1.	SUMMARY OF Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Collectors Universe, Inc. and its operating subsidiaries (the “Company”, “we”, “us”, or “our”). At

December 31, 2019,

our operating subsidiaries were Certified Asset Exchange, Inc. (“CAE”), Collectors Universe (Hong Kong) Limited, Collectors Universe (Shanghai) Limited, Collectors Universe (Japan) Limited, and Expos, LLC. (“Expos”), all of which are ultimately

100%

owned by Collectors Universe, Inc. All significant intercompany transactions and accounts have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statements of Cash Flows for the periods presented in accordance with generally accepted accounting principles as in effect in the United States of America (“GAAP”). Operating results for the

three

and

six

months ended

December 31, 2019

are

not

necessarily indicative of the results that

may

be expected for the full year ending

June 30, 2020

or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form

-K for the fiscal year ended

June 30, 2019,

as filed with the SEC (our “Fiscal

2019

-K”). Amounts related to disclosure of

June 30, 2019

balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and the notes thereto.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Leases

Effective

July 1, 2019

the Company adopted Accounting Standards Codification (“ASC”)

842

Accounting for Leases

. The core principle of this guidance is that a lessee should recognize the assets and liabilities that arise from leases. Therefore, the Condensed Consolidated Balance Sheet at

December 31, 2019,

includes the liability to make lease payments (the lease liability) and a right-of-use asset, representing our right to use the underlying asset for the lease term. We elected

not

to recognize lease assets and liabilities for leases with a term of

months or less and are recognizing lease expenses for such leases on a straight-line basis over the lease term. The Company adopted this new accounting guidance, utilizing the current period adoption method without revising comparative periods and elected

not

to reassess existing leases. There was

material impact on the Company’s operating results arising from the adoption of this new guidance. See “

Note

-Leases

” for additional information.

Revenue Recognition

The core principle of ASC

606,

Revenue from Contracts with Customers

, is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying ASC

606,

all revenue transactions must be evaluated using a

five

-step approach to determine the amount and timing of revenue to be recognized. The

five

-step approach requires (

) identifying the contract with the customer, (

) identifying the performance obligations in the contract, (

) determining the transaction price, (

) allocating the transaction price to the performance obligations in the contract and (

) recognizing revenue when performance obligations are satisfied.

Our primary source of revenue is the authentication and grading of collectibles, which represented about

90%

of our consolidated revenues in the

six

months ended

December 31, 2019.

Our other sources of revenues represent the balance of our revenues which are small and individually account for less than

of total revenues.

In accordance with ASC

606

we recognize revenue for our main revenue streams as follows:

Authentication and Grading Revenues:

As the time it takes to authenticate and grade the collectible is short, we recognize revenue at the time of shipment (i.e. point of time) of the authenticated graded collectible to the customer, net of any taxes collected. Due to the insignificant delay between the completion of our authentication and grading services and the shipment of the collectible back to the customer, the time of shipment corresponds to the completion of our services. We recognize revenue for the sale of special coin inserts at the time the customer takes legal title to the insert. Many of our authentication and grading customers prepay our authentication and grading fees when they submit their collectibles to us for authentication and grading. We record those prepayments as deferred revenue until the collectibles have been authenticated and graded and shipped back to the customer. At that time, we record the revenues from the authentication and grading services we have performed for the customer and deduct this amount from deferred revenue. For certain dealers to whom we extend credit, we record revenue at the time of shipment of the authenticated and graded collectible to the dealer. We provide a limited warranty covering the coins and trading cards that we authenticate and grade. See

Warranty C

osts

below.

Collectors Club Revenues:

These revenues represent membership fees paid by customers for annual memberships in our Collectors Club. Those membership fees entitle members to access our on-line and printed publications and, depending on their membership level, to receive vouchers for authentication and grading services during the membership period. We allocate revenue between the vouchers and the membership. We recognize revenue attributable to the authentication and grading vouchers consistent with our Authentication and Grading services above. The balance of the membership fees is recognized ratably over the life of the membership. Memberships are paid in advance of the membership period and prepaid memberships fees are classified as deferred revenue. In the event vouchers expire unused (i.e. there are unexercised customer rights), we consider the guidance under ASC

606

in determining when to recognize revenue.

