COLLECTORS UNIVERSE INC - 10-K Annual Report

(Mark One)
x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2002

OR

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to

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, by check mark, if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. ¨

This Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are estimates of, or statements about our expectations or beliefs regarding, our future financial performance and operating trends that are based on current information and that are subject to a number of risks and uncertainties that could cause our actual operating results in the future to differ significantly from those expected at the current time, including the risks and uncertainties described in Part I of this Report under the caption “Item I—Description of Business—Certain Factors That Could Affect Our Future Performance” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.

Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Report, which speak only as of the date of this Report, or to make predictions based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this Report.

Collectors Universe is a leading provider of value-added services to dealers and collectors of high-end collectible coins, sportscards, currency, stamps, sports and entertainment memorabilia, autographs and other collectibles. Our reputation and the breadth of our value-added services facilitate commerce in collectibles by providing collectors and dealers with the confidence to buy and sell high-end collectibles, sight unseen, at Internet and telephonic auctions that we, and others, conduct and by making the collecting experience more exciting and memorable.

We generate revenues from fees paid for authentication and grading services provided to our customers, typically ranging from $6 to $70 per item. We also generate revenues from commissions paid by both buyers and sellers when we sell collectibles that have been consigned to us for auctioning (“consigned collectibles”), the total of which generally ranges from 10% to 25% of the sales prices of the collectibles, and from the sales of collectibles that we purchase for resale at our auctions or through retail sales (“purchased collectibles” or “owned collectibles”). When we sell owned collectibles in one of our auctions, we receive a buyer’s fee at the same rate as charged for consigned collectibles sold in our auctions.

owning collectibles and investor confidence that collectibles will appreciate in value. We also believe that the convenience and efficiency of the Internet will stimulate further growth in the high-end collectibles market. It is also our view that this growth is dependent upon the availability of reliable authentication and grading services, authoritative information necessary to value collectibles and trading forums or venues that enable buyers and sellers of collectibles to maximize the value of their collectibles. As a provider of these services to the collectibles markets, we have the opportunity to benefit directly from such growth in terms of increased demand for our services.

Collectible Coin Grading and Authentication. The sight-unseen market for high-end coins was practically non-existent prior to the development of consistently applied uniform quality grading standards. Previously, buyers needed to actually see a coin before purchase to determine whether its quality justified the asking price. Even when buyers could view coins before purchase, they often lacked the knowledge to determine, with confidence, the authenticity or quality of a coin. As a result, a system for grading coins developed among dealers by which they used either descriptive terms, such as “uncirculated,” “brilliant uncirculated” and “gem brilliant uncirculated,” or a numerical scale ranging from 1 to 70, with higher numbers denoting a higher quality. However, whether using a descriptive or numeric system, grading varied significantly from dealer to dealer, depending on a dealer’s subjective criteria. Moreover, dealers were hardly disinterested or independent, since as the buyers or sellers of the coins they were grading, they stood to benefit financially from the assignment of a particular grade. As a result, grading standards were often inconsistently applied, and many collectors were vulnerable to fraudulent practices. These conditions severely limited the growth of the rare coin market and created a barrier to the participation of new collectors who lacked the expertise necessary to buy and sell with confidence.

In response to these conditions, in 1986 we launched Professional Coin Grading Service (PCGS), which instituted the practice of employing expert graders who were independent of the buyers and sellers of coins, thereby providing impartiality in the grading process. We established consistent standards of quality measured against an actual “benchmark” or “reference” set of coins kept at our office, and we provided a warranty as to the accuracy of our authentication and grading. We placed each graded coin in a tamper-evident holder, so that any prospective buyer would know that it was a PCGS authenticated and graded coin.

As a result, dealers were able to trade PCGS graded coins sight-unseen and an electronic teletype network called the “Certified Coin Exchange” developed and was used by dealers to buy and sell rare coins electronically before the Internet became viable. In addition, we began to provide a range of authoritative content on coin collecting to inform and communicate with the collector community, including guides that tracked the price and rarity of PCGS graded coins.

Sportscard Grading and Authentication. In the sportscard collectibles markets, misrepresentations of authenticity and quality were also a barrier to market growth. Using the skills and credibility we established with PCGS in the coin market, in 1991 we launched Professional Sports Authenticator (PSA), which instituted a similar authentication and grading system for sportscards. Our authentication and grading services have improved the marketability of sportscards by removing the barriers created by misrepresentations of authenticity or quality and also facilitating sales and trading of sportscards over the internet and at remotely held sports memorabilia auctions. The sportscards submitted to us for grading include primarily older or vintage sportscards, particularly of memorable or historically famous or notable players, such as Joe DiMaggio, Ted Williams, Mickey Mantle, Honus Wagner and modern or newly produced sportscards of current or new athletes who are or have become popular with sports fans or have achieved new records or milestones. These sportscards have or are perceived to have sufficient collectible value to justify grading and are sold more frequently than are sportscards of less notable athletes, leading dealers and collectors to submit them for grading to enhance their marketability. Additionally, the production and sale each new sports season of new series of sportscards creates new collectibles that have been a source of additional grading submissions to us.

