See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

COLLECTORS UNIVERSE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 September 30,December 31, 2020, 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.

Tender Offer

On January 20, 2021, the Company entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”) with Cards Parent LP, a Delaware limited partnership (“Parent”), and Cards Acquisition Inc., a Delaware corporation and an indirect wholly owned subsidiary of Parent (“Purchaser”). The A&R Merger Agreement amended and restated the Agreement and Plan of Merger, dated November 30, 2020, between Parent, Purchaser and the Company.

Pursuant to the A&R Merger Agreement, Purchaser extended the expiration time of its tender offer (the “Tender Offer”) to purchase each issued and outstanding share of common stock to February 3, 2021, and increased the offer price to $92.00 per share of common stock (the “Offer Price”) from $75.25 per share of common stock. On February 4, 2021, Purchaser announced an extension of the expiration of the Tender Offer until February 5, 2021. The Tender Offer was extended to allow additional time for the shares of common stock tendered by guaranteed delivery to be received.

The Tender Offer expired at 12:00 midnight, New York time on February 5, 2021 (the “Expiration Date”). Broadridge Corporate Issuer Solutions, Inc., the depositary for the Tender Offer (the “Depositary”), advised Parent and Purchaser that, as of the Expiration Date, an aggregate of 5,179,075 shares of common stock (including shares of common stock treated as “rollover stock” within the meaning of Section 251(h) of the General Corporation Law of the State of Delaware, but excluding 1,093,255 shares of common stock tendered pursuant to guaranteed delivery procedures that have not yet been “received” (as defined by Section 251(h)(6) of the General Corporation Law of the State of Delaware)) had been validly tendered and not validly withdrawn pursuant to the Tender Offer. These shares of common stock represented approximately 57% of the aggregate number of shares of common stock outstanding. Because all conditions to the Tender Offer were satisfied or waived as of the Expiration Date, Purchaser accepted for payment all shares of common stock validly tendered and not validly withdrawn pursuant to the Tender Offer, and, in accordance with the terms of the Tender Offer, payment for such shares of common stock will be promptly made to the Depositary, which will then transmit such payments to the Company’s stockholders whose shares of common stock have been accepted for payment.

Following consummation of the Tender Offer, on February 8, 2021, pursuant to the terms of the A&R Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware, the merger of the Purchaser into the Company with the Company as the surviving corporation was consummated (the “Merger”). In connection with the Merger, each share of common stock that was issued and outstanding as of immediately prior to the effective time of the Merger (the “Effective Time”) (except as provided in the A&R Merger Agreement) was cancelled and extinguished and automatically converted into the right to receive cash in an amount equal to the Offer Price.

In addition, with respect to each unvested equity award, at the Effective Time, (1) any vesting conditions applicable to such award were automatically accelerated in full, and (2) such award was cancelled and the holder thereof became entitled to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of common stock subject to such award by (B) the Offer Price, less applicable taxes required to be withheld with respect to such payment.

Purchaser paid aggregate consideration of approximately $853 million in cash in the Tender Offer and the Merger, without giving effect to related transaction fees and expenses.

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 September 30,December 31, 2020 are not necessarily indicative of the results that may be expected for the year ending June 30, 2021 or for any other interim period during such year. Certain information and footnote disclosures normally included in the 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 10-K for the fiscal year ended June 30, 2020, as filed with the SEC (our “Fiscal 2020 10-K”). on August 26, 2020. Amounts related to disclosure of June 30, 2020 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

The Company accounts for leases, which consist primarily of office and operations facilities, in accordance with Accounting Standards Codification (“ASC”) 842 Accounting for Leases and recognizes lease obligations and corresponding right-of-use (ROU) assets for non-cancelable operating leases. Therefore, the accompanying Condensed Consolidated Balance Sheets at September 30,December 31, 2020, and June 30, 2020, include 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 do not recognize lease assets andor liabilities for leases with a term of 12 months or less and recognize lease expenses for such leases on a straight-line basis over the lease term. See Note 9- Leases for additional information. As a result of the COVID-19 pandemic, we reviewed our lease obligations for impairment and potential excess space reserve requirements and concluded there were no impairments, or charges, required to be recognized at September 30,December 31, 2020.

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 (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations in the contract and (5) recognizing revenue when performance obligations are satisfied.

Our primary source of revenue is the authentication and grading of collectibles, which represented about 90%93% of our consolidated revenues in the fiscal yearsix months ended June 30,December 31, 2020. Our other sources of revenues represent the balance of our revenues which are small and individually account for less than 5% 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 and 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 from 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 Costs 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.

Certified Coin Exchange 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 30 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.

Product Sales: Product 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 September 30,December 31, 2020, we recognized $2,306,000$1,070,000 and $3,376,000 in revenue from the deferred revenue balance of $4,968,000 at June 30, 2020.