Certified Coin Exchanges Subscription Revenues:

We recognize subscription revenues related to our CCE exchange for certified coins, ratably over the relevant subscription period. Subscriptions are typically billed and paid on a monthly basis, although certain quarterly and annual subscriptions can be paid in advance. Prepaid subscriptions are classified as part of deferred revenue.

Expos Trade Show Revenue:

We recognize fees earned from promoting, managing, and operating trade shows in the periods in which the shows take place. Trade show booth fees are typically paid to us in advance. Certain fees that are paid to conduct auctions at the show are paid to us at the end of the show. Prepaid show fees are classified as part of deferred revenue.

Advertising and Commission Revenues:

Advertising revenues are recognized in the period when an advertisement is displayed in our publications or websites and customers typically have

day credit terms. Click-through commission revenues earned through our websites from

third

party affiliate programs are recognized in the period in which the commissions are earned, and such commissions are paid in the following month.

Coin Sales:

Coin sales consist primarily of sales of collectibles coins that we have purchased pursuant to our coin authentication and grading warranty program. We recognize revenues from coin sales when the coins are shipped or delivered to customers or if the coins are sold through auction, when the auction settles. However, those sales are

not

considered to be the focus of nor an integral part of the Company’s ongoing revenue generating activities.

Contract Balances.

As discussed above, the timing of revenue recognition can differ from the timing of invoicing to customers. Contract liabilities are comprised of billings or payments received from our customers in advance of performance under the contract. We refer to these contract liabilities as “Deferred Revenue” in the accompanying condensed consolidated balance sheets. During the

three

and

six

months ended

December 31, 2019,

we recognized

$755,000

and

$2,503,000,

respectively, in revenue from the deferred revenue balance of

$3,428,000

June 30, 2019.

Shipping and Handling Costs

Shipping and handling costs incurred to process and return customer collectibles submitted to us for grading or authentication are recorded as costs of revenues, net of amounts received from customers, in accordance with the guidance for Principals versus Agents as set out in ASC

606.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results from operations could differ from results expected on the basis of those estimates, and such differences could be material to our future results of operations and financial condition. Examples of such estimates that could be material include determinations made with respect to the capitalization and recovery of software development costs, the valuation of stock-based compensation awards and the timing of the recognition of related stock-based compensation expense, the valuation of coin inventory, the amount and assessment of goodwill for impairment, the sufficiency of warranty reserves and the provision or benefit for income taxes and related valuation allowances.

Goodwill and Other Long-Lived

Assets

We evaluate the carrying value of goodwill and indefinite-lived intangible assets at least annually, or more frequently if facts and circumstances indicate that impairment

may

have occurred. Qualitative factors are considered in performing our goodwill impairment assessment, including the significant excess of fair value over carrying value in prior years, and any material changes in the estimated cash flows of the reporting unit. We also evaluate the carrying values of all other tangible and intangible assets for impairment if circumstances arise which indicate that the carrying values of these assets

may

not

be recoverable on the basis of future undiscounted cash flows. We determined that

impairment of goodwill or other long-lived assets existed as of

December 31, 2019.

Foreign Currency

The Company has determined that the U.S. Dollar is the functional currency for its French branch office and its Hong Kong, Japan and China subsidiaries. Based on this determination, the Company’s foreign operations are re-measured by reflecting the financial results of such operations as if they had taken place within a U.S. dollar-based economic environment. Fixed assets and other non-monetary assets and liabilities are re-measured from foreign currencies to U.S. dollars at historical exchange rates; whereas cash, accounts receivable and other monetary assets and liabilities are re-measured at current exchange rates. Gains and losses resulting from those re-measurements, which are included in income for the current period, were

not

material in any periods.