Stamp Grading. Based upon our success in establishing grading for coins and sportscards, in January 2000 we launched grading of U.S. stamps through Professional Stamp Experts (PSE). Stamp authentication and grading is in its infancy and, based on our experience in launching coin grading and sports card grading, we expect to meet resistance to this concept in the stamp collectibles market, which is heaped in tradition. We believe, however, that the grading of stamps can gain, albeit gradually, a degree of market acceptance as grading has for coins and sportscards.

Authentication of Sports and Historical Memorabilia. Forgeries and misrepresentation of authenticity also have hindered development and growth of the market for autographed memorabilia. Operation Bullpen conducted by the FBI and other law enforcement agencies a few years ago uncovered widespread misrepresentations as to the genuineness of sports memorabilia. Beginning in 2001, we launched our James Spence Autographs division, offering authentication services for sports autographs and memorabilia. This division is headed by James Spence who has developed an expertise and is recognized as a leader in authenticating autographs, especially of sports heroes. We believe the demand for our vintage authentication services will grow as collectors increasingly rely on independent third parties for determining the genuineness of sports and entertainment collectibles. We offer another authentication service, PSA/DNA, that certifies autographed sports collectibles at the time of signing or when used during a sporting event. This service uses a proprietary authentication system that incorporates a holographic, tamper-evident label in conjunction with a special marking ink that is essentially non-recreatable.

We conduct premium auctions of high-end collectible coins, currency, sportscards and sports, entertainment and historical memorabilia. Our premium auctions utilize a “multi-venue” auction format that allows buyers and sellers to select the bidding format that is the most convenient and comfortable for them. These auction formats include various combinations of mail-in-bids, telephone, Internet and live bidding. Our premium auction companies include Bowers and Merena Galleries and Kingswood Coin Auctions for rare coins, Lyn Knight Currency Auctions for U.S. Currency, Superior Sportscard Auctions for vintage sportscards and sports memorabilia, and Odyssey for entertainment and historical memorabilia. Several of our auction companies are prominent within their respective collectibles market.

In conjunction with our auction commerce, we also sell high-end collectible coins and autographs through direct retail sales, catalogs and via the Internet on our website at www.collectors.com. These “e-Shops” continue to become a more important component of our direct retail sales activities in the future.

We also participate in e-commerce through co-branded websites with e-Bay and Yahoo. These co-branded websites offer our authentication and grading services to their users and also direct them to our website for price guides on certain collectibles, rarity reports, verification of previously authenticated collectibles and other commerce opportunities.

We publish authoritative price guides, rarity reports and other collectible information. In July 2000, we acquired Odyssey Publications. Odyssey publishes the nationally distributed Autograph Collectors Magazine and is considered to be a leading authority within the entertainment and historical autograph market. We also publish the monthly Sports Market Report for primary distribution to our 6,000 PSA Collectors Club members. In April 2001, Odyssey commenced distribution of the Sports Market Report as a national magazine to numerous outlets, including Borders, Barnes & Noble, and to convenience stores, specialty outlets and grocery stores. We believe our price guides, rarity information and

Cross-Sell Our Services and Products to Our Established Customer Base. Our experience has shown that collectors of one kind of collectible frequently are interested in other types of collectibles. As a result, we develop and conduct programs designed to cross-sell our services and products to our customer base of dealers and collectors.

Penetrate Other Collectibles Markets for Authentication and Grading. There are other high-end collectibles markets in which growth has been hampered due to the absence of independent authentication and grading services. As a result, one of our strategies is to use our reputation and expertise in coins and sportscards to penetrate new markets. During fiscal 2000, we launched the grading of rare and collectible stamps and the authentication of autographs and other sports memorabilia. We also believe that authentication and grading services can be extended to serve different tiers of presently served markets.

Leverage Brand Names. We have established leading brands within select collectibles markets, including PCGS, PSA, Bowers and Merena, Lyn Knight Currency Auctions, Superior Sportscard Auctions, and PSA/DNA. We intend to use the reputations of these brands to promote Collectors Universe as the premier factor in the high-end collectibles industry. Our new stamp authentication and grading service, PSE, is leveraging the reputation of our other grading services to gain credibility within the stamp collectibles market.

Expand Internationally. We believe the market for authenticated and graded collectibles can be geographically expanded to the PacRim and European markets. During fiscal 2001, we signed an exclusive distribution agreement with a Japanese company to authenticate and grade sportscards published and distributed in Japan. However, the grading of collectibles is in its infancy in many international markets, and we do not know whether it will gain wide spread acceptance. We intend, however over the next several years, to pursue other international opportunities for coins, sportscards, stamps, autographs and memorabilia.

A Decline in the Popularity of High-End Collectibles Could Impact Our Business. The popularity of collectibles may vary over time due to perceived scarcity, subjective value, general consumer trends, changes in the prices of precious metals, interest rates and other general economic conditions. Since our operating results are affected by both the market value of collectibles and the volume of collectibles transactions, a decline in popularity of high-end collectibles would likely cause a decrease in our revenues and our profitability.

