Collectors Universe Inc (CLCT) SEC Quarterly Report (10-Q) for Q3 2016

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarter ended September 30, 2016

OR

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 ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232,405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ⊠    NO ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a "smaller reporting company". See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the Registrant is a shell company (as defined in Securities Exchange Act Rule 12b-2). YES ☐   NO ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 201 6

TABLE OF CONTENTS

PART 1 – FINANCIAL INFORMATION

Item 1.     Financial Statements

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, except per share data)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Forward-Looking Statements

The discussion in this Item 2 of this Quarterly Report on Form 10-Q (this "Report") includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Those Sections of the 1933 Act and 1934 Act provide a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their expected future financial performance so long as they provide cautionary statements identifying important factors that could cause their actual results to differ from projected or anticipated results. Other than statements of historical fact, all statements in this Report and, in particular, any projections of or statements as to our expectations or beliefs concerning our future financial performance or financial condition or as to trends in our business or in our markets, are forward-looking statements. Forward-looking statements often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," "project," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." Our actual financial performance in future periods may differ significantly from the currently expected financial performance set forth in the forward-looking statements contained in this Report due to the risks to which our business is subject and other circumstances or occurrences which are not presently predictable and over which we do not have control. Consequently, the forward-looking statements and information contained in this Report are qualified in their entirety by, and readers of this Report are urged to read the risk factors that are described in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 (the "Fiscal 2016 10-K"), which we filed with the Securities and Exchange Commission (the "SEC") on August 30, 2016, and the section, entitled "Factors that Can affect our Results of Operations or Financial Position," below in this Item 2.

Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements that are contained or recent trends that we describe in this Report, which speak only as of the date of this Report, or to make predictions about our future financial performance based solely on our historical financial performance. We also disclaim any obligation to update or revise any forward-looking statements contained in this Report or in our Fiscal 2016 10-K, except as may be required by applicable law or applicable NASDAQ rules.

Our Business

Collectors Universe, Inc. ("we", "us", "our", or the "Company") provides authentication and grading services to dealers and collectors of high-value coins, trading cards, event tickets, autographs, sports and historical memorabilia. We believe that our authentication and grading services add value to these collectibles by providing dealers and collectors with a high level of assurance as to the authenticity and quality of the collectible they seek to buy or sell; thereby enhancing their marketability and providing increased liquidity to the dealers, collectors and consumers that own, buy and sell such collectibles.

We principally generate revenues from the fees paid for our authentication and grading services. To a lesser extent, we generate revenues from other related services which consist of: (i) revenues from sales of advertising placed and commissions earned on our websites; (ii) sales of printed publications and collectibles price guides and sales of advertising in our publications; (iii) sales of membership subscriptions in our Collectors Club, which is designed primarily to attract interest in high-value collectibles among new collectors; (iv) sales of subscriptions to our CCE dealer-to-dealer Internet bid-ask market for coins that have been authenticated and graded (or "certified"); and (v) the management and operation of collectibles trade shows and conventions. We also generate revenues from sales of our collectibles inventory, which is comprised primarily of collectible coins that we have purchased under our coin grading warranty program; however, such product sales are neither the focus nor an integral part of our on-going revenue generating activities.

Overview of First Quarter Fiscal 2017 Operating Results

The following table sets forth comparative financial data for the three months ended September 30, 2016 and 2015 (in thousands):

The $1.1 million or 8% increase in revenues to $15.7 million in the three months ended September 30, 2016, was comprised of a $0.7 million or 7% increase in coin service revenues and a $0.4 million or 11% increase in cards and autograph services revenues. The $0.7 million increase in coin revenues, includes a $0.3 million or 65% increase in revenues from our China operation.

Despite the increase in revenues, operating income was $2.8 million in the three months ended September 30, 2016 as compared to $3.2 million in the same period of the prior year and primarily reflects (i) a lower average service fee earned on the authentication and grading of moderns coins, arising from our previously disclosed more competitive and focused marketing programs for modern coins, that we introduced in January 2016 and (ii) higher costs incurred in China primarily, to increase capacity, in anticipation of increased revenues in future quarters, from a previously disclosed new customer contract.