Stock-Based Compensation

We recognize stock-based compensation attributable to service-based equity grants (“RSUs”) over the service period based on the grant date fair values of the awards. For performance-based equity grants (“PSUs”) with financial performance goals, we begin recognizing compensation expense based on their respective grant date fair values when it becomes probable that we will achieve the financial performance goals.

Restricted Stock Awards:

and

201

Long Term Incentive Plan

(“LTIP

”)

Retention Restricted Service Shares

(“RSUs”)

To create incentives for the officers and other key employees (“LTIP Participants”) to remain in the Company's service, RSUs were granted to them as follows:

Annual Grants

. A total, net of forfeitures, of

25,952

and

44,763

RSUs were granted in fiscal

2020

and

2019,

respectively, with vesting in

three

annual installments on the last day of the fiscal years following the grants, with the vesting of each such installment contingent on the Participant remaining in the continuous service of the Company through the vesting date of that installment.

If a Participant's continuous service with the Company ceases, for any reason whatsoever, including a termination of the Participant’s employment with or without cause, prior to any vesting date or dates, any unvested RSUs will be forfeited.

Fiscal

and

2019

Performance Restricted Shares

(“

PSUs

”)

To create incentives for the LTIP Participants to focus their efforts on the achievement of increases in net cash flows (defined as net cash generated by the Company’s operating activities, minus capital expenditures and capitalized software costs), during the

three

years ending

June 30, 2021

and

2022,

(the “Performance Periods”), in fiscal

2020

and

2019,

the Compensation Committee granted

51,905

and

89,542

PSUs (at maximum), respectively, to LTIP Participants. Vesting of the PSUs was made dependent upon the achievement of net cash flow goals on an annual basis for the performance periods, subject to possible downward or upward adjustment of

20%

of the PSUs, based on a comparison of the Company’s total shareholder return (“TSR”) for each Performance Period, to the TSR of the Russell

2000

Index, for the same Performance Period. Threshold, target and maximum net cash flow goals were established for fiscal years

2020

and

2019.

Grant dates will be established for future year’s PSUs early in those fiscal years which will give rise to grant dates for expense recognition purposes.

For any of the PSUs to vest, a Participant must remain in the continuous service of the Company through

June 30, 2021

for the fiscal

2019

PSUs and

June 30, 2022

for the fiscal

2020

PSUs, and the threshold net cash flows goal must be achieved in at least

one

of the years, in the

three

year Performance Period. Stock-based compensation expense of

$109,000

and

$186,000

was recognized in the

three

and

six

months ended

December 31, 2019

respectively, for these PSUs. There was

expense for PSUs in the

three

and

six

months ended

December 31, 2018.

Total stock-based compensation in the

three

and

six

months ended

December 31, 2019,

was

$341,000

and

$605,000,

respectively as compared to

$205,000

and

$468,000,

respectively, in the

three

and

six

months ended

December 31, 2018.

Concentrations

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

Financial Instruments and Cash Balances.

December 31, 2019,

we had cash and cash equivalents totaling approximately

$22,189,000,

of which approximately

$18,194,000

was invested in money market accounts, and the balance of

$3,995,000

(which is inclusive of cash in overseas bank accounts) was in non-interest bearing bank accounts for general day-to-day operations. At

December 31, 2019,

cash in overseas bank accounts was approximately

$1,689,000,

of which

$1,180,000

was in China. We plan to remit excess cash from China in accordance with Chinese exchange control regulations. Due to those exchange control regulations in China, delays can be experienced in transferring funds from China.

Substantially all of our cash in the United States is deposited at

one

FDIC insured financial institution. We maintained cash due from banks, inclusive of cash in overseas accounts, in excess of the bank’s FDIC insured deposit limits of approximately

$19,793,000

December 31, 2019.

Revolving Credit Line.

