**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**


(Mark
                One)ý
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the fiscal year ended June 30, 2007****OR**q
            **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 _____**


**Commission
      file number 0-27887**







**COLLECTORS
      UNIVERSE, INC.**




**(Exact
      name of Registrant as specified in its charter)**


**Delaware**
            
            **33-0846191****(State
                or other jurisdiction of**
            
            **(I.R.S.
                Employer Identification No.)****Incorporation
                or organization)****1921
                E. Alton Avenue, Santa Ana, California**
            
            **92705****(Address
                of principal executive offices)**
            
            **(Zip
                Code)**




**(949)
      567-1234**


**(Registrant's
      telephone number, including area code)**




Securities
      registered pursuant to Section 12(b) of the Act:  Common Stock, par
      value $.001 per share




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




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. **o**





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.   See definition
      of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act, (check one):





Large
                accelerated filer o
            Accelerated
                filer ý
            Non-accelerated
                filer o





Indicate
      by check mark whether the Registrant is a shell company (as defined in
      Securities Exchange Act Rule 12b-2). YES[  ]   NOx





As
      of
      December 29, 2006, the aggregate market value of the Common Stock held by
      non-affiliates was approximately $111,552,000 based on the per share closing
      price of $13.40 of Registrant’s Common Stock as of such date as reported by the
      Nasdaq Global Market.




As
      of
      September 7, 2007, a total of 8,518,312 shares of Registrant's Common Stock
      were
      outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Except
      as
      otherwise stated therein, Items 10, 11, 12, 13 and 14 in Part III of the Form
      10-K are incorporated by reference from Registrant's Definitive Proxy Statement,
      which is expected to be filed with the Securities and Exchange Commission on
      or
      before October 29, 2007, for its Annual Meeting of Stockholders scheduled to
      be
      held on December 5, 2007.











**COLLECTORS
      UNIVERSE, INC.**


**FORM
      10-K**


**FOR
      THE FISCAL YEAR ENDED JUNE 30, 2007**




**TABLE
      OF CONTENTS**











PART
                I
            
            
            **Page**Forward-Looking
                Statements
            1Item
                1.
            Business
            1Item
                1A
            Risk
                Factors
            29Item
                2.
            Properties
            35Item
                3.
            Legal
                Proceedings
            35Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            36Executive
                Officers of
                Registrant
            37PART
                IIItem
                5.
            Market
                for Common Stock and Related Stockholder
                Matters
            38Item
                6.
            Selected
                Consolidated Financial
                Data
            39Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            42Item
                7A.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            63Item
                8.
            Financial
                Statements and Supplementary
                Data
            64Report
                of Independent Registered Public
                Accounting
            65Consolidated
                Balance Sheets at June 30, 2007
                and
                2006
            66Consolidated
                Statements of Operations for
                the Years ended June 30, 2007, 2006 and 2005
            67Consolidated
                Statements of Stockholders'
                Equity for the Years Ended June 30, 2007, 2006 and
                2005
            68Consolidated
                Statements of Cash Flows
                for the Years Ended June 30, 2007, 2006 and 2005
            69Notes
                to Consolidated Financial Statements for the Years
                Ended June 30, 2007, 2006 and 2005
            71Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            100Item
                9A
            Controls
                and
                Procedures
            100Item
                9B
            Other
                Information
            104PART
                IIIItem
                10.
            Directors
                and Executive
                Officers
            104Item
                11.
            Executive
                Compensation
            104Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management
            104Item
                13.
            Certain
                Relationships and Related
                Transactions
            104Item
                14.
            Principal
                Accountant Fees And
                Services
            104PART
                IV
            Item
                15.
            Exhibits
                and Financial Statement
                Schedules
            105SIGNATURES
            S-1INDEX
                TO
                EXHIBITS
            E-1








i


**FORWARD-LOOKING
      STATEMENTS**




Statements
      contained in this Annual Report that are not historical facts or that discuss
      our expectations, beliefs or views regarding our future operations or future
      financial performance, or financial or other trends in our business, constitute
      “forward-looking statements” as defined in the Private Securities Reform Act of
      1995.  Forward-looking statements can be identified by the fact that
      they do not relate strictly to historical or current facts.  Often,
      such statements include the words “believe,” “expect,” “anticipate,” “intend,”
“plan,” “estimate,” “project,” or words of similar meaning, or future or
      conditional verbs such as “will,” “would,” “should,” “could,” or
“may”.  Forward looking statements are estimates or predictions about
      the future that are based on current information and are subject to a number
      of
      risks and uncertainties that could cause our financial condition or operating
      results in the future to differ significantly from those expected at the current
      time, as described in the forward-looking statements that are contained in
      this
      Annual Report.  Those risks and uncertainties are described in Item 1A
      of Part I of this Annual Report as “Risk Factors,” and in Item 7 of Part II
      under the caption “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.”  Accordingly, readers of this Annual
      Report are urged to read the cautionary statements contained in those items
      of
      this Annual Report.  Due to these uncertainties and risks, readers are
      cautioned not to place undue reliance on such forward-looking statements
      contained in this Annual Report, which speak only as of the date of this Annual
      Report.  We undertake no obligation to update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.








**PART
      I**


**ITEM
      1.                      BUSINESS**




**Overview**




We
      are a
      leading provider of value-added authentication, grading and information services
      to dealers and collectors of high-value coins, sportscards, autographs, stamps
      and vintage U.S. currency notes (which we will sometimes refer to generally,
      as
“collectibles”) and to wholesale and retail dealers of diamonds and colored
      gemstones.






*Collectibles*.  The
      collectibles that we authenticate and grade have market values generally ranging
      from $200 to over $1 million, due principally to their rarity, age or
      association with famous individuals or historical events.




The
      authenticity and the state of preservation, or quality, of these collectibles
      are also important determinants of their value in the collectibles
      markets.  For that reason, sellers, purchasers and collectors submit
      their high-value collectibles to us for:




•
            Certifications
                by our independent experts of their authenticity; that is, confirmation
                that the collectibles are real and are what they have been represented
                to
                be; and




•
            Evaluations
                of their physical condition and appearance and the assignment of
                a grade
                by our independent experts on the basis of uniform quality
                standards.




Once
      we
      have authenticated and assigned a grade to a collectible, we encapsulate it
      in a
      tamper-evident, clear plastic holder, or issue a certificate of authenticity,
      that (i) identifies the specific collectible, (ii) sets forth the
      quality grade we have assigned to it and (iii) bears one of our brand names
      and logos: “PCGS” for coins, “PSA” for sportscards, “PSA/DNA” for autographs and
      memorabilia, “PSE” for stamps and “PCGS Currency” for U.S. vintage currency
      notes1. Additionally, we warrant our
      certification of authenticity and the grade that we assign to the coins,
      sportscards, currency and stamps bearing our brands. We do not warrant our
      authenticity determinations for autographs.







1
              Collectors
                  Universe, PCGS, Professional Sports Authenticator and PSA/DNA,
                  Set
                  Registry, CU3000 First Strike, and each of the logos associated
                  with those
                  names, are registered service or trade marks of the
                  Company.