These, as well as other factors affecting our operating results in the three months ended September 30, 2016, are described in more detail below. See "Factors that Can Affect our Operating Results and Financial Position" and "Results of Operations for the Three Months Ended September 30, 2016, compared to the Three Months Ended September 30, 2015", below.

Factors That Can Affect our Operating Results and Financial Position

Factors That Can Affect our Revenues and Gross Profit Margins . Authentication and grading fees accounted for approximately 86% of our service revenues in the three months ended September 30, 2016. The amount of those fees and our gross profit margins are primarily driven by the volume and mix of coin and collectibles sales and purchase transactions by collectibles dealers and collectors, because our authentication and grading services generally facilitate sales and purchases of coins and other high value collectibles by providing dealers and collectors with a high level of assurance as to the authenticity and quality of the collectibles they seek to sell or buy. Consequently, dealers and collectors most often submit coins and other collectibles to us for authentication and grading at those times when they are in the market to sell or buy coins and the other high-value collectibles, that we authenticate and grade.

In addition, our coin authentication and grading and revenues are impacted by the volume of modern coin submissions, which can fluctuate, primarily depending on the timing and size of modern coin marketing programs by the United States Mint and by customers or dealers who specialize in sales of such coins.

Our authentication and grading revenues and gross profit margins are affected by (i) the volume and mix of authentication and grading submissions among coins and trading cards; (ii) in the case of coins and trading cards, the turnaround times requested by our customers, because we charge higher fees for faster service times; and (iii) the mix of authentication and grading submissions between vintage or "classic" coins and trading cards, on the one hand, and modern coins and trading cards, on the other hand, because dealers generally request faster turnaround times for vintage or classic coins and trading cards than they do for modern submissions, as vintage or classic collectibles generally are of significantly higher value than modern coins and trading cards; and (iv) as discussed above, the volume and timing of marketing programs for modern coins. Furthermore, because a significant proportion of our costs of revenues are relatively fixed in nature in the short term, our gross profit margin is also affected by the overall volume of collectibles that we authenticate and grade in any period.

Our revenues and gross profit margin are also affected by the number of coin authentication and grading submissions we receive at collectibles trade shows where we provide on-site authentication and grading services to show attendees, because show attendees typically request higher priced same-day turnaround for the coins they submit to us for authentication and grading at those shows. The number of trade show submissions varies from period to period depending upon a number of factors, including the number and the timing of the shows in each period and the volume of collectible coins that are bought and sold at those shows by dealers and collectors. In addition, the number of such submissions and, therefore, the revenues and gross profit margin we generate from the authentication and grading of coins at trade shows can be impacted by dealer and collectors sentiment arising from short-term changes in the prices of gold that may occur around the time of shows, because short-term changes in gold prices can affect the willingness of dealers and collectors to sell and purchase coins at the shows.

Five of our coin authentication and grading customers accounted, in the aggregate, for approximately 14% of our total net revenues in the three months ended September 30, 2016. As a result, the loss of any of those customers, or a significant decrease in the volume of grading submissions from any of them to us, could cause our net revenues to decline and, therefore, could adversely affect our results of operations.

The following tables provide information regarding the respective numbers of coins, trading cards and autographs that we authenticated and graded in the three months ended September 30, 2016 and 2015, and their estimated values, which are the amounts at which those coins and trading cards were declared for insurance purposes by the dealers and collectors who submitted them to us for grading and authentication:

(1)     Consists of trading cards authenticated and graded by our PSA trading card authentication and grading business and autographs certified by our PSA/DNA autograph authentication and grading business.

