2000 by 505% to
$12,953 in from $2,245 in the corresponding nine months of fiscal 1999. The
percent of owned collectibles sold at auctions increased to approximately 45%
for the quarter ended April 1, 2000 and was approximately 35% for the nine
months ended April 1, 2000. The acquisitions of Kingswood and Lyn Knight
Currency Auctions in February 1999, accounted for approximately $1,912 of the
increase in auction revenue in the nine months ended April 1, 2000; and the
acquisition of Bowers and Merena in March 2000 added $639 of auction revenues to
the quarter and nine-month periods ended April 1, 2000.
Gross Profit
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Gross Profit $5,451 $4,324 $15,886 $9,623
Gross Profit Margin 44.2% 51.2% 67.1% 69.8%
</TABLE>
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 margin is gross profit stated as
a percentage of net revenues. Gross profit in the quarter and nine months ended
April 1, 2000 increased by 26% to $5,451 and by 65% to $15,886, respectively.
However, in those same periods the gross profit margin declined to 44.2% and
51.2%, respectively, from 69.8% and 67.1%, respectively, in the corresponding
periods of fiscal 1999. The declines in gross profit margin were primarily
attributable to a change in revenue mix between grading services and auction
revenue, because we realize lower margins on auction sales than we generate on
our authentication and grading services. For the third quarter and nine months
ended April 1, 2000, auction revenue represented approximately 48% and 42%,
respectively, of total revenue compared to approximately 20% and 15%,
respectively for the corresponding periods of the prior year. Also contributing
to lower gross profit margins for the three and nine-month periods ended April
1, 2000 was the sale of approximately $1.1 million of British Royal Sovereign
coins at prices close to their cost.
11
<PAGE> 12
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -------------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
SG&A $4,346 $3,483 $13,666 $8,588
Percent of Net Revenues 35.3% 56.2% 44.0% 59.9%
</TABLE>
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 and nine months ended April 1, 2000, SG&A
expenses increased by 25.0% and 59.0%, respectively, as compared to the
corresponding periods of the prior fiscal year, due largely to the growth of our
operations resulting from the business acquisitions completed in February 1999
and in March 2000 and to expenditures to enhance our information systems, to
develop and to obtain content for our website, Collectors.com, and to enhance
our auction capabilities. However, as a percentage of net revenues those
expenses declined to 35.3% and 44.0% in the quarter and nine months ended April
1, 2000, respectively, from 56.2% and 59.9%, respectively for the quarter and
nine months ended March 31, 1999, primarily as a result of the economies
realized from those acquisitions and the revenue increases realized by our
grading services . Additionally, in the second quarter of the current fiscal
year, certain of our executive officers temporarily reduced or suspended their
salaries. These actions reduced SG&A expenses by approximately $135 for second
quarter of fiscal 2000. At the beginning of the third quarter, salaries for
these executive officers were restored but at lower compensation rates than were
previously in effect. We anticipate that SG&A expenses will increase in
subsequent quarters but will continue to decline as a percentage of net
revenues.
Amortization of Goodwill
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ----------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Amortization of goodwill $ 243 $ 129 $ 637 $ 139
Percentage of net revenues 2.0% 2.1% 2.1% 1.0%
</TABLE>
Amortization of goodwill consists of goodwill charges relating to our
acquisitions that were completed in February 1999 and in March 2000. The Company
is amortizing goodwill over periods of 5 to 15 years. For the third quarter
ended April 2000, we recorded an expense of $36 for amortization of goodwill
associated with the Bowers and Merena acquisition. In subsequent quarters, the
incremental expense for amortization of goodwill relative to that acquisition
will be approximately $216.
Stock-Based Compensation
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -----------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Stock-based compensation $ 15 $ 0 $ 48 $ 0
Percentage of net revenues 0.1% 0.0% 0.2% 0.0%
</TABLE>
Stock-based compensation consists of stock-based charges arising from stock
options granted after June 30, 1999, and prior to the consummation of the
Company's initial public offering in November 1999, at an exercise price that
was lower than the initial public offering price of the shares sold in that
offering.