1


*Diamonds
      and Colored Gemstones*.  In November 2005, we began offering
      diamond authentication and grading services to wholesale and retail dealers
      of
      diamonds as a result of our acquisition of Gem Certification & Appraisal Lab
      (GCAL), an independent diamond certification and grading
      laboratory.  In August 2006, we began offering identification,
      authentication and grading services to wholesale and retail dealers of high
      value colored gemstones, including emeralds, rubies and sapphires, as a result
      of our acquisition of American Gemological Laboratories (AGL), an independent
      colored gemstone certification and grading laboratory.




The
      market values of the diamonds and colored gemstones that we grade generally
      range from approximately $500 to over $1 million, depending, in the case of
      diamonds, primarily on their weight, color and clarity.  The market
      values of colored gemstones depend primarily on their color, tone, and clarity
      and the presence of and type of enhancements, which are made to almost all
      colored gemstones to improve their color or clarity or both.  The
      market value of a colored gemstone also can be affected by its country of
      origin.




Our
      customers, who usually consist of wholesale and retail dealers and auction
      companies, submit diamonds and colored gemstones to us for:






•
            Confirmations,
                by our independent experts, that the diamonds or colored gemstones
                are, in
                fact, natural (as opposed to synthetically manufactured) diamonds
                and
                colored gemstones; and






•
            Evaluations
                of their physical condition and appearance and the assignment of
                a grade
                by our independent experts on the basis of uniform quality standards
                that,
                in the case of diamonds, relate to their color and clarity and, in
                the
                case of colored gemstones relate to color, tone, clarity, enhancements
                and, in some cases, country of
                origin.




*Our
      Diamond Grading and Certification Services*.  Upon completion of
      the grading process for diamonds, a GCAL certificate is issued that sets forth
      the weight, cut, color and clarity grades assigned to the diamond by GCAL,
      along
      with other measured information such as the dimensions of the
      diamond.  GCAL also includes a direct light performance analysis of
      each diamond utilizing a proprietary process that measures, in a digital image,
      the number of pixels of light that pass through a diamond, ranking the light
      performance higher for more light and lower for less light.  A similar
      process measures the symmetry of the cut of the diamond, another feature that
      can have a direct impact on the brilliance and reflectivity of a
      diamond.  A graphic representation of the brilliance and symmetry is
      included on the certificate.  Additionally, using a patented
      technology for non-invasive diamond identification that we acquired in December
      2005, we digitally capture and record the unique refractive light pattern of
      the
      diamond (which we refer to as a “Gemprint”), that we store in our computer
      database, cross-indexed to the certificate number issued with the diamond2.  This “Gemprint” process enables us
      to match GCAL graded diamonds, on a one-to-one basis, with their GCAL
      certificates, thereby providing an additional measure of protection against
      misrepresentations of diamond quality that can occur by, for example, switching
      a diamond grading certificate issued for a higher quality diamond to a lower
      quality diamond.  GCAL provides a limited warranty with respect to the
      color and clarity grades that GCAL assigns to the diamonds it
      certifies.




We
      believe that Gemprint process provided by GCAL is the only a non-intrusive
      diamond identification service offered by any diamond certification company
      and
      that no diamond certification company, except GCAL, warrants the color and
      clarity grades they assign to the diamonds they certify.




*Our
      Colored Gemstone Grading and Certification Services*.  AGL offers
      different levels of service to its customers:




·
            Its
                “Prestige” Service, which is designed for grading and certification of
                colored gemstones whose weight and market value justify the costs
                of a
                higher level and more comprehensive suite of grading and certification
                services; and




·
            Its
                “Fast Track” Service, which is designed for lower weight and less valuable
                colored gemstones.







2
              GCAL,
                  Gemprint and AGL and each of the logos associated with their respective
                  names, are registered service marks of the
                  Company.







2


AGL’s
      Prestige Service provides the customer with a comprehensive quality analysis
      and
      report that sets forth the identification, weight, cut, color, tone and clarity
      grades assigned to the gemstone, along with the description of the quality
      enhancements that had been made to the gemstone and, in some cases, its country
      of origin.  A high resolution color image of the colored gemstone is
      included on the certificate for identification purposes.




AGL’s
      Fast Track Service allows the customer to select from among a variety of grading
      services that includes, for a minimum fee, information relating to the
      identification, weight and cut of the gemstone, which is set forth on a small
      plastic card, similar in size and materials to a credit card.  Fast
      Track customers also may order one or more supplemental services that will
      provide them with information regarding the color, tone, clarity and/or country
      of origin of the gemstone, for additional fees that will vary based on the
      extensiveness of the services ordered.




AGL
      warrants the identification and enhancement information with respect to the
      colored gemstones it certifies, but does not warrant information relating to
      the
      color, clarity or country of origin of the colored gemstone.




*Benefits
      Provided by our Authentication and Grading Services*.  We believe
      that our authentication and grading services increase the liquidity and
      marketability and, therefore, add to the value, of the collectibles, diamonds
      and colored gemstones that we authenticate and grade.  Our services
      provide sellers, purchasers and collectors with (i) the confidence of
      knowing that the collectibles, diamonds or colored gemstones they are buying
      or
      selling are authentic or natural, as the case may be; (ii) information, in
      the form of objective and uniform measures of quality, that enable sellers,
      purchasers and collectors to assess the value of those collectibles, diamonds
      or
      colored gemstones; and (iii) information, based on analysis of the colored
      gemstone and technological comparisons to known origin specimens, relating
      to
      the country of origin of a colored gemstone.  Armed with this
      information, a prospective buyer who might otherwise be reluctant to purchase
      a
      high-priced collectible, diamond or colored gemstone, is more informed and
      more
      confident about, and more willing to make such a purchase, particularly
“sight-unseen,” on Internet auction sites such as those operated by eBay and
      Blue Nile and even in higher value assets as may be offered by
      Sotheby’s.  We also believe that dealers who sell collectibles,
      diamonds or colored gemstones that have been authenticated and graded by us
      are
      more readily able to sell, and are more likely to obtain higher prices for,
      those items than if they had not been authenticated and graded by us, because
      our services give prospective buyers the confidence to purchases those
      collectible, diamonds or colored gemstones from those dealers.




We
      originated the standards and methodologies we use for authenticating and grading
      coins, sportscards, autographs and stamps.  Those standards and
      methodologies have become generally accepted in the collectible coin, sportscard
      and autograph markets.  At the time we launched our independent third
      party stamp grading service, the concept of grading the quality of stamps,
      in
      addition to authenticating them, was relatively novel.  Since that
      time, our stamp grading standards have become increasingly accepted, especially
      for higher value stamps.




The
      standards and methodologies we use in grading diamonds are generally accepted
      in
      the diamond market. Those standards and methodologies were developed by the
      Gemological Institute of America, a non-profit educational
      corporation.  However, we believe that the diamond grading services we
      offer differ from those that are available from competing diamond grading
      services primarily in terms of the rigorousness and consistency with which
      we
      apply those grading standards.  For that reason, among others, Blue
      Nile, which is the largest seller of diamonds on the Internet, has chosen GCAL
      to certify all of Blue Nile’s Signature Collection which, according to Blue
      Nile, includes the world's most brilliant round diamonds, as well as the world's
      first and only princess, emerald, and Asscher diamonds, cut to Blue Nile’s
      finest ideal standards.




AGL
      has
      developed certain proprietary standards for the colored gemstone market relating
      to color, tone and clarity of colored gemstones and descriptive terms used
      in
      the disclosure of colored gemstone enhancements.