Impact of Economic Conditions on our Financial Performance. As discussed above, our operating results are affected by the number of collectibles transactions by collectibles dealers and collectors which, in turn, is primarily affected by (i) the cash flows generated by collectibles dealers and their confidence about future economic conditions, which affect their willingness and the ability of such dealers to purchase collectibles for resale; (ii) the availability and cost of borrowings because collectibles dealers often rely on borrowings to fund their purchases of collectibles, (iii) the disposable income available to collectors and their confidence about future economic conditions, because high-value collectibles are generally purchased with disposable income; (iv) prevailing and anticipated rates of inflation and the strength or weakness of the U.S. dollar, and uncertainties regarding the strength of the economy in the United States, Western Europe and China, because conditions and uncertainties of this nature often lead investors and consumers to purchase or invest in gold and silver coins as a hedge against inflation or reductions in the purchasing power of the U.S. currency; and as an alternative to investments in government bonds and other treasury instruments; and (v) the performance and volatility of the gold and other precious metals markets, which can affect the level of purchases and sales of collectible coins, because investors and consumers will often increase their purchases of gold coins, as well as other hard assets if they believe that the market prices of those assets will increase. As a result, the volume of collectibles transactions and, therefore, the demand for our authentication and grading services, generally increase during periods characterized by increases in disposable income and the availability of lower cost borrowings, on the one hand, or increases in inflation or in gold prices, economic uncertainties and declines in business and consumer confidence or a weakening of the U.S. dollar on the other hand. By contrast, collectibles transactions and, therefore, the demand for our services generally decline during periods characterized by economic downturns or recessions, declines in consumer and business confidence, an absence of inflationary pressures, or periods of stagnation or a downward trend in the market prices of gold. However, these conditions can sometimes counteract each other as it is not uncommon, for example, for investors to shift funds from gold to other investments during periods of economic growth and growing consumer and business confidence and from stocks and other investments to gold during periods of economic uncertainties and decreases in disposable income and consumer and business confidence.

Fact ors That Can Affect our Liquidity and Financial Position . A substantial number of our authentication and grading customers pay our authentication and grading fees when they submit their collectibles to us for authentication and grading or prior to the shipment of the collectible back to them. As a result, historically, we have been able to rely on internally generated cash and have never incurred borrowings to fund our continuing operations. We currently expect that internally generated cash flows and current cash and cash equivalent balances will be sufficient to fund our continuing operations at least through the end of fiscal 2017.

In addition to the operating performance of our businesses, and in particular our coin business, our overall financial position can also be affected by the dividend policy adopted by the Board of Directors from time to time, the Company's decisions to invest in and to fund the acquisition of established and/or early stage businesses and any capital raising activities or stock repurchases. In addition, our financial position is impacted by the Company's tax position. As previously disclosed, the Company has fully utilized all of its federal net operating loss carry forwards and other tax attributes, and therefore, we pay federal income taxes at a rate of 35% of our taxable income on an annual basis. We continue to have net operating losses and other tax credits available for state income tax purposes in California, which should allow us to pay taxes at minimum levels in California for the foreseeable future.

Critical Accounting Policies and Estimates

Except as discussed below, during the three months ended September 30, 2016, there were no changes in our critical accounting policies or estimates which are described in Item 7 of our Annual Report on Form 10-K, filed with the SEC, for the fiscal year ended June 30, 2016. Readers of this report are urged to read that Section of the Annual Report for a more complete understanding and detailed discussion of our critical accounting policies and estimates.

Goodwill. We test the carrying value of goodwill and other indefinite-lived intangible assets at least annually on their respective acquisition anniversary dates, or more frequently if indicators of impairment are determined to exist. When testing for impairment, in accordance with Accounting Standards Update No. 2011-08, we consider qualitative factors, and where determined necessary, we proceed to a two-step goodwill impairment test. We initially apply a discounted cash flow model or an income approach in determining a fair value that is used to estimate the fair value of the reporting unit on a total basis, which is then compared to the carrying value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment of goodwill exists as of the measurement date. If the fair value is less than the carrying value, then there is the possibility of goodwill impairment and further testing and re-measurement of goodwill is required.