As previously reported, in

January 2017

we obtained a

three

-year,

$10,000,000

unsecured revolving credit line from a commercial bank to enhance the Company’s liquidity and to support the growth of the Company’s business. In

January 2020,

the bank extended the maturity date of the line of credit by

days to enable the bank and the Company to establish a new line of credit with expected similar terms to the existing line of credit. We are entitled to obtain borrowings under the existing credit line at such times and in such amounts as we

may

request, provided that the maximum principal amount of credit line borrowings that

may

be outstanding at any

one

time

may

not

exceed

$10,000,000.

We also

may

repay outstanding borrowings in whole or in part at any time or from time to time and reborrow amounts based upon availability under the line of credit, except that

borrowings

may

be outstanding under the credit line during a

consecutive day “out of loan” period each year. Borrowings bear interest, at the Company’s option, at LIBOR plus

2.25%

or at

0.25%

below the highest prime lending rate published from time to time by the Wall Street Journal. The Company is required to pay a quarterly unused commitment fee of

0.0625%

of the amount by which (if any) that the average of the borrowings outstanding under the credit line in any calendar quarter is less than

$4,000,000.

There were

borrowings outstanding under the credit line at

December 31, 2019.

We were in compliance with all of our financial and other covenants under our credit line agreement at

December 31, 2019.

Term Loan

As previously reported, on

September

15,

2017

the Company obtained a

five

-year,

$3,500,000

unsecured term loan. In

October 2018,

the Company began repaying the loan balance of

$3,000,000

equal monthly principal payments of

$62,500,

$750,000

on an annual basis, through

September 2022.

There are

prepayment penalties on loan repayments.

The term loan agreement contains

two

financial covenants, which require the Company to maintain (a) a funded debt coverage ratio and (b) a debt service coverage ratio, respectively. The loan agreement also contains certain other covenants typical for this type of loan, including a covenant which provides that, without the bank’s consent, the Company

may

not

incur additional indebtedness for borrowed money, except for (i) borrowings under the Company’s revolving credit line, (ii) purchase money indebtedness and (iii) capitalized lease obligations. The Company was in compliance with the loan covenants at

December 31, 2019

and

June 30, 2019.

December 31, 2019,

the Company had

$2,063,000

of outstanding borrowings under the term loan of which

$750,000

is classified as a current liability and

$1,313,000

is classified as a long-term liability in the consolidated condensed balance sheet at

December 31, 2019.

Accounts Receivable.

A substantial portion of accounts receivable are due from collectibles dealers.

individual customer’s accounts receivable balance exceeded

10%

of the Company’s total gross accounts receivable balances at

December 31, 2019.

One individual customer’s accounts receivable balance exceeded

10%

of the Company’s total gross accounts receivable balances at

June 30, 2019.

We perform analyses of the expected collectability of accounts receivable based on several factors, including the age and extent of significant past due accounts and economic conditions or trends that

may

adversely affect the ability of debtors to pay their account receivable balances. Based on that review, we establish allowances for doubtful accounts, when deemed necessary. The allowances for doubtful accounts receivable were

$99,000

and

$72,000

December 31, 2019

and

June 30, 2019,

respectively. Ultimately, we will write-off accounts receivable balances when it is determined that there is

possibility of collection.

Coin and Cards / Autograph Revenues

. The authentication and grading of coins and cards / autographs including related services, accounted for approximately

95%

of our net revenues for

six

months ended

December 31, 2019,

as compared to

94%

of our net revenues for the

six

months ended

December 31, 2018.

Customers.

Our top

five

customers accounted, in the aggregate, for approximately

11%

and

10%

of our total revenues in the

three

and

six

months ended

December 31, 2019,

as compared to

11%

and

10%

of revenues in the same periods of the prior year.