12
<PAGE> 13
Interest Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest income (expense) $292 $(13) $542 $--
Percentage of net revenue 2.4% (0.2%) 1.7% 0.0%
</TABLE>
Interest income on cash and cash equivalents increased because of higher
cash balances which include the net proceeds of approximately $21.4 million from
the sale of 4 million shares of common stock in our initial public offering that
was completed in November 1999. In March 2000 we used $8 million of those cash
balances as partial consideration for the acquisition of Bowers and Merena which
reduced our cash balances to approximately $13.8 million at April 1, 2000.
Accordingly, we anticipate that we will generate reduced interest income in
subsequent periods.
Minority Interest
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- ----------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Minority interest $ 0 $ 16 $ 0 $ (28)
Percentage of net revenues 0.0% 0.3% 0.0% (0.2)%
</TABLE>
For the fiscal year ended June 30, 1999, we recorded minority interest
income of $16 for the third quarter and a minority interest charge of $28 for
the nine-month period 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. As a
result, there is no charge for minority interests in the quarter or nine months
ended April 1, 2000.
Income Taxes
Prior to February 5, 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. On
February 5, 1999, we became a C corporation for federal income tax purposes and,
as a result, since that date we have the obligation to pay federal and state
income taxes at applicable corporate rates of taxation. For the three and
nine-month periods of the current fiscal year, we provided for income taxes at
rates of 45.5% and 48.2%, respectively. These current year provisions for income
taxes also reflect the non-deductibility of certain goodwill amortization
charges and certain other permanent timing differences. For the three and
nine-month periods of fiscal 1999, we provided for income taxes at a rate of
13.0% and 10.9%, respectively, because we were an S corporation until prior to
February 5, 1999 and we had to provide for income taxes at corporate rates for
only the last seven weeks of those periods.
Results of Operations, Excluding Amortization of Goodwill
Results of operations, excluding amortization of goodwill are presented for
informational purposes only and are not in accordance with generally accepted
accounting principles. These results exclude goodwill amortization charges of
$243 and $129 for the three-month period and $637 and $139 for the nine-month
period, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
APRIL 1, MARCH 31, APRIL 1, MARCH 31,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Operating income
excluding amortization of goodwill $ 1,090 $ 841 $ 2,172 $ 1,035
======= ======= ======= =======
Net income, excluding
amortization of goodwill $ 800 $ 698 $ 1,571 $ 855
======= ======= ======= =======
Net income per share,
excluding amortization of goodwill
Basic $ 0.03 $ 0.04 $ 0.07 $ 0.05
======= ======= ======= =======
Diluted $ 0.03 $ 0.04 $ 0.07 $ 0.05
======= ======= ======= =======
Weighted average shares outstanding
used in computation of net income per
share, excluding amortization of goodwill
Basic 24,649 18,104 22,631 16,765
Diluted 26,212 18,104 23,985 16,765
</TABLE>
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
At April 1, 2000, we had cash and cash equivalents of $13,781 compared to
cash and cash equivalents of $1,852 at June 30, 1999. This increase in liquidity
is the result of the sale, in November 1999, of 4 million shares of common stock
in our initial public offering, the net proceeds of which were approximately
$21.4 million. In March 2000, we used $8 million as partial consideration for
the acquisition of Bowers and Merena. Historically, we have relied on internally
generated funds, rather than borrowings, as our primary source of funds to
support operations. Our grading and authentication services provide us with a
relatively steady source of cash because, in most instances, our customers
prepay for services at the time they submit their collectibles for
authentication and grading. We do not have a credit facility and, accordingly,
do not currently have any borrowing capability.
Cash used in operating activities was $573 for the nine-month period ended
April 1, 2000, as compared with cash provided by operating activities of $2,106
for the nine-month period ended March 31, 1999. For the nine months ended April
1, 2000, cash was provided by net income and increases in accounts payable,
increases in income tax payable and non-cash charges for depreciation and
amortization. Cash was used to increase accounts receivable, inventories and
prepaid assets. For the corresponding nine-month period ended March 31, 1999,
cash was provided by net income and increases in deferred revenue and accounts
payable while cash was used to increase accounts receivable and inventories.