During the first quarter ended September 30, 2016, we completed the annual goodwill impairment assessment with respect to the goodwill acquired in our fiscal year 2006 purchases of CCE and CoinFacts. We assessed qualitative factors, including the significant excess of their fair values over carrying value in prior years, and any material changes in the estimated cash flows of those reporting units, and determined that it was more likely than not that the fair values of CCE and CoinFacts were greater than their respective carrying values, including goodwill, and therefore it was not necessary to proceed to the two-step impairment test.

Stock-Based Compensation

We recognize share-based compensation attributable to service-based equity grants over the respective service periods based on the grant date fair value of the equity grants. For performance-based equity grants with a financial performance goal, we recognize compensation expense based on the grant date fair value when it becomes probable that we will achieve the financial performance goal.

Restricted Stock Awards

In connection with the Company's Long-Term Incentive Plan ("LTIP") adopted by the Compensation Committee of the Board of Directors in fiscal 2013 and as previously disclosed in our Form 10-K for the year ended June 30, 2016, we did not achieve Performance Goal #2 in fiscal 2016 but nevertheless we still consider it probable that we will achieve that goal prior to the expiration of the Company's LTIP in fiscal 2018. Therefore, we are accruing the remaining stock-based compensation expense for Performance Goal #2 on a prospective basis, through the expected later vesting date.

At this time, it is considered too early to determine if the Company will achieve additional Performance Goals beyond Performance Goal #2 in fiscal 2017 or 2018. We will continue to reassess at each reporting date whether it has become probable that any additional performance goals will be achieved and therefore, if any additional restricted shares will vest and if so, additional stock-based compensation expense will be recognized based on the expected vesting period.

Stock-based compensation for the three months ended September 30, 2016 was $102,000 as compared to $151,000 for the three months ended September 30, 2015. The reduction of $49,000, primarily related to lower stock-based compensation expense recognized for service grants that became fully vested as of June 30, 2016.

Results of Operations for the Three Months Ended September 30, 2016 , c ompared to the Three Months Ended September 30, 2015

Net Revenues

Net revenues consist primarily of fees that we generate from the authentication and grading of high-value collectibles, including coins, trading cards and autographs, and related special inserts, if applicable. To a lesser extent, we generate collectibles related service revenues (which we refer to as "other related revenues") from advertising and commissions earned on our websites and in printed publications and collectibles price guides; subscription/membership revenues related to our CCE (dealer-to-dealer Internet bid-ask market for certified coins), and Collectors Club; and fees earned from promoting, managing and operating collectibles trade shows. Net revenues also include, to a significantly lesser extent, revenues from the sales of products, which consist primarily of coins that we purchase under our coin authentication and grading warranty policy. We do not consider such product sales to be an integral part of our ongoing revenue generating activities.

The following table sets forth the total net revenues for the three months ended September 30, 2016 and 2015 (in thousands):

The following table sets forth certain information regarding the increases (or decreases) in net revenues in our larger markets (which are inclusive of revenues from our other related services) and in the number of units authenticated and graded in the three months ended September 30, 2016 and 2015 (in thousands):

For the three months ended September 30, 2016, our total service revenues increased by $1,130,000, or 7.7%, to $15,748,000 and was comprised of an increase of $1,263,000 or 10.2%, in authentication and grading fees, partially offset by a decrease of $133,000, or 5.9%, in other related services. The increase in authentication and grading fees was attributable to an $879,000, or 10.1%, increase in coin fees, and a $384,000 or 10.5%, increase in cards and autograph fees.

The net increase in coin authentication and grading fees of $879,000 in the three months ended September 30, 2016 reflected (i) increased world coin fees of $689,000 or 59.7%, which includes a $342,000 or 65% increase in coins fees earned from our operation in China; (ii) increased coin trade show fees of $194,000 or 9.2%, reflecting revenues from one show that straddled the fourth quarter of fiscal 2016 and the first quarter of fiscal 2017; (iii) increased vintage fees of $111,000 or 3.5% and (iv) lower modern coins revenues $115,000 or 5.1% reflecting a 29% increase in the number of modern units authenticated and graded in this year's first quarter at a lower average service fee, arising from our previously disclosed more competitive and focused marketing programs for our modern coin business, that we introduced in January 2016.

