The Quarterly
CLCT Q1 2017 10-Q

Collectors Universe Inc (CLCT) SEC Annual Report (10-K) for 2017

CLCT Q3 2017 10-Q
CLCT Q1 2017 10-Q CLCT Q3 2017 10-Q



Washington, D.C. 20549


(Mark One)


For the fiscal year ended June 30, 2017



For the transition period from _______ to _____

Commission file number 1-34240


(Exact name of Registrant as specified in its charter)



(State or other jurisdiction of Incorporation or organization)

(I.R.S. Employer Identification No.)

1921 E. Alton Avenue, Santa Ana, California


(Address of principal executive offices)

(Zip Code)

(949) 567-1234

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class

Name of each Exchange on which registered

Common Stock, par value $.001 per share

NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:      None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10- K ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer      ☐

Accelerated Filer                        ☒

Non-accelerated filer        ☐  (Do not check if a smaller reporting company)

Smaller reporting company        ☐

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of December 30, 2016, the last business day of our most recently completed second fiscal quarter, the aggregate market value of our Common Stock held by non-affiliates was approximately $159,000,000 based on the per share closing price of $21.23 of registrant's Common Stock as of such date as reported by the NASDAQ Global Market. This calculation does not reflect a determination that persons deemed to be affiliates for this purpose are affiliates for any other purpose.

As of August 26, 2017, a total of 8,920,998 shares of registrant's Common Stock were outstanding.


Except as otherwise stated therein, Items 10, 11, 12, 13 and 14 in Part III of this Annual Report are incorporated by reference from Registrant's Definitive Proxy Statement, which is expected to be filed with the Securities and Exchange Commission on or before October 28, 2017, for its 2017 Annual Meeting of Stockholders. Other information contained in that Proxy Statement and other related solicitation materials are not deemed to be incorporated into or filed as part of this Annual Report.







Forward-Looking Statements


Item 1.



Item 1A.

Risk Factors


Item 1B.

Unresolved Staff Comments


Item 2.



Item 3.

Legal Proceedings


Executive Officers of Registrant



Item 5.

Market for Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities


Item 6.

Selected Consolidated Financial Data


Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations


Item 7A.

Quantitative and Qualitative Disclosures About Market Risk


Item 8.

Financial Statements and Supplementary Data


Report of Independent Registered Public Accounting Firm


Consolidated Balance Sheets at June 30, 2017 and 2016


Consolidated Statements of Operations for the Years ended June 30, 2017, 2016 and 2015


Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 2017, 2016 and 2015


Consolidated Statements of Cash Flows for the Years Ended June 30, 2017, 2016 and 2015


Notes to Consolidated Financial Statements


Schedule II – Valuation and Qualifying Accounts


Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


Item 9A.

Controls and Procedures


Item 9B.

Other Information



Item 10.

Directors, Executive Officers and Corporate Governance


Item 11.

Executive Compensation


Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


Item 13.

Certain Relationships and Related Transactions and Director Independence


Item 14.

Principal Accountant Fees and Services



Item 15.

Exhibits and Financial Statement Schedules







Statements contained in this annual report on Form 10-K (the "Annual Report") that are not historical facts or that discuss our expectations, beliefs or views regarding our future operations or future financial performance, or financial or other trends in our business or markets, constitute "forward-looking statements" as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Often, such statements 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." Forward-looking statements contain estimates or predictions about or forecasts of our future financial condition and operating results and trends in our business and markets. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, those statements are necessarily based on current information available to us. Therefore, the information contained in the forward looking statements in this Annual Report are subject to change due to (i) future events and circumstances of which we are not aware and (ii) to a number of risks and uncertainties that could cause our future financial condition or operating results to differ significantly from those expected at the current time as described in those forward-looking statements. Those known risks and uncertainties are described in Item 1A in Part I of this Annual Report under the caption "RISK FACTORS," and in Item 7 in Part II of this Annual Report under the caption " Management's Discussion and Analysis of Financial Condition and Results of Operations ." Accordingly, readers of this Annual Report are urged to read the cautionary statements and risk factors contained in those Items of this Annual Report. Also, our actual results in the future may differ due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as material to our business or operating results.   Due to all of these uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Annual Report, which speak only as of the date of this Annual Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law or the applicable rules of the NASDAQ Stock Market.