We
      also
      have developed some of the leading brands in the collectibles, diamonds and
      colored gemstones markets in which we conduct our business:




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




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




3


•
            “PSA/DNA”
                (PSA/DNA Authentication Services), which is the brand name for our
                independent authentication and grading service for vintage autographs
                and
                memorabilia;




•
            “PSE”
                (Professional Stamp Experts), which is the brand name for our independent
                stamp authentication and grading
                service;




•
            “PCGS
                Currency” the brand name for our currency authentication and grading
                service;




•
            “GCAL”
                (Gem Certification & Assurance Lab), which is the brand name for our
                independent diamond authentication and grading service;
                and




•
            “AGL”
                (American Gemological Laboratories), which is the brand name of our
                independent third party colored gemstone grading
                business.




PCGS
      and
      PSA are among the leading independent authentication and grading services in
      the
      collectible coin and sportscard markets in the United States.  PSA/DNA
      and PSE also are among the leading independent authentication services in their
      respective markets.  Currency authentication and grading are new to
      the currency market and PCGS Currency is one of the leading independent
      authentication and grading services in the currency market.  GCAL is
      among the top quality independent authentication and grading services in the
      diamond market and we believe it is the only diamond certification service
      that
      offers a non-invasive and unchangeable diamond identification method that makes
      it possible to detect the switching or alteration of diamond grading
      certificates and the only service that offers a warranty with respect to the
      quality grades relating to the diamond’s color and clarity.  AGL is
      one of the world leaders in colored gemstone authentication, grading,
      enhancement disclosure and for the most valuable colored gemstones,
      identification of the country of origin.




We
      began
      offering our PCGS coin authentication and grading services in 1986 and, from
      inception through fiscal year ended June 30, 2007, we had authenticated and
      graded more than 14 million coins.  In 1991, we launched our PSA
      sportscard authentication and grading service and, through June 30, 2007, had
      authenticated and graded over 10 million sportscards. In 1999, we launched
      our
      PSA/DNA vintage autograph authentication business and in June 2004 we extended
      that business by introducing vintage autograph grading services to dealers
      and
      collectors of autographed sports memorabilia. We started our PSE stamp
      authentication and grading service in 2000.  We launched PCGS Currency
      as an extension of the PCGS brand in March 2005. In the second quarter of fiscal
      2006, we acquired GCAL and the Gemprint technology.  We acquired AGL
      in the first quarter of fiscal 2007.




The
      following table provides information regarding the respective numbers of coins,
      sportscards, autographs and stamps that we authenticated or graded from 2005
      to
      2007, the number of currency notes that we graded since the inception of our
      currency authentication and grading service in the third quarter of fiscal
      2005,
      the number of diamonds we authenticated and graded since the acquisition of
      GCAL, our diamond authentication and grading service, in the second quarter
      of
      fiscal 2006 and the number of colored gemstones we authenticated and graded
      since the acquisition of AGL, our colored gemstone authentication and grading
      service, in the first quarter of fiscal 2007.




**Units
                Processed****2007**
            
            
            **2006**
            
            
            **2005**Coins
            
            
            1,559,000
            
            
            
            50
            %
            
            
            1,789,000
            
            
            
            55
            %
            
            
            1,670,000
            
            
            
            58
            %Sportscards
            
            
            1,262,000
            
            
            
            41
            %
            
            
            1,199,000
            
            
            
            37
            %
            
            
            1,084,000
            
            
            
            38
            %Autographs
            
            
            170,000
            
            
            
            5
            %
            
            
            181,000
            
            
            
            6
            %
            
            
            77,000
            
            
            
            3
            %Stamps
            
            
            66,000
            
            
            
            2
            %
            
            
            38,000
            
            
            
            1
            %
            
            
            26,000
            
            
            
            1
            %Currency(1)
            
            
            36,000
            
            
            
            1
            %
            
            
            29,000
            
            
            
            1
            %
            
            
            3,000
            
            
            
            -Diamonds(2)
            
            
            25,000
            
            
            
            1
            %
            
            
            5,000
            
            
            
            -
            
            
            
            -
            
            
            
            -Colored
                Gemstones(3)
            
            
            1,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            3,119,000
            
            
            
            100
            %
            
            
            3,241,000
            
            
            
            100
            %
            
            
            2,860,000
            
            
            
            100
            %





4


The
      following table sets forth the estimated values at which our customers insured
      the collectibles, diamonds and colored gemstones that they submitted to us
      for
      grading or authentication.





**Declared
                Values (000)****2007**
            
            
            **2006**
            
            
            **2005**Coins
            
            $
            1,435,000
            
            
            
            82
            %
            
            $
            1,613,000
            
            
            
            90
            %
            
            $
            1,191,000
            
            
            
            91
            %Sportscards
            
            
            88,000
            
            
            
            5
            %
            
            
            75,000
            
            
            
            4
            %
            
            
            66,000
            
            
            
            5
            %Autographs
            
            
            24,000
            
            
            
            1
            %
            
            
            15,000
            
            
            
            1
            %
            
            
            26,000
            
            
            
            2
            %Stamps
            
            
            12,000
            
            
            
            -
            
            
            
            21,000
            
            
            
            1
            %
            
            
            17,000
            
            
            
            1
            %Currency(1)
            
            
            32,000
            
            
            
            2
            %
            
            
            43,000
            
            
            
            2
            %
            
            
            8,000
            
            
            
            1
            %Diamonds(2)
            
            
            97,000
            
            
            
            6
            %
            
            
            27,000
            
            
            
            2
            %
            
            
            -
            
            
            
            -Colored
                Gemstones(3)
            
            
            62,000
            
            
            
            4
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            1,750,000
            
            
            
            100
            %
            
            $
            1,794,000
            
            
            
            100
            %
            
            $
            1,308,000
            
            
            
            100
            %





3           We
      commenced our currency authentication and grading business in fourth quarter
      of
      2005.


2           We
      commenced the authentication and grading of diamonds in the second quarter
      of
      2006 when we acquired GCAL
      and
      Gemprint


3           We
      commenced the authentication and grading of colored gemstones in the first
      quarter of 2007, when we acquired
      AGL.





We
      generate revenues principally from our authentication and grading service
      fees.  For collectibles, those fees range from $4 to over $200 per
      item authenticated and graded, based primarily on the type of item authenticated
      or graded and the turn-around times selected by our customers, which range
      from
      1 to approximately 60 days.  In fiscal 2007, our authentication and
      grading fees averaged $10.65.  As a general rule, collectibles dealers
      and, to a lesser extent, individual collectors, request faster turn-around
      times
      and, therefore, generally pay higher fees for more valuable, older or “vintage”
collectibles, than they do for modern collectibles.  Diamond
      authentication and grading fees, generally range from $60 to over $300 based
      on
      the weight of the diamond and are fixed with specific delivery times; although
      fees sometimes vary in the case of contracts that provide for volume
      submissions.  Authentication and grading fees for AGL range from $25
      to $2,500 based on whether the customer requests our Prestige Service or our
      Fast Track Service, the weight of the colored gemstone and whether the customer
      requests that we certify the country of origin of the colored
      gemstone.