Declines in General Economic Conditions Could Affect Our Operating Results. The availability of discretionary or disposable income is an important factor in the willingness and ability of individuals to purchase, and the prices that they are willing to pay for, high-end collectibles. Additionally, declines in purchases and sales of collectibles usually also result in declines in utilization of authentication and

grading services, as such services are most often used by sellers and purchasers of collectibles in conjunction with and to facilitate sale and purchase transactions. As a result, economic uncertainties, downturns and recessions can and do affect our operating results by (i) reducing the commissions we are able to generate on sales of collectibles, (ii) reducing the frequency at which collectors submit their coins, sportscards and other collectibles for authentication and grading, (iii) causing declines in the value of collectibles that we hold in our inventory, (iv) reducing the ability and willingness of customers to pay outstanding accounts receivable. One countervailing factor is that during economic downturns, the value of gold and other precious metals tends to increase, which can lead to increases in the sales prices of collectible coins.

Temporary Popularity of Some Collectibles Could Cause Our Revenues to Fluctuate. Temporary consumer popularity or “fads” among collectors may lead to short term or temporary increases in the volume of collectibles that we authenticate and grade and auction or sell. These trends may result in significant period to period fluctuations in our operating results. Any decline in the popularity of the collectibles we authenticate and grade and auction or sell, as a result of changes in consumer trends, could harm our business. In particular, the market for authentication and grading of sportscards is relatively new, and the volume of sportscards we receive has fluctuated significantly in the last two years. There is no guarantee that the level of trading in sportscards will not continue to decline from current levels.

There Are Limited Supplies of Collectibles. Our business is substantially dependent upon obtaining collectible coins, sportscards, records and other high-end collectibles for authentication, grading and auction. We depend upon dealers and collectors submitting collectibles for authentication and grading, and there is no guarantee that the current rates of grading and authentication submissions will remain stable or increase. Although there are numerous dealers and collectors from whom we are able to obtain collectibles for our auctions, there are only a limited number of dealers with the capacity to submit high-end collectibles for auction on a regular basis. A change in our relationships with suppliers or dealers could negatively impact our ability to obtain or auction high-end collectibles in the quantities and at the times we desire. This could impair our ability to attract a sufficient number of people interested in high-end collectibles to our auctions, which would lead to reductions in our revenues and a decline in our operating results. See “Inventory and Working Capital” elsewhere in this Item 1.

Variability of Our Operating Results. Our operating results are and can be significantly affected by the frequency and size of our high-end collectibles auctions. The timing, frequency and size of those auctions cannot be fixed, because scheduling of those auctions depends on when sufficient consignments of collectibles can be obtained to justify the holding of such auctions. In addition, as a result of revenue recognition policies that apply to auctions, under generally accepted accounting principles auction revenue generated in a particular accounting period may not be recognized until the subsequent accounting period. As a result, our auction revenue, and therefore our operating results, often vary from period to period. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Report.

We May Incur Losses on Our Collectibles Inventory. In addition to auctioning collectibles on consignment, we own some of the collectibles sold in our auctions and own almost all of the collectibles that we sell at retail. We purchase these collectibles from dealers and collectors and assume the inventory and price risks of these items until they are sold. If we are unable to resell these purchased collectibles when we want or need to, or at prices sufficient to generate a profit on their resale, or if the market value of our inventory of purchased collectibles declines, our revenues and operating results would decline. See “Inventory and Working Capital” elsewhere in this Item 1.

Our Investment and Expansion in New Collectibles Markets May Not Generate Adequate Returns. We have expanded into new collectibles markets, offering authentication and grading services in the collectible stamp market and authentication services in the autograph sports memorabilia market for the first time. Those services may not find market acceptance by dealers and collectors in those markets as they have in the coin and sportscard markets. In addition, standards for authenticating and grading stamps and authenticating autographs are not well established, which increases the risks of errors in grading and

Other Risks Associated With Expansion of Our Business. If appropriate opportunities present themselves, we also intend to acquire businesses, technologies, services or products that we believe will help us to expand our business. The process of integrating an acquired business, technology, service or product may result in operating difficulties and expenditures which we cannot anticipate and may absorb significant management attention that would otherwise be available for further development of our existing business. Moreover, the anticipated benefits of any acquisition may not be realized. Any future acquisitions of other businesses, technologies, services or products might require us to obtain additional equity or debt financing, which might not be available to us on favorable terms or at all, and might be dilutive.

We Could Suffer Losses on Authentication and Grading Warranties. We offer a warranty covering the coins and sportscards that we authenticate and grade. Under the terms of our warranty, any coin or sportscard that was originally graded by us and which subsequently receives a lower grade upon resubmittal to us for grading, obligates us either to purchase the coin or sportscard or pay the difference in value of the item at its original grade as compared with its lower grade. We have no insurance coverage for claims made under these warranties and, therefore, we maintain reserves to satisfy such warranty claims based on historical experience, which in the past have proven to be adequate. If warranty claims were to exceed these reserves, we would incur additional charges that would adversely affect our operating results.