References in this Annual Report to "Collectors Universe", "we", "us", "our", "management" and the "Company" refer to Collectors Universe, Inc. and its consolidated subsidiaries.




We provide authentication and grading services to dealers and collectors of coins, trading cards, event tickets, autographs and historical and sports memorabilia ("collectibles"). We believe that our authentication and grading services add value to these collectibles by enhancing their marketability and thereby providing increased liquidity to the dealers, collectors and consumers that own and buy and sell them.

Once we have authenticated and assigned a quality grade to a collectible, we encapsulate it in a tamper-evident, clear plastic holder, or issue a certificate of authenticity, that (i) identifies the specific collectible; (ii) sets forth the quality grade we have assigned to it; and (iii) bears one of our brand names and logos: "PCGS" for coins, "PSA" for trading cards and event tickets and "PSA/DNA" for autographs and memorabilia. Additionally, we warrant our certification of authenticity and the quality grades that we assign to the coins and trading cards that we authenticate and grade. We do not warrant our authenticity determinations for autographs or memorabilia. For ease of reference in this Annual Report, we will sometimes refer to coins, trading cards and other collectibles that we have authenticated or graded as having been "certified."


We generate revenues principally from the fees paid for our authentication and grading services. To a much lesser extent, we generate revenues from other related services, which consist of (i) the sale of advertising and click-through commissions earned on our websites, including, (ii) the sale of printed publications and collectibles price guides and advertising in such publications; (iii) the sale of membership subscriptions in our Collectors Club, which is designed to attract interest in high-value collectibles among new collectors; (iv) the sale of subscriptions to our Certified Coin Exchange (CCE) dealer-to-dealer Internet bid-ask market for certified coins, which offers a comprehensive one-stop source for historical U.S. numismatic information and value-added content; and (v) collectibles trade shows that we conduct, at which collectibles are exhibited and are bought and sold by collectibles dealers and collectors. 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, these sales are not the focus, and we do not consider them to be an integral part of our ongoing revenue-generating activities.

We have developed some of the leading brands in the collectibles markets in which we conduct our business:

"PCGS" (Professional Coin Grading Service), which is the brand name for our independent coin authentication and grading service;

"PSA" (Professional Sports Authenticator), which is the brand name for our independent sports and trading cards authentication and grading service;

"PSA/DNA" (PSA/DNA Authentication Services), which is the brand name for our independent authentication and grading service for vintage autographs and memorabilia.

PCGS, PSA and PSA/DNA are among the leading independent authentication and grading services in their respective markets.

We foster brand loyalty and stimulate demand for our services by providing information and value added content to collectors and dealers through various means including our CCE websites, Collectors Clubs, Set Registry SM programs,, CoinFacts and PSA Collectibles Facts, collectibles population reports and price guides. We believe that by providing this information and content we generate more knowledgeable and active collectors and dealers.

We began offering our PCGS coin authentication and grading services in 1986 and, from inception through the fiscal year ended June 30, 2017, we have authenticated and graded approximately 36 million coins. In 1991, we launched our PSA trading cards authentication and grading service and, through June 30, 2017, had authenticated and graded approximately 28 million trading cards. In 1999, we launched our PSA/DNA vintage autograph authentication business and in June 2004 we extended that business by introducing vintage autograph grading services to dealers and collectors of autographed sports memorabilia.

