-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ph1t6b157DwZmr3C6SLgHMRJcjA7pgdYjyAAZscPx277yK1zlgQUW01hZipGga9I EdE4WLGFfaH2iIs2sdUwTg== 0001095811-00-000210.txt : 20000214 0001095811-00-000210.hdr.sgml : 20000214 ACCESSION NUMBER: 0001095811-00-000210 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLLECTORS UNIVERSE INC CENTRAL INDEX KEY: 0001089143 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 330846191 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27887 FILM NUMBER: 533523 BUSINESS ADDRESS: STREET 1: 1936 DEERE ST STREET 2: STE 102 CITY: SANTA ANA STATE: CA ZIP: 92705 BUSINESS PHONE: 9495671234 MAIL ADDRESS: STREET 1: COLLECTORS UNIVERSE INC STREET 2: 1936 DEERE STREET CITY: SANTA ANA STATE: CA ZIP: 92705 10-Q 1 FORM 10-Q 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: JANUARY 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 FEBRUARY 6, 2000: ----- -------------------------------- COMMON STOCK $.001 PAR VALUE. 24,425,076 ================================================================================ 2 COLLECTORS UNIVERSE, INC. INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets ...................... 3, 4 January 1, 2000 and June 30, 1999 Condensed Consolidated Statements of Operations ............... 5 Three months and six months ended January 1, 2000 and December 31, 1998 Condensed Consolidated Statements of Cash Flows ..............6 Six months ended January 1, 2000 and December 31, 1998 Notes to Condensed Consolidated Financial Statements ....... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................ 11-17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ............................... 17 SIGNATURES .................................................................. 18 EXHIBIT INDEX ............................................................... 19 2 3 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JANUARY 1, 2000 AND JUNE 30, 1999 (amounts in thousands) (unaudited)
JANUARY 1, JUNE 30, 2000 1999 ---------- -------- ASSETS Current assets: Cash and cash equivalents $22,267 $ 1,852 Accounts receivable, net 2,324 2,026 Inventories, net 4,096 3,148 Prepaid expenses and other 802 514 Deferred taxes 218 218 ------- ------- Total current assets 29,707 7,758 Property and equipment, net 1,435 1,201 Note receivable from related party 168 178 Other assets 362 167 Goodwill, net 5,505 5,599 Deferred taxes 637 637 ------- ------- $37,814 $15,540 ======= =======
See accompanying notes to condensed consolidated financial statements 3 4 COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JANUARY 1, 2000 AND JUNE 30, 1999 (amounts in thousands) (unaudited)
JANUARY 1, JUNE 30, 2000 1999 --------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,666 $ 2,430 Accrued liabilities 1,002 856 Accrued compensation and benefits 498 524 Deferred revenue 1,895 1,616 Income taxes payable 501 16 -------- -------- Total current liabilities 5,562 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; 24,425 issued and outstanding at January 1, 2000 and 20,282 issued and outstanding at June 30, 1999 24 20 Additional paid-in capital 33,281 11,586 Retained earnings (deficit) (1,053) (1,508) -------- -------- Total stockholders' equity 32,252 10,098 -------- -------- $ 37,814 $ 15,540 ======== ========
See accompanying notes to condensed consolidated financial statements 4 5 COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Net revenues $ 9,762 $ 4,194 $18,727 $ 8,151 Cost of revenues 4,255 1,515 8,292 2,852 ------- -------- ------- -------- Gross profit 5,507 2,679 10,435 5,299 Operating expenses: Selling, general and administrative expenses 4,556 2,729 9,320 5,099 Amortization of goodwill 199 8 394 16 Stock-based compensation 18 -- 33 -- ------- -------- ------- -------- Total operating expenses 4,773 2,737 9,747 5,115 Operating income (loss) 734 (58) 688 184 Interest income, net 232 7 250 13 Minority interest -- (12) -- (44) ------- -------- ------- -------- Income (loss) before income taxes 966 (63) 938 153 Provision (benefit) for income taxes 457 (1) 484 2 ------- -------- ------- -------- Net income (loss) $ 509 $ (62) $ 454 $ 151 ======= ======== ======= ======== Net income (loss) per share, basic and diluted $ 0.02 $ (0.00) $ 0.02 $ 0.01 ======= ======== ======= ======== Weighted average shares outstanding: Basic 22,914 16,097 21,622 16,095 Diluted 24,376 16,097 22,872 16,095