Increased Competition Could Affect Our Financial Performance. Our auction and retail businesses are highly competitive. We compete directly with other auction companies that specialize in and have an industry reputation for hosting premium collectibles auctions, including Sotheby’s, Inc., Christie’s, Inc. Mastronet and Heritage Capital Corporation. These competitors each have the ability to attract collectible consignments and buyers to their auctions as a result of their reputation and the quality of the collectibles they are able to obtain through their industry connections and financial resources. In addition, other reputable auction companies that do not presently engage in auctions for coins or sportscards, or other collectibles that are the focus of our business, may decide to enter our markets to compete with us. Some companies have greater name recognition and have greater financial and marketing resources than we do. Our retail sales business is highly competitive with hundreds of competitors, some of whom are larger and enjoy greater name recognition than our company. Additionally, although there are few major competitors in the collectibles authentication and grading markets, competition also is intense in these markets. Increases in competition could adversely affect our pricing and profit margins and our ability to achieve further growth. See “Competition” elsewhere in this Part I.

The Imposition of Government Regulations Could Increase the Costs of Doing Business. The collectible coin and other high-end collectibles markets are not currently subject to direct federal, state or local regulation, although auctions in general and the sale of particular types of artwork and autographed sports memorabilia are regulated in some states. However, from time to time government authorities discuss additional regulations which could impose restrictions on the collectibles industry, such as regulating collectibles as securities or requiring collectibles dealers to meet registration or reporting requirements, and impose restrictions on the conduct of auction businesses. Adoption of laws or regulations of this nature could increase the complexity and costs of conducting auctions, which might decrease our ability to attract sellers and buyers.

Possible Delisting of our Shares by NASDAQ. During the quarter ended June 30, 2002, the bid price of our shares declined below $1.00 per share for a period of 30 consecutive trading days, where it has since remained. We have been notified by NASDAQ that our shares may be delisted from trading on the NASDAQ National Stock Market if the bid price does not increase to at least $1.00 per share for 10 consecutive trading days within the succeeding 90 days and we are unable to demonstrate to NASDAQ that our share price will so increase as a result of actions being taken by the Company. Although we believe that anticipated

improvements in operating results in the current fiscal year will result in the required improvement in the trading price of our shares, there is no assurance that NASDAQ will not proceed with the delisting. A delisting of our shares from NASDAQ would make it more difficult for our stockholders to sell their shares in the open market and for the Company to attract new investors and to achieve improvements in the price performance of our stock. Accordingly, if necessary to maintain our NASDAQ listing, subject to the approval of our stockholders we are prepared to implement a reverse stock split of our outstanding shares to increase our share price above $1.00. See Item 5 in Part II of this Report.

Authentication and Grading of Collectibles. We offer authentication and grading services for coins and sportscards and have recently inaugurated the grading of stamps. Using proprietary grading software developed by us, our teams of trained and experienced authenticators and graders determine the authenticity of an item submitted and then assign a numeric grade to the item based upon its quality. After the item is graded, it is usually encapsulated in a tamper-evident plastic holder. Customers for our authentication and grading services include individual collectors, dealers and, to a limited extent, wholesalers and manufacturers.

We also offer authentication services for vintage sports autographs and signed sports memorabilia. After an item of memorabilia is determined to be authentic, it is entered into our database, with a digital picture for future reference, and issued a certificate of authenticity. Customers for our authentication services are primarily individual collectors and dealers. We also offer authentication services for “signed-in-the-presence” autographs and sports memorabilia, in which we use our proprietary PSA/DNA authentication system to affix a holographic label and/or special ink to the item that marks the item as genuine.

PCGS Coin Grading Operations. Since our inception in 1986, we have graded more than 7,000,000 coins with a declared insured value of more than $9.0 billion. We authenticate and grade approximately 600,000 coins per year and, depending on the customer’s requested turnaround time, we typically charge between $8 and $100 per coin for this service. We have graded, either before or after sale, three of the five highest priced U.S. coins ever sold at public auction, including an 1804 silver dollar that was purchased for approximately $4,100,000. We also have been named as the official grading service of the Professional Numismatists Guild, the most prominent non-profit national coin dealer trade organization.

Our grading of coins involves a very exacting and standardized process. We receive coins from dealers and collectors and enter them into our proprietary computerized inventory system which tracks the coins at every stage of the grading process. The coins are graded by experts with years of coin grading experience who follow our benchmarked grading standards. Coins enter the grading process without any markings that could identify the owner of the coin ensuring that our graders are completely objective. Graders also examine the coins independently from one another. Based upon the type of coin and the results of the grading process, our proprietary software determines whether additional graders will examine the coin to assign a final grade. The coin is then sonically sealed in our specially-designed holder, which also encases the grade, the description of the coin and the PCGS hologram and brand name. The coin, grade and description are then verified by one or more experts who have the authority to resubmit the coin for further review, if necessary. Only after the grading phase is complete is the coin reunited with its invoice, thus keeping the grading process independent of the identity of the owner and the history of the coin.