We
      also
      generate revenues, to a lesser extent, from sales of (i) advertising on our
      websites; (ii) our printed publications and price guides and advertising
      placed in such publications; (iii) our rarity or “population” reports that
      contain data regarding the total number of coins and sportscards we have graded
      since our inception, categorized by item type and grade determination;
      (iv) monthly subscription fees associated with our Internet-based, dealer
      to dealer exchange “CCE” (Certified Coin Exchange) for certified coins; and
      (v) trade show management fees associated with our trade show management
      company, Expos Unlimited LLC (“Expos”), which promotes and manages two of
      the larger and better known coin, stamp and collectibles shows in Long Beach
      and
      Santa Clara, California, respectively.  We believe that our printed
      publications, price guides and reports make collectors better informed consumers
      and make collecting more interesting and exciting for them while our dealer
      to
      dealer exchange adds liquidity to certified coins.





**Industry
      Background**




The
      primary determinants of the prices of, and the willingness of sellers,
      purchasers and collectors to purchase, high-value or high-priced collectibles,
      diamonds, colored gemstones or other high-value assets are their authenticity
      and quality. The authenticity of a collectible relates not only to the
      genuineness of the collectible, but also to the absence of any alterations
      or
      repairs that may have been made to hide damage or to restore the item. The
      authenticity of a diamond or colored gemstone relates to its formation in a
      natural method and mined from the earth as opposed to laboratory grown or
      synthetically produced, and in the case of colored gemstones, the country of
      origin.  The quality of a collectible relates to its state of
      preservation relative to its original state of manufacture or creation. The
      quality of a diamond is largely a function of its color and
      clarity.  The quality of a gemstone relates tocolor,
      tone, clarity, enhancements and in some cases, the country of
      origin.  With regard to value, confirmation of authenticity generally
      is required before a buyer is willing to proceed with a purchase of a
      high-priced collectible, diamond or colored gemstone.  Quality
      directly affects value and price, usually on an exponential basis, with higher
      quality collectibles, diamonds and colored gemstones, generally attracting
      dramatically higher prices than those of lower quality. Even a relatively modest
      difference in quality can translate into a significant difference in
      perceived


5


value
      and, therefore, in price. For example, a 1952 Mickey Mantle baseball card that
      received a PSA grade from us of 9 on our PSA grading scale of 1-to-10 was sold
      at public auction in 2006 for $282,588. By comparison, a similar 1952 Mickey
      Mantle baseball card that received a PSA grade of 8 was sold at public auction
      also in 2006 for $72,057.  Although for diamonds and colored
      gemstones, the weight of the stone (as measured by mechanical devices) has
      a
      significant impact on value, quality ratings also have a material impact on
      value. A round brilliant cut two carat natural diamond with a GCAL grade D
      color
      (which is the most desirable blue-white color on the scale from D to the yellow
      tint of a P color) and a clarity grade of flawless or “FL”  (which
      indicates that the diamond has no imperfections or inclusions) has a market
      value of approximately $69,000 - $78,880. By comparison a similar cut two carat
      diamond with a GCAL grade I color and a clarity grade of SI2 (which is in the
      midpoint range of clarity) has a market value of approximately $11,000 -
      $12,480.  In the same manner, a rectangular cut two carat emerald with
      AGL color grade 3, tone of  70 (a very attractive and intense green)
      and a clarity grade of “LI” (or lightly included) has a market value of
      approximately $18,000 - $20,250. By comparison, a similar cut emerald with
      AGL
      color grade 6, tone of 50 (an average color and intensity of green) and a
      clarity grade of “MI2” (moderately included) has a market value of approximately
      $3,600 – $4,800. With respect to country of origin, the same oval cut two carat
      Blue Sapphire AGL color grade 3, tone of 70 (rich and deep blue) with a clarity
      grade of “LI” has a market value of approximately $2,800 - $3,400 if the country
      of origin is Burma, but has a market value of approximately $20,000 - $22,000
      if
      the country of origin is Kashmir.





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




High-value
      collectibles have been traditionally marketed at retail by dealers through
      direct mail, catalogues, price lists and advertisements in trade publications,
      and sold and purchased by them at collectibles shows, auction houses and local
      dealer shops. Diamonds and colored gemstones have been marketed at retail
      through tens of thousands of retail jewelry stores or in departments of large
      general retail stores. These markets were highly inefficient
      because:




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




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




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




•
            buyers
                and sellers were vulnerable to fraudulent practices because they
                had to
                rely on the dealers or other sellers in the often long distribution
                channel for opinions or representations as to authenticity and
                quality.




*Coin
      Market*.  In an effort to overcome some of these inefficiencies,
      approximately 30 years ago, professional coin dealers began using a numerical
      grading scale for grading coins. That scale ranged from 1 to 70, with higher
      numbers denoting a higher quality. Previously, professional dealers used
      descriptive terms, such as “Fair,” “Fine” and “Uncirculated,” to characterize
      the quality of the coins they sold, a practice that continued after the
      development of the numeric grading system. However, whether using a numeric
      or a
      descriptive system, grading standards varied significantly from dealer to
      dealer, depending on a dealer’s subjective criteria of quality. Moreover,
      dealers were hardly disinterested or independent since, as the sellers or buyers
      of the coins they were grading, they stood to benefit financially from the
      assignment of a particular grade.




6


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




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




*Stamp
      Market*.  Stamp dealers developed an adjectival system, similar to
      the one developed for sportscards, by which they valued and priced stamps based
      primarily on the centering of the stamp image on the stamp paper background,
      ignoring other faults in the stamp. As a result, experienced and knowledgeable
      dealers insisted on physically examining purportedly rare and higher priced
      stamps before purchasing them. Additionally, most collectors lacked the
      knowledge and experience needed to purchase higher priced stamps with
      confidence. Consequently, as was the case with coins and sportscards, collectors
      were forced to depend on representations of authenticity and quality from the
      very dealers from whom they purchased or to whom they sold
      stamps.  However, prior to our entry into the market, independent
      third-party stamp grading was non-existent.




*Currency
      Market*.  There has been some grading of currency in the past, but
      none of the grading businesses have been successful as the market was not
      developed, such that there was not substantial demand for grading
      services.  In addition, the grading businesses were not third-party
      independent grading businesses, as they were operated and owned by currency
      dealers, who also bought and sold the same materials that they graded; thereby,
      creating potential conflicts of interest.   PCGS Currency is an
      independent third-party grading service that does not have such conflicts of
      interest.  Our currency grading utilizes a numerical 70 – point system
      to determine the overall grade or condition of a note.




*Diamond
      Market*.  Approximately 70****years ago, the
      Gemological Institute of America (“GIA”), a non-profit educational corporation,
      developed a system for classifying and grading diamonds which consisted of
      the
“4C’s” of carat, cut, color and clarity.  The system provided
      terminology for identifying (1) the weight of a diamond, denominated as
“carats,” (2) the shape and proportion of the diamond with a cut analysis;
      (3) the relative color of the diamond using an alphabetic scale from a high
      quality color of “D” to the lowest quality color of “P”; and (4) the
      relative clarity of, or imperfections in the diamond, using descriptive terms
      on
      a scale from “Flawless” (“FL”) to “Very Slightly Included” (“VSI”) to “Slightly
      Included” (“SI”) to “Included” (I”).  In its gemologist educational
      programs, the GIA taught this grading system as a required part of the
      curriculum.   Notwithstanding the widespread use of common
      terminology, these measures of quality can be subjectively and inconsistently
      applied.