As discussed above under "Factors That Can Affect our Revenues and Gross Profit Margin", and "Impact of Economic Conditions on our Financial Performance", the level of modern coin and trade show revenues can fluctuate.

Revenues from our trading cards and autographs business continue to show consistent growth. The $442,000 or 11% revenue increase for the quarter (which is inclusive of other related services), represented record quarterly revenues for that business. Moreover, our cards and autographs business has achieved quarter-on-quarter revenue growth in 24 out of the last 25 quarters.

Our coin authentication and grading revenues in the first quarter of the current year, represented approximately 63% of total revenues, as compared to 64% of total revenues in last year's first quarter, and reflects the continued importance of our coin authentication and grading business to our overall financial performance.

The reduction in other related services in the three month ended September 30, 2016 as compared to the same period of the prior year, primarily reflects the previously disclosed decision to eliminate, effective January 2016, the subscriptions fees that we had previously charged customers to access our CoinFacts website in order to enable all dealers and collectors to have free access to this numismatic value added content. We believe that allowing free access to this information will generate more knowledgeable dealers and collectors over time, which should benefit our business and, we expect, will more than offset the short-term reduction in revenues, arising from this decision.

As previously disclosed, our second fiscal quarter is typically our seasonally slowest quarter of the year, in the United States due to the winter holidays. As our revenues in China continue to grow, we may be able to begin to offset the seasonal effect of the holidays in the United States. We have started the second quarter with strong momentum although, it remains uncertain as to the level of revenue growth, if any, the Company will achieve in this year's second quarter.

Gross Profit

Gross profit is calculated by subtracting the cost of revenues from net revenues. Gross profit margin is gross profit stated as a percent of net revenues. The costs of authentication and grading revenues consist primarily of labor to authenticate and grade collectibles, production costs, credit card fees, warranty expense and occupancy, security and insurance costs that directly relate to providing authentication and grading services. Cost of revenues also includes printing, other direct costs of the revenues generated by our other non-grading related services and the costs of product revenues, which represent the carrying value of the inventory of products (primarily collectible coins) that we sold and any inventory related reserves, considered necessary.

Set forth below is information regarding our gross profit in the three months ended September 30, 2016 and 2015 (in thousands):

As indicated in the above table, our gross profit margin as expected, declined to 61.0% for the three months ended September 30, 2016, compared to 64.8% for the three months ended September 30, 2015. That decline reflected the previously disclosed more competitive and focused marketing program for modern coins, that we introduced in January 2016. In addition, the gross profit margin was impacted by higher direct costs incurred in China to increase capacity in anticipation of higher revenues in China, from a new customer contract which we expect will drive significantly higher coin volumes in China, over time. As discussed in prior filings, there can be variability in the services gross profit margin due to the mix of revenue in any quarter and the seasonality of our business. During the three years ended June 30, 2016, our quarterly services gross profit varied between 59% and 65%.

Selling and Marketing Expenses

Selling and marketing expenses include advertising and promotions costs, trade-show related expenses, customer service personnel costs, business development incentives and travel, depreciation and outside services.

Set forth below is information regarding our selling and marketing expenses in the three months ended September 30, 2016 and 2015 (in thousands):

Selling and marketing expenses increased by $253,000 and represented 15.4% of net revenues, in the three months ended September 30, 2016, as compared to 14.8% of net revenues in the three months ended September 30, 2015. The dollar increase primarily reflects (i) increased customer service and business development personnel costs, of $138,000, primarily in Asia, as we continue to grow our China and Hong Kong coin operations and (ii) increased business development travel and trade show costs of $123,000, in support of authentication and grading activities and the growth of our business in Asia.

General and Administrative Expenses

General and administrative ("G&A") expenses are comprised primarily of compensation paid to general and administrative personnel, including executive management, finance and accounting and information technology personnel, non-cash stock-based compensation, facilities management costs, depreciation, amortization and other miscellaneous expenses.