PSA Sportscard Grading Operations. Our PSA Division first started grading sportscards in 1991 and has graded over 4 million sportscards with a declared value of more than $0.6 billion. We employ authentication and grading procedures and provide warranties of accuracy that are similar to the procedures employed and warranties given in authentication and grading of coins. In addition to baseball cards, we authenticate and grade football, hockey and basketball sportscards and other collectible cards. We typically charge between $6 and $20 per card for our authentication and grading service, depending on the customer’s requested turnaround time. We also have periodically entered into arrangements with sportcard manufacturers to grade, in bulk, modern sportscards that they produce.

We experienced a rapid increase in grading submissions between fiscal 1999 and fiscal 2000. However, during the 4^th quarter of fiscal 2000, sportscard submissions started to decline from a quarterly rate of approximately 520,000 cards to approximately 310,000 cards per quarter, a level at which it has remained throughout fiscal 2001 and 2002. We believe that this decrease in submission rates is due, in part, to an increase in the number of modern sportscards in circulation, which has led to a reduction in resale prices of those sportscards that has reduced the economic incentive to have them graded. However, we have been able to partially offset that decline in submissions through our Sport Card Set Registry Programs. Those programs, introduced by PSA in fiscal 2001, have encouraged collectors to collect or amass sets or combinations of related vintage and also modern sportscards, comprised not only of the cards of more famous and popular players, but also of less notable players who may have been or are associated with particular teams or sports events. To enhance the collectibility and marketability of such related sets or combinations of sportscards, on an increasing basis, dealers and collectors have been submitting the cards making up those sets for grading, including those of the less notable players which might not otherwise have been submitted for grading.

Other Authentication and Grading Services. We commenced stamp authentication and grading and sports autograph authentication during fiscal 2000. The volume of submissions through fiscal 2002 has not been material, and since these services are new to the markets, we cannot predict when or even whether they will gain market acceptance.

High-End Collectibles Auctions and Sales. We conduct premium auctions for high-end collectibles, including coins, currency, sportscards and sports memorabilia, rare records, entertainment and historical memorabilia. All of our premium auctions offer multi-venue bidding that includes varying combinations of Internet, telephone, mail and in-person formats. While the number of premium auctions varies each year, we typically conduct approximately 20 premium auctions each fiscal year.

Customers for our premium auctions are generally individual collectors and dealers. At those auctions we sell collectibles that are consigned to us by dealers and collectors (“consigned collectibles”) and, to a lesser extent, collectibles that we purchase for resale at our auctions (“purchased collectibles” or “owned collectibles”). We also make direct and catalog sales primarily of purchased collectibles.

We generate revenue from our auctions in the form of commissions from both buyers and sellers of consigned collectibles and from sales of purchased collectibles that we sell and buyer’s commissions on the sale of purchased or owned collectibles. Commissions from the sale of consigned collectibles vary but are generally between 10% to 25% of the sales price of the collectible. We charge buyers a commission on the sale of owned collectibles that varies but is generally between 10% and 15% of the sales price. Revenues from the sale of owned collectibles were $19,983,000 and $23,152,000 in fiscal 2002 and fiscal 2001, respectively. Commissions revenues from the sale of consigned and owned collectibles were $4,875,000 and $6,241,000 in fiscal 2002 and fiscal 2001, respectively. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Report.

Premium Auctions. Premium auctions feature special or unique collectibles that are sold in a multi-venue auction formats. In some of our premium auctions, we utilize “callback bidding” where bidders can choose to be called back by a phone operator immediately after the close of the first auction phase to be given the opportunity to participate in the final bidding phase.

We require consignors in our premium auctions to ship their collectibles to us prior to auction. We photograph and prepare descriptions for all items consigned to us for auction and compile and publish a catalog of all items to be auctioned in advance of each of our premium auctions. Collectors can, thus, view all of the collectibles to be auctioned, along with complete descriptions, either by visiting our website and viewing online, or by ordering a catalog in hardcopy format. At the conclusion of the auction, we handle shipping and payment transactions.

Price Guides. We provide a wide variety of authoritative price guides for a number of collectible markets. For example, we track the value of the 3,000 most actively-traded U.S. coins with information dating back to 1970. We compile and publish this information in a widely recognized collectible coin index, the CU3000.

Rarity Reports. Three primary characteristics drive the market value of many collectibles: relative rarity, grade and significance to collectors. We compile and publish reports that list the total number of sportscards and coins we have graded since our inception in 1986, categorized by item type and grade determination. We can publish, for example, the exact number of MS67-grade 1881-S Morgan silver dollars we have graded. Collectors can utilize this information to make informed decisions regarding the purchase of particular coins.