*Colored
      Gemstone Market.*****Although the GIA has held classes on
      the identification, authentication and grading of colored gemstones for
      approximately 30 years, no significant standard or system of color, tone and
      clarity grading has been in widespread use in the marketplace.  In
      addition, the availability of sample gemstones for technical trace element
      analysis needed to determine country of origin was very limited, in part because
      of the limitation of the number of trusted samples from various regions of
      the
      world and in part due to the limitations of the technology to examine and
      classify the samples.   As a result, buyers were largely
      dependent on subjective assessments of quality and country of origin from the
      dealers from whom they purchased colored gemstones, and no sight-unseen market
      for colored gemstones existed.




7


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




•
            determinations,
                from independent, third party experts, of the authenticity of the
                high-value collectibles, diamonds and colored gemstones that sellers,
                purchasers and collectors purchased, particularly “sight-unseen” or over
                the Internet;




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




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




—
            its
                rarity;




—
            its
                quality or grade; and




—
            its
                historical and recent selling
                prices.




*The
      Impact of eBay and other e-Commerce Websites on the Collectibles, Diamond and
      Colored Gemstone Markets*.  The advent of the Internet and, in
      particular, eBay’s development of an Internet or “virtual” marketplace and other
      Internet-selling websites such as Blue Nile and Amazon, have overcome many
      of
      the inefficiencies that had characterized the traditional collectibles, diamond
      and colored gemstone markets.  eBay and other online marketplaces
      (i) offer enhanced interaction between and greater convenience for sellers
      and buyers of high-value collectibles, diamonds and colored gemstones;
      (ii) eliminates or reduces the involvement of dealers and other
“middlemen;” (iii) reduce transaction costs; (iv) allow trading at all
      hours; and (v) provide continually updated information.  However,
      Internet commerce still raises, and has even heightened, concerns about the
      authenticity and quality of the collectibles, diamonds and colored gemstones
      that are listed for sale on the Internet.  Buyers have no ability to
      physically examine them, and no means to confirm the identity or the credibility
      of the dealers or sellers on the Internet.  As a result, we believe
      that the growth of Internet selling websites, such as eBay, Blue Nile and
      Amazon, has increased awareness of the importance of, and the demand for,
      independent third party authentication and grading services of the type we
      provide.  Our services enable purchasers and collectors to use the
      Internet to purchase collectibles, diamonds and colored gemstones
“sight-unseen,” with the confidence of knowing that they are authentic and are
      of the quality represented by sellers.  The importance and value of
      our services to purchasers and collectors, we believe, are demonstrated
      by:




·
            eBay’s
                inclusion, on its collectibles websites, of information that identifies,
                and encourages visitors to use, our independent third party authentication
                and grading services, as well as similar services offered by some
                of our
                competitors; and




·
            Blue
                Nile’s use of GCAL’s services to certify all of the diamonds comprising
                its Signature Collection, which are the highest quality diamonds
                that Blue
                Nile sells, even when those diamonds have already been certified
                by other
                diamond certification services.





**Our
      Services**




*PCGS
      Coin Authentication and Grading Services*.  Recognizing the need
      for third party authentication and grading services, we launched Professional
      Coin Grading Service in 1986. PCGS employs expert coin graders, who are
      independent of coin buyers and sellers, to provide impartial authentication
      and
      grading services.  Currently, we employ 22 experts who have an average
      of 27 years of experience in the collectible coin market.  We also
      established uniform standards of quality measured against an actual “benchmark”
set of coins kept at our offices.  We place each coin that we
      authenticate and grade in a tamper-evident, clear plastic holder that bears
      our
      logo, so that any prospective buyer will know that it is a PCGS authenticated
      and graded coin.  We also provide a warranty as to the accuracy of our
      coin authentication and grading.




By
      providing an independent assessment by coin experts of the authenticity and
      quality of coins, we believe that PCGS has increased the liquidity of the
      trading market for collectible coins.  Following the introduction of
      our independent, third party authentication and grading service, buyer
      confidence, even between dealers, increased to such a degree that coins
      authenticated and graded by PCGS were able to be traded
“sight-unseen.”  As a result,




8


PCGS
      facilitated the development, in 1990, of a dealer market, known as the
“Certified Coin Exchange,” on which coin dealers traded rare coins
“sight-unseen,” over a private satellite network, which now operates on the
      Internet.




In
      addition, we began to provide a range of authoritative content on coin
      collecting to inform and communicate with the collector community, including
      guides and reports that track the trading prices and the rarity of PCGS-graded
      coins.




More
      recently, our coin authentication and grading services have facilitated the
      development of a growing Internet or “virtual” marketplace for collectible
      coins.  A prospective buyer, who might otherwise be reluctant to
      purchase a high-priced coin listed on the Internet, is able to rely on a PCGS
      certification in deciding whether or not to bid and in determining the amount
      to
      offer for the coin.  As a result, to enhance the marketability of
      higher priced coins, many sellers submit their coins to PCGS for authentication
      and grading.  That enables the sellers to include, in their Internet
      sales listings, digital images of the coins in their tamper-evident, clear
      plastic holders, which identify the coins as having been authenticated and
      graded by PCGS as well as their PCGS-assigned grades.




*PSA
      Sportscard Authentication and Grading Services*.  Leveraging the
      credibility and using the methodologies that we had 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 independent sportscard experts certify the
      authenticity of and assign a grade to sportscards using a numeric system with
      a
      scale from 1-to-10 that we developed, together with an adjectival system to
      describe their condition.  Currently, we employ 14 experts who have an
      average of 22 years of experience in the collectible sportscard
      market.  We believe that our authentication and grading services have
      removed barriers that were created by the historical seller-biased grading
      process and, thereby, have improved the overall marketability of and facilitated
      commerce in sportscards, including over the Internet and at telephonic sports
      memorabilia auctions.




*PSA/DNA
      Autograph Authentication and Grading Services*.  In 1999, we
      launched our vintage autograph authentication business, initially offering
      authentication services for “vintage” sports autographs and memorabilia that
      were autographed or signed prior to the time they were presented to us for
      authentication.  The vintage autograph authentication business is
      distinctly different from the “signed-in-the-presence” authentication of
      autographs where the “authenticator” is present and witnesses the actual
      signing.  Vintage autograph authentication can involve the rendering
      of an opinion of authenticity by an industry expert based on (i) an
      analysis of the signed object, such as the signed document or autographed item
      of memorabilia, to confirm its consistency with similar materials or items
      that
      existed during the signer’s lifetime; (ii) a comparison of the signature
      submitted for authentication with exemplars; and (iii) a handwriting
      analysis.  We currently employ 3 autograph experts with an average of
      22 years of experience in the autograph memorabilia market, as well as 3
      consultants on a contract basis.




In
      June
      2004, we also began offering grading services for autographs, beginning with
      baseballs containing a single signature or autograph.  We use uniform
      grading standards that we have developed and a numeric scale of 1-to-10, with
      the highest number representing “Gem Mint” condition or top
      quality.  We assign grades to the collectibles based on the physical
      condition or state of preservation of the autograph.  Autograph
      grading is in its infancy, and we cannot predict whether it will gain market
      acceptance.