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 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 in which the carrying values of these assets may not be recoverable on the basis of future undiscounted cash flows. We determined that no impairment of goodwill or other long-lived assets existed as of September 30,December 31, 2020.

During the first quarter ended September 30, 2020, we completed the annual goodwill impairment assessment with respect to the goodwill acquired in our fiscal year 2006 purchases of CCE and CoinFacts. We assessed qualitative factors, including the significant excess of their fair values over carrying value in prior years, and any material changes in the estimated cash flows of the reporting units, and determined that it was more likely than not that the fair values of CCE and CoinFacts were greater than their respective carrying values, including goodwill.

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, were not material.

Stock-Based Compensation Expense

We recognize stock-based compensation expense attributable to service-based equity grants over the service period based on the grant date fair values of the awards. For performance-based equity grants 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: 2021, 2020 and 2019 Long Term Incentive Plans (“LTIPs”)

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 16,864, 25,952 and 44,763 RSUs were granted in fiscal 2021, (through December 31, 2020), 2020 and 2019, respectively, with vesting in three annual installments on the last day of each of the fiscal years following the grants, with the vesting of each such installment contingent on the LTIP 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, the then unvested RSUs will be forfeited. As discussed above, at the Effective time of the Merger, (1) any vesting conditions applicable to RSUs were automatically accelerated in full, and (2) such RSUs were cancelled and the holder thereof became entitled to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of common stock subject to such RSU award by (B) the Offer Price, less applicable taxes required to be withheld with respect to such payment.

Fiscal 2021, 2020 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, 2022 and 2023, (the(each a “Performance Periods”Period”), in fiscal 2021, (through December 31, 2020), 2020 and 2019, the Compensation Committee of the Board of Directors, granted 33,728, 51,905 and 89,542 PSUs (at maximum) respectively, to the LTIP Participants. Vesting of the PSUs was made dependent upon the achievement of net cash flow goals on an annual basis during theeach Performance Period, subject to possible downward or upward adjustment of 20% of the preliminary vested PSUs, based on a comparison of the Company’s annualized total shareholder return (“TSR”) for each Performance Period, to the annualized TSR of the Russell 2000 Index, for the same Performance Period. As the Compensation Committee establishes performance goals on an annual basis, threshold, target and maximum net cash flow goals were established for fiscal years 2021, 2020 and 2019 which give rise to a grant date for expense recognition purposes, assuming it is probable that the goals will be achieved. GrantIn the normal course, 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, aan LTIP Participant must remain in the continuous service of the Company through June 30, 2021 for the fiscal 2019 PSUs, June 30, 2022 for the fiscal 2020 PSUs, and June 30, 2023 for fiscal 2021 PSUs and the threshold net cash flows goal must be achieved in at least one of the years, during the three year Performance Period.

LTIP related stock-based compensation expenses of $517,000 and $77,000 were recognized in the three months ended September 30, 2020 and 2019, respectively and comprise expense associated with the FY 2019, FY 2020 and FY 2021 LTIP awards for which expense is recognized over the service period for RSUs and for PSUs as goals are established and it becomes probable that those goalsfail to vest will be achieved.forfeited. As discussed above, at the Effective time of the Merger, (1) any vesting conditions applicable to PSUs were automatically accelerated in full, and (2) such PSUs were cancelled and the holder thereof became entitled to receive, without interest, an amount in cash equal to the product obtained by multiplying (A) the number of shares of common stock subject to such PSU award by (B) the Offer Price, less applicable taxes required to be withheld with respect to such payment.

Non LTIP Stock Awards

In the three months ended September 30, 2020,first quarter of fiscal 2021, 10,812 fully vested shares were granted to certain management employees and to five new outside directors appointed during the first quarter, for an expense of approximately $503,000 in the six months ended December 31, 2020.

Accelerated Vesting

In the three and six months ended December 31, 2020, the vesting of a total of 43,792 LTIP equity awards (of which 41,450 had been granted to the Company’s CEO, Mr. Orlando), was accelerated in order to mitigate against potential adverse tax consequences under Section 280(g) of the Tax Code. Stock-based compensation expense of approximately $617,000 was recognized for the quarter.acceleration of these equity awards in the three and six months ended December 31, 2020.

Total stock-based compensation expense for all fully vested stock grants and all unvested RSUs and PSUsrecognized in the three and six months ended September 30,December 31, 2020 was $1,140,000$1,816,000 and $2,956,000, respectively, as compared to $264,000$341,000 and $605,000 in the three and six months ended September 30,December 31, 2019.