Articles. Collecting is a passion for many and has nuances and anecdotes that are well suited to a library of articles for each category of collectible. We write informative articles and publish them on our website. A sense of community is also important to collectors. We, therefore, encourage our users to communicate and to write articles that can be made available to all collectors.

Historical Content. Collecting is often about history, and, in many instances, the collectible’s history is what makes it valuable. In our catalogs, and in other publications, we provide short histories about unusual and rare collectibles that add to the attractiveness and excitement of purchasing such items.

News. We provide the information that collectors and dealers need to track recent events, trends and developments in the collectibles markets we serve. For example, new collectibles are constantly being created, some collectibles increase in popularity and other collectibles sell at record prices.

We devote significant resources to providing personalized, customer service and support in a timely manner. Customers can check the status of their grading submissions at our Internet website. In addition, customers or prospective buyers can confirm the authenticity of the over 11 million collectibles we have graded. Customers also can choose to telephone or e-mail our general support staff. We also make available specialists and experts who are able to address virtually any issues our customers may encounter when using our services.

Our inventory consists primarily of collectibles held for sale in our auctions and through direct sales. In our premium auctions, the majority of the collectibles sold are consigned to us, but we do sell collectibles owned by us, particularly sportscards and entertainment memorabilia. Collectibles sold through direct sales or catalog are usually owned by us. The supply of high-end collectibles is limited, and the timing of their availability in sufficient quantity to support our premium auctions and direct sales is uncertain. We, therefore, purchase inventory to insure availability and to take advantage of the opportunities to acquire high-end collectibles at favorable prices. In some circumstances, we may purchase a large “collection” of inventory with the intent of selling it in multiple future auctions. Therefore, our inventories are exposed to potentially limited turnover and valuation risks associated with fluctuations in their market prices. The Company periodically reviews its inventories and takes reserves against potential valuation loss.

Historically, fees for authentication and grading were generally prepaid or paid at the time the item was submitted. Prepayments for services are recorded as deferred revenue until the service is completed and the item is returned. In prior fiscal years, prepaid submittals have provided us with a consistent source of cash and improved our working capital position. At June 30, 2002, deferred grading revenue, that is, the value of prepaid, but unprocessed grading submissions, was $545,000 as compared to $288,000 at June 30, 2001. We advance, to certain consignors in our premium auctions, funds in anticipation of selling their collectibles at auction. We generally charge market rates of interest for such advances and hold their consignment as collateral. This practice is common in the market for higher-end collectibles and is used to attract consignments to our auctions. At June 30, 2002, we had advanced $3,359,000 to consignors.

The timing of premium auctions can have a significant impact upon our working capital. We generally pay consignors 45-days after the close of any auction but collect, all, or essentially all, the receivables from an auction 60 days following the completion of the auction. This auction cycle can cause significant fluctuations in the Company’s cash balances and working capital position. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Report.

We purchase injection-molded parts, holograms and printed labels for our grading services. There are numerous suppliers for these items, and any one could be substituted without significant delay or cost to the Company. However, while there are numerous sources for injection molded parts, these parts require a die to fabricate the part. The manufacture of high precision dies can be a lengthy process and requires considerable expertise in their fabrication. We do not have “back-up” dies for many of our high volume injection molded parts, and we rely on one supplier for these requirements. In the event that this supplier experiences a protracted production stoppage, we would not be able to service all of our customers.

We utilize proprietary software for our authentication, grading, order tracking, order processing and certain database functions. During fiscal 2002, we completed interfacing our proprietary grading software with a new company-wide enterprise software system. Total cost of this new software, and related hardware, was approximately $1,250,000, of which, approximately $600,000 and $50,000 was expensed during fiscal 2002 and 2001, respectively, representing primarily pre-development and post-implementation training and support costs. Approximately $600,000 has been capitalized and is being amortized over a 3 to 5 year life.

There are three main competitors in coin grading, Numismatic Guaranty Corporation of America, Independent Coin Grading and ANACS, a subsidiary of Amos Press, Inc. and a few minor competitors. In sportscard grading, there are also two main competitors, Beckett and Sportscard Grading Corporation, but numerous smaller competitors. The sportscard grading market attracts new competitors every year and, every year, several competitors disappear from the market. In July 2001, a new competitor entered the sportscard grading market, SCD Authentic, a division of Krause Publications. We believe that PCGS and PSA have the largest market share in each of their respective markets, but barriers to entry into the authentication and grading market are relatively low, especially into the sportscard grading market. However, the development of a brand name that buyers and sellers will rely on for making “sight-unseen” purchases can take several years to develop, and collectors tend to favor grading services that have an established reputation and whose grading standards tend to support the highest price in the market.