*PSE
      Stamp Authentication and Grading Services*.  In January 2000, we
      launched our Professional Stamp Experts (PSE) as an independent, third party
      stamp authentication and grading service.  We use both an adjectival
      system and a numeric scale from 1-to-100 to grade stamps.  We assign
      grades based on the centering of the stamp image on the stamp paper background
      and the absence or presence of other faults on the stamp.  There have
      been viable third party stamp authentication services in operation for several
      decades, and stamp dealers and collectors had been using a subjective grading
      system based primarily on the centering of the stamp image on the stamp paper
      background, ignoring other faults.  However, prior to our entry into
      the stamp market, independent third party stamp grading was
      non-existent.  As a result, we encountered some resistance to this
      concept in the stamp collectibles market, which is steeped in tradition and
      slow
      to change, as we did from coin dealers when we launched PCGS and from sportscard
      dealers when we launched PSA.  In October 2005, the Philatelic
      Foundation based in New York began using PSE’s numerical grading system to
      assign grades to stamps.  In the Spring of 2006, Scott Publishing
      Company, the long-time publisher of the Scott Catalogs also adopted PSE’s
      numerical grading system into their bi-annual valuing
      supplement.  These two events have established PSE’s numerical grading
      scale, and we believe has ensured its continuing spread of third-party stamp
      authentication and grading, throughout the philatelic
      industry.  Currently, we employ 5 stamp graders, and use another
      expert on a part-time basis.  Those graders have an average of 29
      years of experience in the collectible stamp market.




9


*Vintage
      U.S. Paper Currency Authentication and Grading*.  In the third
      quarter of fiscal 2005, we began marketing a U.S. paper currency authentication
      and grading service, which we decided to brand as “PCGS Currency” because many
      of the dealers of currency notes are familiar with and have used PCGS’ coin
      authentication and grading service.  Currently we employ 3 Currency
      experts with 15 years of experience and use the services of 2 other experts
      on a
      contract basis.




*GCAL
      Diamond Authentication and Grading Services*. In November 2005, we acquired
      Gem Certification & Assurance Lab (GCAL), which is as an independent, third
      party diamond authentication and grading service that has been in the business
      of diamond authentication and grading since 2001. We use the internationally
      recognized system of grading diamonds, commonly referred to as the “4C’s” to
      authenticate and grade diamonds.  In December 2005, we acquired the
      assets of Gemprint Corporation, which consisted primarily of a patented
      non-invasive diamond identification technology that enables us to create and
      record the digital image of the unique refractive light pattern or “fingerprint”
(which we refer to as the “Gemprint”) of each diamond that GCAL
      grades.  We store the digital image of the “Gemprint” in our database,
      cross-indexed to the diamond’s grading certificate that is issued by GCAL, which
      is assigned its own number for recordkeeping purposes.  This
“Gemprint” process enables us to match GCAL graded diamonds, on a one-to-one
      basis, with their GCAL certificates, thereby providing an additional measure
      of
      protection against misrepresentations of diamond quality that can occur by,
      for
      example, altering the grading certificate or switching a diamond grading
      certificate issued for a higher quality diamond to a lower quality
      diamond.




There
      are
      more than ten diamond grading services in operation.  Four of those
      existing grading services, including GIA, have been in operation for more than
      20 years and are larger and better known than GCAL.  However, unlike
      GCAL, almost all of the key competitors are owned, managed or governed by
      diamond dealers that are in the business of selling diamonds, including those
      graded by such grading services.  As a result, we believe that those
      grading services potentially have inherent conflicts of interest when grading
      diamonds submitted by those dealers and, therefore, do not provide truly
      independent third party grading services.  Additionally, unlike GCAL,
      none of these existing services has any non-intrusive process to secure the
      identification of diamonds that they have certified in order to make it possible
      to detect misrepresentations of the quality which can occur by altering the
      information on or switching a grading certificate.  As a result, we
      believe that GCAL’s greater independence and its Gemprint diamond identification
      technology, along with the warranty of the quality determinations of color
      and
      clarity, provide it with a competitive advantage that we are promoting as a
      means of increasing GCAL’s share of the diamond grading
      market.  Currently, we employ 9 diamond graders who have an average of
      18 years of diamond grading experience.




*AGL
      Colored Gemstone Authentication and Grading Services*.  In August
      2006, we acquired American Gemological Laboratories (AGL), one of the leading
      independent third party authentication and grading services for colored
      gemstones, such as emeralds, rubies and sapphires.  Its services are
      used by, among others, Sotheby’s and Christies for their jewelry auctions and by
      jewelry retailers such as Cartier and Fred Leighton.  AGL has been in
      the business of authenticating and grading colored gemstones since 1977. We
      utilize the fundamental information obtained in GIA vocational classes, but
      express the color and tone using a three digit system we developed called
      ColorScan, express color and hue combinations using a 1 to 10 scale in
      half-point increments, describe tone on a scale of 0-100 and identify clarity
      grades on a scale using descriptors such as “FI” meaning “Free from Inclusions”,
      to “MI1” and “MI2” meaning “Moderately Included” to “E1”, “E2” and “E3” meaning
“Excessively Included”.  Enhancement and country of origin analysis is
      determined by comparison to our database of over 5,000 colored gemstone samples,
      which we believe is one of the largest such reference collections in the world,
      personally accumulated by AGL’s president in travels around the world to various
      mining sites.  There are more than six competing services, with only
      three such services in operation for a similar period of time as
      AGL.  Currently, we employ 4 grading experts with an average of 25
      years of experience.




*CCE
      Certified Coin Exchange.*  In September 2005, we acquired the
      Certified Coin Exchange (CCE), a subscription-based, dealer-to-dealer Internet
      bid-ask market for third party certified coins.  CCE has been a
      marketplace in U.S. certified rare coin trading between major coin dealers
      in
      the United States since 1990 with similar operations for uncertified coins
      dating back to the 1960’s.  The CCE website features over 200,000 bid
      and ask prices for certified coins at www.certifiedcoinexchange.com and
      over 100,000 offerings to the retail coin buyer at the Collectors Corner. The
      CCE provides liquidity in the geographically dispersed and highly fragmented
      market for rare coins.  The enhanced liquidity for certified coins
      increases volume and turnover for certified coins, a benefit for the PCGS coin
      certification business.  With the continued growth of CCE and
      Collectors Corner, we believe we can become the preeminent website for all
      coins
      sold by dealers to other dealers, on CCE, and coins bought and sold




10


between
      dealers and consumers on Collectors Corner.  We are in the process of
      extending the concepts and systems developed for CCE into other markets where
      the Company offers certification services such as the currency, stamp and
      sportscard markets.