The following table provides information regarding the respective numbers of coins, trading cards and autographs that we authenticated or graded in each of the fiscal years ended June 30, 2015 to 2017:

Units Processed





3,081,400 64 % 2,371,800 58 % 2,067,300 55 %

Trading cards

1,457,900 30 % 1,278,900 31 % 1,269,800 34 %


297,800 6 % 448,000 11 % 434,900 11 %


4,837,100 100 % 4,098,700 100 % 3,772,000 100 %

The following table sets forth the estimated values at which our customers insured the coins, trading cards and autographs that were submitted to us for authentication or grading:

Declared Values (000's)

20 17




$ 2,074,400 89 % $ 1,935,400 91 % $ 2,093,900 93 %

Trading cards

224,400 10 % 177,800 8 % 109,800 5 %


22,400 1 % 25,700 1 % 35,800 2 %


$ 2,321,200 100 % $ 2,138,900 100 % $ 2,239,500 100 %


Our revenues are comprised principally of our authentication and grading service fees. Those fees range from $1 to over $10,250 per item, based primarily on the type of collectible authenticated or graded, the turnaround times and the specific service selected by the customer. We charge higher fees for faster turnaround times. Our fees are generally not based on the value of the collectible, except for special coin services sometimes requested by customers, for which we charge supplemental fees that are based on the value of the coin. In fiscal 2017, our authentication and grading fees, per item processed, for all of our businesses averaged $12.82, and our coin authentication and grading fees ranged from $1 to over $10,250 , and averaged $14.92 , per coin.

In the case of trading cards, in fiscal 2017, the authentication and grading fees ranged from approximately $1 to $5,250 and averaged $8.35, per trading card. As a general rule, collectibles dealers and, to a lesser extent, individual collectors, request faster turnaround times and, therefore, generally pay higher fees for more valuable, older or "vintage" collectibles than they do for modern collectibles.

Industry Background

The primary determinants of the prices of, and the willingness of sellers, purchasers and collectors to purchase high-value or high-priced collectibles, are their authenticity, quality and rarity. The authenticity of a collectible relates not only to the genuineness of the collectible, but also to the absence of any alterations or repairs that may have been made to hide, damage or to restore the item. The quality of a collectible relates to its state of preservation relative to its original state of manufacture or creation. The rarity of a collectible relates to its uniqueness and depends primarily on the number of identical collectibles of equivalent or better quality that become available for purchase from time to time. With regard to value, confirmation of authenticity generally is required before a buyer is willing to proceed with a purchase of a high-priced collectible. Quality and rarity directly affect value and price, with higher quality and rare collectibles generally attracting dramatically higher prices than those of lower quality and lesser rarity. Even a relatively modest difference in quality can translate into a significant difference in perceived value and, therefore, in price.

Until the advent of independent third-party authentication and grading, most prospective buyers, including experienced collectibles dealers and retailers, insisted on physically examining high-priced collectibles before consummating transactions. However, unlike professionals in the trade, most purchasers and collectors lacked the experience and knowledge needed to determine, with confidence, the authenticity, quality or rarity, and hence the value, of high-priced collectibles, even when they had the opportunity to examine them physically. Therefore, they had to rely on representations made by sellers regarding authenticity, quality and rarity. For these reasons, "buyer beware" characterized the high-value collectibles markets, and "sight-unseen" markets for rare coins and other high-value collectibles were practically non-existent.

High-value collectibles have been traditionally marketed at retail by dealers through direct mail, catalogues, price lists and advertisements in trade publications, and sold and purchased by them at collectibles shows, auction houses and local dealer shops. These markets were highly inefficient because:

they were fragmented and localized, which limited both the variety of available collectibles and the number of potential buyers;

transaction costs were often relatively high due to the number of intermediaries involved;

buyers usually lacked the information needed to determine the authenticity and quality and, hence the value, of the collectibles being sold; and

buyers and sellers were vulnerable to fraudulent practices because they had to rely on the dealers or other sellers for opinions or representations as to authenticity, quality and rarity.

Coin Market . In an effort to overcome some of these inefficiencies, approximately 40 years ago, professional coin dealers began using a numerical quality grading scale for coins. That scale ranged from 1 to 70, with higher numbers denoting a higher quality. Previously, professional dealers used descriptive terms, such as "Fair," "Fine" and "Uncirculated," to characterize the quality of the coins they sold, a practice that continued after the development of the numeric grading system. However, whether using a numeric or a descriptive system, grading standards varied significantly from dealer to dealer, depending on a dealer's subjective criteria of quality. Moreover, dealers were hardly disinterested or independent since, as the sellers or buyers of the coins they were grading, they stood to benefit financially from the assignment of a particular grade.