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. At September 30,December 31, 2020, we had cash and cash equivalents totaling approximately $36,731,000,$42,646,000, of which approximately $31,844,000$37,460,000 was invested in money market accounts, and the balance of $4,887,000$5,186,000 (which is inclusive of cash in overseas bank accounts) was held in non-interest bearing bank accounts for general day-to-day operations. Cash in overseas bank accounts was approximately $1,766,000$3,101,000 at September 30,December 31, 2020 of which $1,009,000$2,163,000 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 out of China to Hong Kong and the United States.

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 $33,580,000$38,693,000 at September 30,December 31, 2020.

Revolving Credit Line. On March 10, 2020 the Company amended and increased its $10 million unsecured revolving credit line (the “Credit Line”) to $15 million and extended the term for two years through March 2022. The Company is entitled to obtain borrowings under the Credit Line at such times and in amounts as it may request, as supported by an EBITDA (earnings before interest, taxes, depreciation and amortization) calculation for the last four quarters, provided that the maximum principal amount of the borrowings that may be outstanding at any one time under the Credit Line may not exceed $15 million and each year there must be a period of 30 consecutive days during which no borrowings are outstanding. The Company also may, at any time or from time to time and at its option, repay outstanding borrowings, in whole or in part, and may reborrow amounts so repaid at such times and in such amounts as it deems appropriate.

Credit Line borrowings bear interest, at the Company’s option, either 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 $6 million.

The Credit Line agreement contains a financial covenant that requires the Company to maintain a funded debt coverage ratio, similar to the debt coverage ratio that is applicable to the term loan (see below)above) and certain other covenants typical for this type of credit. At September 30,December 31, 2020 the Company was in compliance with those covenants. Availability to borrow under the line of credit was $15,000,000 at September 30,December 31, 2020 as there were no borrowings outstanding under the line of credit at September 30, 2020.as of that date.

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 then term loan balance of $3,000,000 in 48 equal monthly principal payments of $62,500, or $750,000, on an annual basis, through September 2022. There are no prepayment penalties on loan repayments.

The agreement governing 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’slender’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 those loan covenants at September 30, 2020 and June 30,December 31, 2020.

At September 30,December 31, 2020, the Company had $1,500,000$1,313,000 of outstanding borrowings under the term loanthis Term Loan of which $750,000 is classified as a current liability and $750,000$563,000 is classified as a long-term liability in the condensed consolidated condensed balance sheet at September 30, 2020.December 31, 2020, included elsewhere in this Report.

Accounts Receivable. A substantial portion of accounts receivable are due from collectibles dealers. OneThere were no individual customer’s accounts receivable balance that exceeded 10% of the Company’s total gross accounts receivable balances at September 30, 2020. No individual customer’s accounts receivable balance exceeded 10% of the Company’s total gross accounts receivable balanceDecember 31, 2020 and at June 30, 2020. 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 an allowance for doubtful accounts, when deemed necessary. The allowance for doubtful accounts receivable was $121,000$146,000 and $98,000 at September 30,December 31, 2020 and June 30, 2020, respectively. Ultimately, we will write-off accounts receivable balances when it is determined that there is no possibility of collection.

Cards / Autograph and Coins Revenues. The authentication, and grading of cards / autographs and coins including, related services accounted for approximately 98% and 94% of our net revenues for the three and six months ended December 31, 2020, as compared to 97% and 95% in the three and six months ended September 30, 2020, and 2019, respectively.December 31 2019.

Customers. Our top five customers accounted, in the aggregate, for approximately 8%7% of our total revenues in the three and six months ended September 30,December 31, 2020 as compared to 12%11% and 10% of revenues in the same periodperiods 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 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, if considered necessary. It is possible that our estimates of market value of collectible coins in inventory could change, due to changes in 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 those costs on a straight-line basis over the estimated useful life of the software of three years. In the three and six months ended September 30,December 31, 2020 we capitalized approximately $381,000$337,000 and $718,000 of software development costs as compared to $279,000$342,000 and $621,000, in the three and six months ended September 30,December 31, 2019. In the three and six months ended September 30,December 31, 2020, we recorded approximately $283,000$310,000 and $593,000 as amortization expense for capitalized software as compared to $229,000$261,000 and $490,000 in the three and six months ended September 30,December 31, 2019. 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-resistant 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 claims resulting from resubmissions receiving lower grades or deemed not to be authentic. Warranty expense recognized in the three and six months ended September 30,December 31, 2020 was $238,000$199,000 and $437,000 as compared to $41,000$116,000 and $157,000 in the three and six months ended September 30,December 31, 2019.

Dividends

In accordance with the Company’s current dividend policy during the period, we paid quarterly cash dividends of $0.175 per share of common stock in the first quarterand second quarters of fiscal 2021 and in fiscal 2020. 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

In 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, 2022, 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.

2. INVENTORIES