*Publications
      and Advertising*.  We publish authoritative price guides, rarity
      reports and other collectibles data to provide collectors with information
      that
      makes them better informed consumers and makes collecting more interesting
      and
      exciting. Our publications also enable us to market our services, create
      increased brand awareness and to generate advertising revenues. Our publications
      include the *Rare Coin Market Report,*which we publish on a monthly
      basis primarily for distribution to approximately 5,500 PCGS Collectors Club
      members,*Sports Market Report,*which we publish on a monthly basis
      primarily for distribution to approximately 7,800 PSA Collectors Club members,
      and the *Stamp Market Quarterly*, which we publish for distribution to
      approximately 2,500 stamp dealers and collectors.  In addition, we
      publish *Palmieri’s Market Monitor*, an educational and informative
      diamond and gemstone-industry publication.  We sell advertising to
      dealers and vendors for placement in our publications.  We manage a
      Collectors Universe website and individual websites for authentication and
      grading services. On those websites, we offer collectible content, some of
      which
      is available for a fee and some of which is available without
      charge.  On a combined basis, our PCGS, PSA, PSA/DNA and PSE websites
      attracted, on average, approximately 255,000, 227,000 and 167,000 unique
      visitors per week during the fiscal years ended June 30, 2007, 2006 and 2005,
      respectively.  As a result of the increasing number of collectors
      visiting our websites, in fiscal year 2005, we began selling advertising on
      our
      websites to dealers and other vendors that serve the collectibles
      markets.




**Our
      Mission**




Our
      mission is to provide the finest available authentication and grading services
      to sellers and buyers of high-value collectibles and other high-value assets
      in
      order to:




•
            increase
                the values and liquidity of the high value collectibles and other
                high
                value assets;




•
            enable
                and facilitate transactions in high value collectibles and other
                high
                value assets;




•
            generally
                enhance interest, activity and trading in high value collectibles
                and
                other high value assets; and




•
            achieve
                profitable growth, build long-term value for our stockholders and
                provide
                rewarding opportunities for our
                employees.




**Our
      Growth Strategy**




Our
      growth strategies include:




•
            Leveraging
                the strong brand awareness that we have achieved in our existing
                collectibles markets:




—
            to
                increase the demand for and use of our services not only by dealers,
                but
                also by collectors, only a relatively small percentage of which use
                independent authentication or grading services;
                and




—
            to
                introduce new value-added services to customers in our existing
                collectibles markets.




•
            Increasing
                GCAL’s  market share by offering services, such as its Gemprint
                diamond identification service, that are not available from its
                competitors and by implementing marketing programs targeted at sellers
                and
                purchasers of diamonds which emphasize the benefits of the GCAL grading
                certificate, and the faster turnaround service and the more competitive
                pricing of services offered by
                GCAL;




•
            Increasing
                AGL’s share of the middle and high-end of the colored gemstone market
                by
                offering enhanced grading services, such as a guarantee of identification
                and enhancements, primarily to dealers and high net worth consumers,
                and
                offering a lower priced authentication and grading certificate, with
                accurate identification and disclosure of appropriate enhancements,
                that
                would benefit the retail
                customer.


11


•
            Identifying
                and entering other high-value collectibles or high-value asset markets
                where we believe we can succeed in building and meeting the demand
                among
                dealers, sellers and buyers for independent, third party authentication
                and grading services.





We
      are
      pursuing the following strategic initiatives in order to achieve these growth
      objectives:





*Increasing
      the Demand for our Services in Existing Collectibles Markets*.  We
      have established leading brands in our existing collectibles markets, including
      PCGS, PSA, PSA/DNA, PSE and PCGS Currency.  We use those brands to
      promote Collectors Universe as the premier provider of authentication and
      grading services in the high-value collectibles markets, in order (i) to
      increase our market share among existing users of authentication and grading
      services and (ii) to increase the use of our services by the numerous
      collectors that do not currently use any independent third party authentication
      or grading services.




Although
      we have authenticated and graded over 14 million coins since the inception
      of PCGS and over 10 million sportscards since the inception of PSA, we
      estimate that less than 10% of the vintage United States coins and vintage
      sportscards have been authenticated and graded.  According to recent
      data available on eBay’s websites, the number of coins being sold at any one
      time on eBay generally ranges from approximately 105,000 to 180,000, of which
      only approximately 15% are authenticated and graded by a third party
      authentication and grading service, such as ours. Similarly, the number of
      sportscards being sold at any one time on eBay generally ranges from
      approximately 250,000 to 300,000, of which only about 11% are independently
      authenticated and graded.  Additionally, we estimate that we have
      authenticated and graded less than 1% of the potential market of autographs
      and
      stamps in the United States.  Also, new collectibles are introduced
      each year into the markets in which we operate, some of which are authenticated
      and graded in the year of manufacture.  Over time, these collectibles
      will increase the supply of vintage items that are sold by dealers and
      collectors and, therefore, that will be submitted for independent third party
      authentication and grading.




To
      take
      advantage of these market opportunities, we have:




•
            enhanced
                our marketing programs to promote our brands and services directly
                to
                Internet and other auction-related businesses.  These programs
                emphasize the benefits of using our services, including increased
                marketability and the prospect of higher bids for
                collectibles;




•
            initiated
                joint marketing programs with collectibles dealers that are designed
                to
                make their customers aware of the availability and benefits of our
                authentication and grading
                services;




•
            established
                authorized PCGS and PSA dealer networks to increase the visibility
                of our
                brands and the use of our services by those dealers and their
                customers;




•
            developed
                and expanded our Set RegistrySM
                programs to
                increase demand for our collectible coin, sportscard and stamp
                authentication and grading services among collectors and to increase
                traffic on our websites;




•
            developed
                and linked coin buying demand from our successful Set Registry program
                to
                Collectors Corner to increase the referral of PCGS coin buyers to
                CCE
                dealer-subscribers, thereby enhancing the value of the CCE subscription
                and increasing the preference for PCGS graded coins in the market;
                and




•
            increased
                the promotion of our Collectors Clubs to attract and to provide incentives
                for collectors to use our services.




*Expanding
      Services in our Existing Markets*.  Using the brand recognition we
      have established in the markets we serve, we have expanded services in our
      existing markets.  These services include:




•
            *Collectors
                Universe Invitationals*.  Since 2001, we have been holding
                special “invitation-only” events for our authorized PCGS and PSA dealers.
                At those events, dealers have the opportunity to meet and engage
                in
                collectibles trading with other invited dealers. To facilitate
                collectibles trading at these events, we offer same day, on-site
                authentication and grading services, enabling the dealers to complete
                their transactions while at the invitationals. In fiscal 2007, we
                held ten
                dealer invitationals.




12


•
            *Participation
                at Collectibles Trade Shows*.  Each year we participate in
                approximately 50 collectibles trade shows that attract collectibles
                dealers and collectors who buy and sell collectibles at those
                shows.  We offer same day, on-site authentication and grading
                services, which facilitate the trading and sales of collectibles
                at these
                shows and conventions.  At the same time, we obtain additional
                brand exposure and generate increased revenues, because dealers and
                collectors generally are willing to pay higher fees for same day,
                on-site
                services.  In July 2006, we acquired Expos Unlimited LLC
                (“Expos”), a tradeshow management company that operates two well-known
                coin, stamp and collectibles shows in Long Beach and Santa Clara,
                California, respectively.  This acquisition assures us of the
                continued availability of these two show venues for our authentication
                and
                grading services, provides us a platform for inaugurating and conducting
                collectibles shows in our other markets and adds management personnel
                who
                are experienced in managing and conducting collectibles trade
                shows.




•
            *Sales
                of Website and Print Advertising*.  We sell advertising in
                our publications and on our websites to collectibles dealers and
                auctioneers in the markets in which we offer our branded authentication
                and grading services. Due to the increasing number of visitors to
                our
                websites, we are able to offer those dealers and auctioneers the
                opportunity to market their products and services to an increased
                number
                of prospective customers.