See accompanying notes to consolidated financial statements 5 6 COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (amounts in thousands) (unaudited)
SIX MONTHS ENDED ------------------------- JANUARY 1, DECEMBER 31, 2000 1998 ---------- ------------ OPERATING ACTIVITIES: Net income $ 454 $ 151 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 690 116 Stock-based compensation 33 -- Changes in assets and liabilities: Accounts receivable (298) (932) Inventories (948) (49) Prepaids and other assets (478) 71 Accounts payable and accrued liabilities (645) 45 Minority Interest -- (164) Deferred revenue 279 952 Income taxes 485 -- -------- ----- Net cash flows (used in) provided by operating activities (428) 190 INVESTING ACTIVITIES: Capital expenditures (529) (348) Advances on notes receivable -- (401) Collections on note receivable 10 1 -------- ----- Net cash used in investing activities (519) (748) FINANCING ACTIVITIES: Cash paid for acquisition (300) -- Proceeds from exercise of stock options 302 -- Proceeds from short term borrowing -- 700 Proceeds from sale of treasury stock 21,360 116 -------- ----- Net cash provided from financing activities 21,362 816 -------- ----- Net increase in cash and cash equivalents 20,415 258 Cash and cash equivalents at beginning of year 1,852 612 -------- ----- Cash and cash equivalents at end of period $ 22,267 $ 870 ======== ===== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $-- $-- Income taxes $-- $--
See accompanying notes to consolidated financial statements 6 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 statements for the three-month and six-month periods ended December 31, 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 statements for the three-month and six-month periods ended January 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. 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 January 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 six-month periods ended January 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. 7 8 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:
JANUARY 1, JUNE 30, 2000 1999 ---------- -------- Coins and currency $ 2,540 $ 1,551 Sportscards and sports memorabilia 878 837 Records 661 631 Other collectibles 261 290 ------- ------- 4,290 3,309 Less inventory reserve (194) (161) ------- ------- Inventories, net $ 4,096 $ 3,148 ======= =======
3. Property and Equipment Property and equipment consist of the following:
JANUARY 1, JUNE 30, 2000 1998 ---------- -------- Coins and sportscard grading reference sets $ 40 $ 40 Computer hardware and equipment 1,352 1,114 Computer software 384 298 Equipment 975 790 Furniture and office equipment 627 615 Leasehold improvements 106 106 ------- ------- $ 3,484 $ 2,963 Less accumulated depreciation and amortization (2,049) (1,762) ------- ------- Property and equipment, net $ 1,435 $ 1,201 ======= =======
4. Goodwill Goodwill arises from business acquisitions. Goodwill was $5,505, net of accumulated amortization of $776, as of January 1, 2000. Goodwill was $5,599, net of accumulated amortization of $382, as of June 30, 1999. 8 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 and six-month periods ended January 1, 2000 and December 31, 1998 is computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------ JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Net Income (Loss) Applicable to Common Stockholders $ 509 $ (62) $ 454 $ 151 ======= ======== ======= ======= Basic Net Income (Loss) Per Share Weighted average shares outstanding used in computation of net income (loss) per share: Basic 22,914 16,097 21,622 16,095 Diluted 24,376 16,097 22,872 16,095 Net income (loss) per share, basic and diluted $ 0.02 $ (0.00) $ 0.02 $ 0.01 ======= ======== ======= =======
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