Trading Cards Market . Misrepresentations of authenticity, quality and rarity also operated as a barrier to the liquidity and growth of the collectibles market for trading cards. Even experienced and knowledgeable dealers insisted on physically examining purportedly rare and higher-priced trading cards. Most collectors lacked the knowledge needed to purchase collectible trading cards with confidence, even when they had physically examined them. Trading card dealers eventually developed a rudimentary adjectival system to provide measures of quality, using descriptive terms such as "Poor," "Very Good," "Mint" and "Gem Mint." These measures of quality were assigned on the basis of such characteristics as the centering of the image on the card and the presence or absence of bent or damaged corners, scratches and color imperfections. However, as was the case with coins, grading standards varied significantly from dealer to dealer, depending on a dealer's subjective criteria of quality. Additionally, since the dealers who bought and sold trading cards were the ones that assigned these grades, collectors remained vulnerable to misrepresentations as to the authenticity, quality and rarity of trading cards being sold or purchased by dealers.

Autographed Memorabilia Market . The market for autographed sports, entertainment and historical memorabilia has been plagued by a high incidence of forgeries and misrepresentations of authenticity. For example, Operation Bullpen, initiated by the FBI and other law enforcement agencies beginning in 1997, uncovered a high volume of outright forgeries of signatures and widespread misrepresentations as to the genuineness of sports memorabilia. We believe that the high incidence of such fraudulent activities was due, in large part, to a dearth of independent third-party memorabilia authentication services and an absence of systematic methodologies and specimen data needed for verification of authenticity.

These conditions created a need and the demand for independent authentication and grading services from which sellers, purchasers and collectors could obtain:

determinations, from independent, third-party experts, of the authenticity of the high-value collectibles that are sold and purchased by dealers and collectors, particularly "sight-unseen" or over the Internet;

representations of quality based on uniform standards consistently applied by independent, third-party experts; and

authoritative information, compiled by a credible third party, to help purchasers and collectors understand the factors that affect an item's perceived value and price, including:


its rarity;


its quality or grade; and


its historical and recent selling prices.

The Impact of eBay and O ther e-Commerce Websites on the Collectible Markets . The advent of the Internet and, in particular, eBay's development of an Internet or "virtual" marketplace and other Internet-selling websites, such as Amazon, have overcome many of the inefficiencies that had characterized the traditional collectibles markets. eBay and other online marketplaces (i) offer enhanced interaction between and greater convenience for sellers and buyers of high-value collectibles; (ii) eliminate or reduce the involvement of dealers and other "middlemen;" (iii) reduce transaction costs; (iv) allow trading at all hours; and (v) regularly provide updated information to collectors. In addition, in August 2015, the Company launched its website where it aggregates and organizes collectibles listings from sellers and collectibles categories and markets; to enable collectors to expeditiously locate collectibles they are interested in buying. However, Internet commerce still raises, and has even heightened, concerns about the authenticity and quality of the collectibles that are listed for sale on the Internet. Buyers have no ability to physically examine the collectibles and no means to confirm the identity or the credibility of the dealers or sellers on the Internet. As a result, we believe that the growth of Internet-selling websites, such as eBay and Amazon, and individual dealer-owned websites, has increased awareness of the importance of, and the demand for, independent third-party authentication and grading services of the type we provide. Our services enable purchasers and collectors to use the Internet to purchase high-value collectibles, without physical examination ("sight-unseen"), with the confidence of knowing that they are authentic and are of the quality represented by sellers. The importance and value of our services to purchasers and collectors, we believe, are demonstrated by eBay's inclusion, on its collectibles websites, of information that identifies, and encourages visitors to use, our independent third-party authentication and grading services, as well as similar services offered by some of our competitors.