Net cash used in investing activities was $876 for the nine months ended
April 1, 2000, and consisted almost exclusively of expenditures for capital
assets. For the corresponding prior year period, $942 was used for the
acquisition of fixed assets and an advance on a note receivable.
Net cash provided by financing activities was $13,378 for the nine months
ended April 1, 2000, and consisted of the net proceeds from our initial public
offering and the proceeds from the exercise of stock options. During that
nine-month period, the Company used $300 to pay the remaining purchase price of
the businesses acquired in February 1999 and used $8 million as partial
consideration for the acquisition of Bowers and Merena. In the corresponding
nine months of the prior year period, cash was provided by short-term borrowings
and the sale of treasury stock.
We believe that our existing cash balances and internally generated funds
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 amount by which we increase
inventories of owned 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 offerings, 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.
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
14
<PAGE> 15
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.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
There are a number of factors that could affect our 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 in the Risk Fact section, on pages 8 to 17 in the Company's
Prospectus dated November 4, 1999, filed with the SEC 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 Prospectus that could adversely affect the Company's
performance include the risk that the popularity of collectibles will decline;
our dependence on the continued growth of commerce on the Internet; 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
write-down 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; and the risk that
we will incur unanticipated liabilities under our authentication and grading
warranties.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company sold a total of 4 million shares of its common stock its
initial public stock offering stock in November 1999. That offering was
registered on a Form S-1 Registration Statement (File No. 333-86449) filed by
the Company with the Securities and Exchange Commission under the Securities Act
of 1933. That Registration Statement was declared effective on November 4, 1999
and the offering the sale of the shares in that offering was consummated on
November 10, 1999. The proceeds of the offering totaled $24,000,000; the
underwriting discounts and other offering expenses totaled approximately
$2,600,000 and, as a result, the net proceeds of the offering to the Company
totaled approximately $21,400,000. In the quarter ended April 1, 2000, the
Company used $8,000,000 of those net proceeds to fund the cash portion of the
consideration paid for the acquisition of Bowers and Merena. An additional
$200,000 of the net proceeds was used to launch the Company's stamp
authentication and grading service. The remaining net proceeds have been
invested in short-term investment grade instruments and are classified as cash
equivalents in the accompanying balance sheet and are available for general
working capital requirements. These uses of the net proceeds do not represent a
material change from the uses thereof described in the Company's Registration
Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K AND EXHIBITS
(a) Exhibits.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K was filed during the quarter ended April 1,
2000 to report, in Item 2 thereof, the Company's acquisition of Bowers
and Merena.
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: May 12, 2000 /s/ DAVID G. HALL
------------------------------------------
David G. Hall, Chairman and
Chief Executive Officer
Date: May 12, 2000 /s/ GARY N. PATTEN
------------------------------------------
Gary N. Patten, President
and Chief Financial Officer
17
<PAGE> 18
INDEX TO EXHIBITS
Exhibit 27. Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF, AND THE STATEMENT OF INCOME FOR THE NINE MONTH PERIOD ENDED APRIL
1, 2000, INCLUDED IN REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER
ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
BALANCE SHEET AND STATEMENT OF INCOME AND THE NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> APR-01-2000
<CASH> 13,781
<SECURITIES> 0
<RECEIVABLES> 3,626
<ALLOWANCES> (126)
<INVENTORY> 6,701
<CURRENT-ASSETS> 25,144
<PP&E> 3,942
<DEPRECIATION> (2,203)
<TOTAL-ASSETS> 46,877
<CURRENT-LIABILITIES> 6,357
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 40,520
<TOTAL-LIABILITY-AND-EQUITY> 46,877
<SALES> 31,048
<TOTAL-REVENUES> 31,048
<CGS> 15,162
<TOTAL-COSTS> 28,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,077
<INCOME-TAX> 1,002
<INCOME-CONTINUING> 1,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.04
</TABLE>