Set forth is information regarding our G&A expenses in the three months ended September 30, 2016 and 2015 (in thousands):

G&A expenses increased by $307,000 in the three months ended September 30, 2016, as compared to the same period of fiscal 2016 and represented 28.0% of revenues, in both the three month periods. The dollar increase in G&A expenses in the three months ended September 30, 2016 was comprised of (i) higher on-going legal and litigation related fees of $119,000, (ii) higher payroll costs of $167,000, primarily related to IT personnel in support of our business initiatives and (iii) higher depreciation and amortization costs of $88,000 related to Collectors.com and IT infrastructure equipment. Those increases were partially offset by lower G&A stock-based compensation expense of $38,000 in this year's first quarter. (See below).

Stock-Based Compensation

As discussed in Note 1, " Stock-Based Compensation Expense" to the Company's condensed consolidated financial statements, included elsewhere in this report, the Company recognized stock-based compensation expense (in thousands), as follows:

See Critical Accounting Policies and Estimates: Restricted Stock Awards for a discussion of the change in stock-based compensation in the three month ended September 30, 2016 as compared to the same period in the prior year.

The following table sets forth unrecognized non-cash stock-based compensation expense totaling $307,000 related to unvested stock-based awards at September 30, 2016 which is expected to be recognized through fiscal year 2019, based on the assumption that the holders of the equity awards will remain in the Company's service through fiscal 2019 and the Company will achieve Performance Goal #2 by June 30, 2017. The following amounts (in thousands) do not include the costs or effects of (i) possible grants of additional stock-based compensation awards in the future, or, (ii) the cost of achieving any additional performance goals under the Company's LTIP.

Income Tax Expense

The income tax provisions of $1,210,000 and $1,226,000 in the three months ended September 30, 2016 and 2015, respectively, represented estimated annual effective tax rates of approximately 43% and 39%, respectively. The higher effective tax rate in the three months ended September 30, 2016, reflects higher losses at our overseas operations, particularly in China, as we increased capacity there, in the quarter. See Gross Profit above.

Discontinued Operations

The losses from discontinued operations (net of income taxes) for the three months ended September 30, 2016 and 2015, related to accretion expense associated with the Company's ongoing obligation for the New York City facility, formerly occupied by our discontinued jewelry businesses.

Liquidity and Capital Resources

Cash and Cash Equivalent Balances

Historically, we have been able to rely on internally generated funds, rather than borrowings, as our primary source of funds to support our operations, because many of our authentication and grading customers pay our fees at the time they submit their collectibles to us for authentication and grading or prior to the shipment of their collectibles back to them.

At September 30, 2016, we had cash and cash equivalents of approximately $10,344,000, as compared to cash and cash equivalents of $11,967,000 at June 30, 2016.

Cash Flows

Cash Flows from Continuing Operations . During the three months ended September 30, 2016 and 2015, our operating activities from continuing operations generated cash of $2,050,000 and $1,019,000, respectively. That increase in cash provided by operating activities in the three months ended September 30, 2016, despite the reduction in operating income in the quarter, primarily reflects the timing of cash receipts and disbursements for accounts receivable and accrued compensation in this year's first quarter.

Cash Flows of Discontinued Operations . Discontinued operations used cash of $122,000 and $157,000 in the three months ended September 30, 2016 and 2015, respectively, primarily related to payments of our ongoing obligation associated with the New York facility, formerly occupied by our discontinued jewelry business.

Cash g enerated by or used in Investing Activities . Investing activities used cash of $567,000 and $407,000 in the three months ended September 30, 2016 and 2015, respectively. In the three months ended September 30, 2016 we used $439,000 for capital expenditures (primarily comprising equipment used in the authentication and grading process and leasehold improvements for our expanded China operation) and $172,000 for capitalized software. In the three months ended September 30, 2015, we used $188,000 for capital expenditures and $202,000 for capitalized software for Collectors.com.