Our traditional auction business is also highly competitive. We compete directly with other companies that specialize in collectibles and have an industry reputation for hosting premium collectibles auctions. Our competitors in traditional auction markets include Heritage Numismatic Auctions, Currency Auctions of America, recently purchased by Heritage, Mastro Fine Sports Auctions, Greg Manning Auctions and numerous smaller auction companies that compete in our markets for coins, sportscards and sports memorabilia, currency, rare records, autographs, and other types of collectibles. In addition, other

reputable and much larger auction companies such as Sotheby’s, Christie’s and Butterfield & Butterfield, which do not specialize in, but do conduct auctions for collectibles that our Company specializes in, are potential competitors. In addition, other significant auction companies that do not presently engage in auctions for coins or sportscards or other collectibles that are the focus of our business may decide to enter our markets to compete with us. These companies have greater name recognition than us and have access to more financial and marketing resources than we do. We believe that the principal competitive factors in the traditional auction business are the reputation of the Company hosting the auction, the hosting party’s ability to attract buyers to the auction and the quality of collectibles available for sale at the auction.

In addition to these traditional auction companies, several companies have developed sales, auctions and trading over the Internet. While these Internet e-commerce companies generally host auctions or sell collectibles that have lower average selling prices than our collectibles sold at auction, several of them are much larger and have greater financial resources than our Company. These companies include eBay and, to a lessor extent, Yahoo and Amazon. In addition, several large companies sell specialty consumer products, including collectibles through interactive electronic media, including broadcast, cable and satellite television and, increasingly, the Internet. These companies include QVC, Home Shopping Network and Shop At Home. They generally have substantial financial resources and, while their current collectible offerings tend to be less focused and at lower prices than our collectible offerings, there can be no guarantee that they will not become significant competitors in the future.

Direct sales of collectibles is highly competitive. There are thousands of retail establishments that sell collectibles directly to collectors, and there are numerous catalog companies and e-tailers that offer collectibles for sale through the Internet. The Company is not dominant in any of these markets, and barriers to entry are relatively low in e-commerce using commercially available software.

Our intellectual property primarily consists of trademarks, copyrights, and proprietary software and trade secrets. As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information.

Unregistered Marks		Registered Marks
Coin Universe	Bowers and Merena Galleries	Collectors Universe
Collectors.com	Kingswood Coin Auctions	PCGS
Lyn Knight Currency Auctions	Sports Collectors Universe	PSA
Superior Sportscard Auctions	Currency Universe	PSA/DNA
Bowers and Merena Auctions	Record Universe	Good Rockin’ Tonight

Numerous states, including the State of California in which our headquarters is located, have regulations regarding the manner in which “auctions” may be conducted and the liability of “auctioneers” in conducting such auctions. We must comply with each state’s requirements when conducting in-person auctions and are required to collect sales tax depending on the collectible sold and manner in which title changes. The Company conducts multi-venue auctions in which the customer may bid, in-person, over the telephone or on the Internet through our website. At this time, it has not been determined if a state or

As of June 30, 2002, we had 187 full-time employees and 33 part-time employees. Included in this total were 105 in grading and authentication, 52 in collectible sales and auction, 6 in website development, 4 in sales and marketing and 53 in other business and administrative services. We have never had a work stoppage, and no employees are represented under collective bargaining agreements. We consider our relations with our employees to be good.

ROGER W. JOHNSON has served as a Director of Collectors Universe since November 1999 and was elected as its Chairman and Chief Executive Officer in September, 2001. From 1996 to September 2001, Mr. Johnson was a private investor. He was appointed by President Clinton and served as the Administrator of the General Services Administration of the United States from 1993 to 1996. Mr. Johnson also has been Chief Executive Officer of the Young Presidents’ Organization, International since 1998. He is a member of the boards of directors of The Needham Funds, Inc., Sypris Solutions, Inc., Insulectro, Carole Little and the Women’s Consumer Network, Washington, D.C. Mr. Johnson was Chairman and Chief Executive Officer of Western Digital Corporation from 1982 to 1993. Mr. Johnson holds an M.B.A. in industrial management from the University of Massachusetts.

In August 2002, Mr. Johnson announced his decision to step down as Chairman and Chief Executive Officer of the Company, after having achieved goals he had set for himself when he assumed those positions with the Company. In announcing that decision, Mr. Johnson stated it was time to hand over his responsibilities to a new chief executive officer who could commit to a much longer period of leadership with the Company than he would be able to do. The Company’s Board of Directors has opened an active search for a successor to Mr. Johnson, who has agreed to remain as Chief Executive Officer for an interim period to assist with the transition to the new Chief Executive Officer. At the same time, the Board of Directors elected James H. O’Neal, as Chairman of the Board, to lead that search. Mr. O’Neal, who is a private investor and has served as a director of the Company since June, 2001, was the President and Chief Executive Officer of Frito-Lay International from 1997 until his retirement in 2000, and prior to 1997 held a number of executive positions with PepsiCo, the parent company of Frito-Lay.

DAVID G. HALL has served as President of Collectors Universe, Inc. since September 2001. From April 2000 to September 2001, Mr. Hall served as our Chairman of the Board and Chief Executive Officer. Mr. Hall also served as Chairman of the Board and a Director since founding Collectors Universe in February 1986. From 1986 to January 1999, he also served as President and Chief Executive Officer. Mr. Hall was honored in 1999 by COINage Magazine as Numismatist of the Century, along with 14 others. In 1990, Mr. Hall was named an Orange County Entrepreneur of the Year by INC. magazine. In addition, he has written A Mercenary’s Guide to the Rare Coin Market, a book dedicated to coin collecting. Mr. Hall is also a member of the Professional Numismatists Guild.