THREE MONTHS ENDED JANUARY 1, 2000 ------------------------------------- GRADING AUCTION TOTAL ------- ------- ------ Net revenues $5,736 $ 4,026 $9,762 ====== ======= ====== Operating income (loss) $1,957 $(1,344) $ 613 Unallocated operating income 353 ------ Consolidated operating income $ 966 ======
THREE MONTHS ENDED DECEMBER 31, 1998 ------------------------------------ GRADING AUCTION TOTAL ------- ------- ----- Net revenues $ 3,629 $ 565 $4,194 ======= ===== ====== Operating income (loss) $ 751 $(501) 250 Unallocated operating expenses (313) ------ Consolidated operating (loss) $ (63)
9 10
SIX MONTHS ENDED JANUARY 1, 2000 ------------------------------------- GRADING AUCTION TOTAL ------- ------- ----- Net revenues $11,670 $ 7,057 $18,727 ======= ======= ======= Operating income (loss) $ 3,824 $(3,134) 690 Unallocated operating income 248 ------- Consolidated operating income $ 938 =======
SIX MONTHS ENDED DECEMBER 31, 1998 ------------------------------------- GRADING AUCTION TOTAL ------- ------- ------ Net revenues $ 7,109 $ 1,042 $8,151 ======= ======= ====== Operating income (loss) $ 1,715 $ (893) 822 Unallocated operating expense (669) ------ Consolidated operating income $ 153 ======
10 11 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 70% 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 30% 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 sale 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. 11 12 Throughout the quarter ended December 31, 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, rather than by PCGS. The provision made for income taxes in the quarter ended December 31, 1998 is the result of a 1.5% California franchise tax assessed on S corporations. The "S" election terminated as a result of the acquisitions described above that were consummated as of February 5, 1999. As a result, from and after February 5, 1999, and including the quarter ended January 1, 2000, the Company has been and will continue to be subject to federal and state income taxation at applicable corporate rates. RESULTS OF OPERATIONS Net Revenues
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- --------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Net Revenues $9,762 $4,194 $18,727 $8,151
Net revenues include fees for grading and authentication of rare coins and sportscards, revenues from sales of owned collectibles and commissions on sales of consigned collectibles sold in our auctions. Net revenues for the second fiscal quarter ended January 1, 2000 increased 133% over the prior year's second quarter. For the six months ended January 1, 2000, net revenues increased 130% over the prior six-month period. Grading and authentication revenues increased 58% in the second quarter to $5,736 from $ 3,629 in the same quarter of the prior fiscal year. For the six months ended January 1, 2000, grading and authentication revenue increased 64% over the corresponding six months of fiscal 1999 to $11,670. The increase for both the three and six-month periods resulted from significantly higher submission rates for sportscards while submission rates for coins were stable. Auction revenue increased 613% in the current quarter to $4,026 from $565 in the prior year and increased 577% for the six months ended January 1, 2000. The percent of owned collectibles sold at auctions was approximately 30% for both the current quarter and six months ended January 1, 2000. The acquisitions of Kingswood Coin Auctions and Lyn F. Knight Rare Coins in February 1999 added approximately $954 and $1,912 of auction revenue respectively to the second quarter and six months ended January 1, 2000. Gross Profit
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- ------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Gross Profit $5,507 $2,679 $10,435 $ 5,299 Gross Profit Margin 56.4% 63.9% 55.7% 65.0%
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 106% for the current quarter to $5,507 but declined as a percent of net revenues to 56.4% from 63.9% the prior fiscal year. This decrease in gross profit margin is primarily attributable to the 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 second quarter, auction revenue was approximately 41% of total revenue compared to approximately 14% for the prior year's second quarter. For the six-month period, gross profit increased 97% to $10,435 but declined as 12 13 a percent of net revenue to 55.7% from 65.0% the prior year. For the same six-month period, auction revenue was approximately 38% of total revenues compared with approximately 13% for the same prior year period. 13 14 Selling, General and Administrative Expenses