Cash used in Financing Activities . In the three months ended September 30, 2016 and 2015, financing activities used cash of $2,984,000 and $3,046,000 respectively, consisting entirely of cash dividends paid to our stockholders.

Outstanding Financial Obligations

Continuing Operations . The following table sets forth the amounts of our financial obligations, consisting primarily of rent expense, and sublease income, under operating leases for our continuing operations, in each of the years indicated below (in thousands):

Discontinued Operations . The following table sets forth our expected remaining minimum base payment obligations in respect of the facility, in New York City, that had formerly been occupied by our discontinued jewelry authentication and grading businesses. The obligation which is payable in monthly installments is scheduled to expire on December 31, 2017.

With the exception of facility obligations for continuing and discontinued operations, we do not have any material financial obligations, such as long-term debt, capital leases or purchase obligations.

Dividends. Our current dividend policy calls for us to pay quarterly cash dividends of $0.35 per share of common stock to our stockholders, for an expected total annual cash dividend of $1.40 per common share.

The declaration of cash dividends in the future, pursuant to our current dividend policy, is subject to determination each quarter by the Board of Directors based on a number of factors, including the Company's financial performance (and in particular the on-going performance to the Company's coin business), its available cash resources, its cash requirements and alternative uses of cash that the Board may conclude would represent an opportunity to generate a greater return on investment for the Company. For these reasons, as well as others, there can be no assurance that the Board of Directors will not decide to reduce the amount, or suspend or discontinue the payment, of cash dividends in the future.

Share Buyback Program . In December 2005, our Board of Directors approved a common stock buyback program that authorized up to $10,000,000 of stock repurchases in open market or privately negotiated transactions, in accordance with applicable SEC rules, when opportunities to make such repurchases, at attractive prices, become available. At September 30, 2016, we continued to have $3.7 million available under this program. However, no open market repurchases of common stock have been made under this program since the fourth quarter of fiscal 2008.

Future Uses and Sources of Cash . We plan to use our cash resources, consisting of available cash and cash equivalent balances, together with internally generated cash flows, (i) to introduce new collectibles related services; for our existing customers and other collectibles customers; (ii) to fund the international expansion of our business; (iii) to fund working capital requirements; (iv) to fund acquisitions should they arise (v) to fund the payment of cash dividends; (vi) to pay the remaining obligations under the facility formerly occupied by our discontinued jewelry business; and (vii) for other general corporate purposes which may include additional repurchases of common stock under our stock buyback program. We may also explore other potential sources of cash, including borrowing and sales of shares. However, there is no assurance that we will be able to obtain borrowings or sell shares on terms acceptance to us or at all.

Recent Accounting Pronouncements

In August 2016, FASB issued Accounting Standards Update No, 2016-15 on Statement of Cash Flows-Classification of Certain Cash Receipts and Cash Payments. The updated guidance addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies (BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The adoption of this guidance is not expected to have a material effect on the Company's Consolidated Financial Statements and related disclosures. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods thereafter.

ITEM 3 .  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial market prices, including interest rate risk, foreign currency exchange rate risk, commodity price risk and other relevant market rate or price risks.

Due to the cash and cash equivalent balances that we maintain, we are exposed to risk of changes in short-term interest rates. At September 30, 2016, we had $10,344,000 in cash and cash equivalents, of which, $6,923,000 was invested in money market accounts, and the balance was held in non-interest bearing accounts. Reductions in short-term interest rates could result in reductions in the amount of income we are able to generate on available cash. However, any adverse impact on our operating results from reductions in interest rates is not expected to be material.

Cash balances overseas at September 30, 2016 were approximately $1,205,000. We do not engage in any activities that would expose us to significant foreign currency exchange rate risk.

Item 4.      CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our CEO and CFO, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognized that any system of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

In accordance with SEC rules, an evaluation was performed under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness, as of September 30, 2016, of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2016, that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

There are no material changes in the risk factors previously disclosed in Item 1A of Part 1 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2016 that we filed with the SEC on August 30, 2016.

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.

INDEX TO EXHIBITS

E-1