MICHAEL J. LEWIS has served as Chief Financial Officer of Collectors Universe, Inc. since October 2001. From January 2000 to October 2001, Mr. Lewis was a private investor. In 1998, Mr. Lewis was Chief Financial Officer of the Young Presidents’ Organization. During 1999, Mr. Lewis was an associate with Eureka Financial Markets. From 1994 to 1997, Mr. Lewis served as

The Company’s common stock has been listed on the Nasdaq National Market, trading under the symbol CLCT, since November 4, 1999, when we commenced our initial public offering of common stock. The following table sets forth high and low closing prices for our common stock, as reported by the Nasdaq National Market for each of the fiscal quarters in the fiscal years ended on June 30, 2002 and 2001:

Possible Delisting of Shares and Possible Reverse Stock Split. During the quarter ended June 30, 2002, the trading prices of our shares declined to less than $1.00 per share for 30 consecutive trading days. As a result, we have been informed by NASDAQ that our shares may be delisted from trading on the NASDAQ Stock Market, unless we can demonstrate to NASDAQ’s satisfaction that the decline in our share price is temporary and the price will increase above $1.00 in the near term. A delisting of our shares from the NASDAQ Stock market would result in a decline in the marketability and the liquidity of our shares, making it more difficult for our stockholders to purchase and sell shares when they want or need to do so and for us to achieve improvements in our share price performance.

As a result, if NASDAQ determines to proceed with the delisting of our shares, the only alternative available for achieving the increase in our share price required to maintain our NASDAQ listing may be a reverse stock split of our outstanding shares, in all probability ranging somewhere between a one share-for-three share to a one share-for-five share reverse split. Accordingly, we intend to ask our stockholders, at our Annual Stockholders Meeting scheduled for December 4, 2002, to grant the Board of Directors the authority to effectuate a reverse split of our outstanding shares within that range. If the reverse stock split is approved, the Board of Directors is likely to implement it only if it becomes necessary to ensure the continued listing of our shares on the NASDAQ Stock Market. Accordingly, even if the reverse stock split is approved by the stockholders, the Board of Directors may elect to delay, or even abandon it entirely if we are able to otherwise maintain the listing of our shares on NASDAQ.

The consolidated statements of operations data and balance sheets data for each of the fiscal years shown, include the operations of Collectors Universe, Inc. and its predecessor, Professional Coin Grading Service, Inc. The selected operating data for the fiscal years ended June 30, 2002, 2001 and 2000, and the selected balance sheet data at June 30, 2002 and 2001, are derived from the Company’s audited consolidated financial statements included elsewhere in this Report. The selected financial data for the fiscal years ended June 30, 1999 and 1998 and at June 30, 2000, 1999 and 1998 are derived from audited consolidated financial statements that are not included in this Report. The following data should be read in conjunction with our consolidated financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

Delaware		33-0846191
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1921 E. Alton Avenue, Santa Ana, California		92705
(Address of principal executive offices)		(Zip Code

PART I			Page
	Item 1.	Business	1
	Item 2.	Properties	12
	Item 3.	Legal Proceedings	12
	Item 4.	Submission of Matters to a Vote of Security Holders	12
		Executive Officers of Registrant	12
PART II
	Item 5.	Market for Common Stock and Related Stockholder Matters	13
	Item 6.	Selected Consolidated Financial Data	14
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
	Item 8.	Financial Statements and Supplementary Data	26
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	46
PART III
	Item 10.	Directors and Executive Officers	46
	Item 11.	Executive Compensation	46
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	46
	Item 13.	Certain Relationships and Related Transactions	46
	Item 14.	Controls and Procedures	46
PART IV
	Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	47
SIGNATURES			S-1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF SARBANES-OXLEY ACT			S-2
CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF SARBANES-OXLEY ACT			S-3
INDEX TO EXHIBITS			E-1

Name	Age	Positions
Roger W. Johnson	67	Chief Executive Officer
David G. Hall	55	President
Michael J. Lewis	58	Chief Financial Officer

Fiscal 2002	High	Low
First Quarter	2.23	.71
Second Quarter	1.60	.72
Third Quarter	1.72	1.11
Fourth Quarter	1.50	.76

Fiscal 2001	High	Low
First Quarter	4.67	2.50
Second Quarter	2.56	1.53
Third Quarter	2.19	1.44
Fourth Quarter	2.20	1.45

	Years Ended June 30, (4)
Consolidated Statements of Operations Data ⁽¹⁾	2002		2001		2000		1999		1998
	(in thousands, except per share data)
Net revenues	$	44,781	$	52,384	$	42,374	$	22,563	$	10,989
Cost of revenues		26,517