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ SG&A $4,556 $2,729 $9,320 $5,099 Percent of Net Revenues 46.7% 65.1% 49.8% 62.6%
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 January 1, 2000, SG&A expenses increased 66.9% but as a percent of net revenues declined to 46.7% from 65.1% recorded for the second quarter of the prior fiscal year. For the six months ended January 1, 2000, SG&A expenses increased 83% but also declined as a percent of net revenues to 49.8% from 62.6% for the same six months of the prior fiscal year. SG&A expenses have increased significantly for both comparative current year periods over the same prior year periods because of higher salary costs, expenditures to enhance our information systems, development expenses for our website, Collectors.com, content for our website and enhanced auction capabilities. During the second fiscal quarter, certain of our executive officers temporarily suspended their salaries and voluntarily reduced their salaries effective for the third and fourth fiscal quarters. These actions reduced SG&A expenses by $135 during the second quarter, as compared to the first fiscal quarter, and will reduce subsequent quarter SG&A expenses by $60 per quarter. Nevertheless, we anticipate that SG&A expenses will increase during the next several quarters but that SG&A expenses, as a percent to net revenues, will decline during the same period. Amortization of Goodwill
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ -------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Amortization of goodwill $199 $ 8 $394 $16 Percentage of net revenues 2.0% 0.2% 2.1% 0.2%
Amortization of goodwill consists of goodwill charges relating to acquisitions by the Company. The Company is amortizing goodwill over periods of 5 to 15 years. Stock-Based Compensation
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ -------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Stock-based compensation $ 18 $ 0 $ 33 $ 0 Percentage of net revenues 0.2% 0.0% 0.2% 0.0%
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. Interest Income
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ -------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Interest income $232 $ 7 $250 $ 13 Percentage of net revenues 2.4% 0.2% 1.3% 0.2%
14 15 Interest income on cash and cash equivalents increased because of higher cash balances resulting from the sale of 4 million shares of our common stock in our November, 1999 Initial Public Offering that provided net proceeds of $21.4 million. Minority Interest
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Minority interest $ 0 $(12) $ 0 $ (44) Percentage of net revenues 0.0% (0.3)% 0.0% (0.5)%
For the fiscal year ended June 30, 1999, we recorded a minority interest charge of $12 for the second quarter and $44 for the six-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 interest in the quarter or six months ended January 1, 2000. 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 credit of $1, covering the California income tax obligation, was made in the second quarter of fiscal 1999. 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. In the second quarter of fiscal 2000, the Company recorded a tax provision of $457 and our effective combined federal and state income tax rate for that period was 47.3%, which reflects the non-deductibility, for income tax purposes, of certain goodwill expenses and other permanent timing differences. Results of Operations, Excluding Amortization of Goodwill Results of operations, excluding amortization of goodwill are presented for informational purposes only and is not in accordance with generally accepted accounting principles. These results exclude charges of $199 and $8 for the three-month period and $394 and $16 for the six-month period, respectively, relating to the amortization of goodwill.