Inventories

Our inventories consist primarily of (i) coins which we have purchased pursuant to our coin authentication and grading warranty program and (ii) consumable supplies and special inserts that we use in our continuing authentication and grading businesses. Coin collectibles inventories are recorded at the lower of cost or net realizable value using the specific identification method. Consumable supplies are recorded at the lower of cost (using the

first

-in

first

-out method) or market. Inventories are periodically reviewed to identify slow-moving items, and an allowance for inventory losses is recognized, as considered necessary. It is possible that our estimates of market value of collectible coins in inventory could change due to market conditions in the various collectibles markets served by the Company, which could require us to increase that allowance for inventory losses.

Capitalized Software

We capitalize certain costs incurred in the development and upgrading of our software, either from internal or external sources, as part of intangible assets and we amortize these costs on a straight-line basis over the estimated useful life of the software of

three

years. In the

three

and

six

months ended

December 31, 2019

we capitalized approximately

$342,000

and

$621,000,

respectively, of software development costs as compared to

$274,000

and

$468,000,

respectively in the

three

and

six

months ended

December 31, 2018.

In the

three

and

six

months ended

December 31, 2019,

we recorded approximately

$261,000

and

$490,000,

respectively, as amortization expense for capitalized software as compared to

$192,000

and

$429,000,

respectively, in the

three

and

six

months ended

December 31, 2018.

Planning, training, support and maintenance costs incurred either prior to or following the implementation phase of software development projects are recognized as expense in the period in which they are incurred. We evaluate the carrying value of capitalized software for possible impairment, and, if necessary, an impairment loss is recorded in the period in which any impairment is determined to have occurred.

Warranty Costs

We provide a limited warranty covering the coins and trading cards that we authenticate and grade. Under the warranty, if any collectible coin or trading card that was previously authenticated and graded by us is later submitted to us for re-grading and either (i) receives a lower grade upon that re-submittal or (ii) is determined

not

to have been authentic, we will offer to purchase the collectible or, in the alternative, at the customer’s option, pay the difference in value of the item at its original grade, as compared to its value at its lower grade. However, this warranty is voided if the collectible, upon re-submittal to us, is

not

in the same tamper-evident holder in which it was placed at the time we last graded it. We accrue for estimated warranty costs based on historical trends and related experience. We monitor the adequacy of our warranty reserves on an ongoing basis for significant warranty claims resulting from resubmissions receiving lower grades or deemed

not

to have been authentic. Warranty expense recognized in the

three

and

six

months ended

December 31, 2019

was

$116,000

and

$157,000,

respectively, as compared to

$218,000

and

$330,000,

respectively, in the

three

and

six

months ended

December 31, 2018.

Dividends

In accordance with the Company’s current quarterly dividend policy, we paid quarterly cash dividends of

$0.175

per share of common stock in the

first

and

second

quarters of fiscal

2020

and

2019.

The declaration of cash dividends in the future is subject to final determination each quarter by the Board of Directors based on a number of factors, including the Company’s financial performance and 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.

Recent Accounting Pronouncements

June 2016,

the FASB issued Accounting Standards Update

2016

13,

Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instrument.

Subsequent to the issuance of ASU

2016

13,

the FASB clarified the guidance through several ASUs. The collective new guidance (ASC

326

) generally requires entities to use a current expected credit loss model, which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does

not

expect to collect. The entity’s estimate would consider relevant information about past events, current conditions, and reasonable and supportable forecasts. ASC

326

is effective for annual and interim fiscal reporting periods beginning after

December 15, 2020,

with early adoption permitted for annual reporting periods beginning after

December 15, 2018.

The Company is continuing to evaluate the expected impact of this ASC

326

but does

not

expect it to have a material impact on its consolidated financial statements upon adoption.

January 2017,

FASB issued

2017

04,

Simplifying the Test for Goodwill Impairment

. The updated guidance eliminates step

from the goodwill impairment test. Instead, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would

not

exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance is effective for fiscal years beginning after

December 15, 2022.

The guidance is

not

expected to have a material effect on the Company’s financial statements.