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31, 2000 1998 2000 1998 ---------- ------------ ---------- ------------ Operating income (loss) excluding amortization of goodwill $ 933 $ (50) $ 1,082 $ 200 ======= ======== ======= ======= Net income (loss), excluding amortization of goodwill $ 672 $ (54) $ 769 $ 167 ======= ======== ======= ======= Net income (loss) per share, excluding amortization of goodwill Basic $ 0.03 $ (0.00) $ 0.04 $ 0.01 ======= ======== ======= ======= Diluted $ 0.03 $ (0.00) $ 0.03 $ 0.01 ======= ======== ======= ======= Weighted average shares outstanding used in computation of net income (loss) per share, excluding amortization of goodwill Basic 22,914 16,097 21,622 16,095 Diluted 24,376 16,097 22,872 16,095
15 16 LIQUIDITY AND CAPITAL RESOURCES At January 1, 2000 we had cash and cash equivalents of $22,267 compared to cash and cash equivalents of $1,851 at June 30, 1999. The increase in liquidity is the result the sale, in November 1999, of 4 million shares of common stock in our initial public offering. Proceeds from the initial public offering, net of underwriting expenses, were $21,360. Historically, our Company has relied on internally generated funds, rather than borrowings, as its 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 $428 for the six-month period ended January 1, 2000 as compared with cash provided by operating activities of $190 for the six-month period ended December 31, 1998. For the six months ended January 1, 2000, cash was provided by increases in deferred revenue, which is composed primarily of prepaid authentication and grading fees, increases in income tax payable 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 corresponding six-month period ended December 31, 1998, cash was provided by net income and increases in deferred revenue while cash was used to increase accounts receivable, inventories and prepaid assets. Net cash used in investing activities was $519 for the six months ended January 1, 2000 and consisted almost exclusively of expenditures for capital assets. For the corresponding prior year period, $748 was used for the acquisition of fixed assets and an advance on a note receivable. Net cash provided by financing activities was $21,362 for the six months ended January 1, 2000 and consisted of the proceeds (net of underwriters' discounts) from our initial public offering and the proceeds from the exercise of stock options. During that six-month period, the Company used $300 to pay the remaining purchase price of the businesses acquired in February 1999. In the corresponding six moths of the prior year period, cash was provided by short-term borrowings and the sale of treasury stock. We believe that the net proceeds from the sale of common stock in our initial public offering and 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 need to increase inventory 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. 16 17 YEAR 2000 ISSUE Many computer systems and software products in operation prior to calendar 2000 were 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, many of these computer systems and software products had to be modified or replaced so that they would accept four digit entries in the date code field. During calendar 1999 (including the six months ended January 1, 2000) we upgraded our computer systems and software products to make them Year 2000 compliant at a cost of approximately $50,000. We also obtained statements from our vendors in which they certified that the computer systems used in the conduct of their business with us were Year 2000 compliant. Subsequent to December 31, 1999 and through January 2000, we have not encountered any significant software or hardware problems resulting from the transition to Year 2000, nor have we experienced any material interruption to our operations, level of operating efficiency or service levels to our customers. 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 deferred and amortized over a two year useful life. For the six months of the current fiscal year, the Company deferred $110 and amortized $7 of the deferred amount. 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 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 write-down 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; and the risk that we will incur unanticipated liabilities under our authentication and grading warranties. 17 18 PART II. OTHER INFORMATION 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 January 1, 2000 18 19 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: February 10, 2000 /s/ LOUIS M. CRAIN --------------------------------- Louis M. Crain, President and Chief Executive Officer Date: February 10, 2000 /s/ GARY N. PATTEN --------------------------------- Gary N. Patten, Vice President and Chief Financial Officer 19 20 INDEX TO EXHIBITS Exhibit 27. Financial Data Schedule 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF, AND THE STATEMENT OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED OCTOBER 2, 1999 AND JANUARY 1, 2000, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET AND STATEMENT OF OPERATIONS AND THE NOTES THERETO. 1,000 3-MOS 6-MOS JUN-30-2000 JUL-30-2000 JUL-01-1999 JUL-01-1999 OCT-02-1999 JAN-01-2000 2,058 22,267 0 0 1,961 2,538 (78) (214) 3,462 4,096 8,395 29,707 3,315 3,484 (1,894) (2,049) 16,306 37,814 5,945 5,562 0 0 0 0 0 0 21 24 10,340 32,228 16,306 37,814 8,965 18,727 8,965 18,727 4,037 8,292 8,993 17,789 0 0 0 0 0 0 (28) 938 27 484 (55) 454 0 0 0 0 0 0 (55) 454 (.00) 0.02 (.00) 0.02
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