•
            *Dealer
                Financing Program*.  Under this program, we offer short-term
                loans, primarily to established collectibles dealers and collectors
                that
                use our authentication and grading services.  The loans, which
                are collateralized by the collectibles that dealers submit to us
                for
                authentication and grading, are intended to provide those dealers
                and
                collectors with working capital.  We believe these loans will
                provide an incentive to dealers to submit additional collectibles
                to us
                for authentication and grading, as well as generating interest income
                for
                us.




•
            *Autograph
                Grading Services*.  We launched autograph grading services,
                beginning with single signed baseballs. Our autograph grading service
                meets existing and creates additional demand for differentiation
                in the
                quality, and thus in the value, of autographed memorabilia. Our grading
                is
                based primarily on sharpness, intensity, readability and clarity
                of
                autographs.




•
            Ex*pansion
                of Website Information Services*.  We have been expanding
                the information available on our websites, including the addition
                of: (i)
                historical coin auction prices; (ii) reproductions of historical
                reference
                books; and (iii) the contents of famous coin, sportscard and stamp
                collections.  These services are designed to attract new
                collectors, increase the number of visitors to our websites and increase
                advertising revenues. During the years ended June 30, 2007, 2006
                and 2005,
                on a combined basis, our five websites attracted, on average, over
                255,000, 227,000, and 167,000 visitors, respectively, per
                week.




•
            *eBay
                Promotional Programs*.  Leveraging our expertise and
                reputation as a leading independent third party authenticator and
                grader
                of high-value collectibles, we work with eBay to create programs
                designed
                to increase the marketability of collectibles on its auction websites
                and,
                at the same time, promote our authentication and grading services.
                We
                offer a fee-based “Quick Opinion” autograph authentication service to
                visitors on eBay’s sports memorabilia auction website. Our autograph
                experts render an authenticity opinion based on an examination of
                the
                digital image of the autograph posted on eBay. We also have included,
                at
                eBay’s request, information about the benefits of our authentication and
                grading services on our websites, to which eBay has placed links
                on its
                collectibles websites in order to make that information readily accessible
                to its users.




•
            *“First
                Strike®” and First Day of Issue Programs*.  Every year since
                1992, the U.S. Mint has produced, in limited quantities, issues of
                gold
                bullion coins, and beginning in 1997, silver bullion coins, changing
                the
                dies each year that strike the coins so that the current year is
                minted on
                the coins.  Because the detail of the coin as struck by new dies
                is an important collector characteristic, in 2005, PCGS introduced
                a new
                “*First Strike*” designation to identify those coins that were
                submitted for certification, or which could be verified as having
                been
                released by the U.S. Mint in sealed containers, in January of each
                year.  We inaugurated our *First Strike* program to
                provide dealers and collectors with independent verification of the
                release of those coins in the first month of the year.  During
                fiscal year 2007, the U.S. Mint began releasing the new designs of
                Presidential One Dollar coins under
                a




13


program
      authorized by the U.S. Congress.  This program provides for a
      Presidential Dollar coin, to be released every 10 weeks, with a new design
      bearing the image of a former U.S. President.  The Presidential
      Dollars designs are being released in the order that the President served in
      office.  On February 15, 2007, PCGS began offering a service,
      concurrent with the release of each new Presidential One Dollar coin by the
      U.S.
      Mint, beginning with the coin bearing the image of President George Washington,
      which designates the coin as the *First Day of Issue*coin.  To
      qualify for PCGS’ *First Day of Issue* designation, the Presidential One
      Dollar coins must be submitted to PCGS on the first day that the coin is
      released to the public.  In fiscal year 2007, we graded and
      authenticated 117,000 coins with the *“First Strike”*designation and
      41,400 coins with the *First Day of Issue* designation.




*Increasing
      GCAL’s Share of the Diamond Market*.  We believe that we can
      increase GCAL’s share of the diamond grading market, notwithstanding competition
      from the larger and more established grading services, such as GIA, by promoting
      GCAL’s independence, its policy, practice and reputation for consistent and
      rigorous application of diamond grading standards, the warranty of color and
      clarity grades it issues and the services that GCAL is able to offer that are
      not available from its competitors.  Additionally, we believe that
      only about 50% of the diamonds larger than 0.50 carat are offered with third
      party authentication and grading services and we have found that many diamond
      retailers do not promote the availability of diamond grading services and that
      the majority of consumers do not request such services when purchasing
      diamonds.  As a result, we believe that the opportunity exists for us
      to grow the demand for GCAL’s services and enable us to increase its market
      share.  According to the U.S. Geological Survey 2005 Minerals
      Yearbook, the United States imported 17 million carats of polished diamonds,
      of
      which 6.0 million carats were of 0.5 carats or larger.




To
      take
      advantage of this opportunity, since acquiring GCAL, we have:




•
            Enhanced
                and established GCAL as a brand providing high quality and consistent
                authentication and grading
                services.




•
            Provided
                increased security for purchasers of diamonds by including, with
                each
                diamond that is graded by GCAL, a “Gemprint” of the diamond, which is a
                digital image of its unique refractive light pattern, using our patented
                non-invasive diamond identification process.  GCAL stores the
                Gemprint in its computer database, cross-indexed to the diamond’s GCAL
                grading certificate.  As a result, if a dealer or consumer wants
                to sell the diamond at a future date, the seller can provide the
                prospective purchaser with evidence that the diamond being sold is,
                in
                fact, the diamond that was originally graded by and described in
                the
                grading certificate issued by GCAL, by (i) using the Gemprint process
                to produce another digital image of the diamond at the time of sale
                and
                (ii) comparing that digital image to one stored in GCAL’s
                database.  Consequently, the Gemprint process enables GCAL to
                provide an additional measure of protection against misrepresentations
                of
                diamond quality that can occur by, for example, switching a diamond
                grading certificate issued for a higher quality diamond to a lower
                quality
                diamond or by altering the grading
                certificate.




•
            Launched
                the Five Star Diamond Grading Certificate that includes five distinct
                services bundled into one certificate at a 20% to 50% discount to
                the fees
                that we believe the customer would have to pay to purchase these
                services
                separately.  GCAL’s Five Star certificate also means that the
                customer need only keep a single grading certificate, rather than
                having
                to maintain multiple grading certificates issued by the different
                grading
                services.  The five bundled services
                include:




—
            *Direct
                Light Performance Analysis*, which is a service that directly measures
                the light return from a diamond and expresses that return in calculations,
                of Optical Brilliance and, Optical Symmetry, using descriptive terms
                from
                Excellent, Very Good, and Good to Fair.  These results are based
                on the measurement of the number of pixels in light return from incident
                light.  The results are shown on the certificate in two digital
                images of the diamond along with the two associated adjectival
                descriptions for Brilliance and Symmetry.  The easily understood
                graphics and rating assist a potential diamond buyer in comparing
                the
                visual qualities of one diamond to
                another.




14


*—*
            *Gemprint
                Security Registration*, which is a service that captures the unique
                light refraction pattern of a diamond in a digital format and records
                the
                unique “fingerprint” of the diamond, and registers that image in a
                database.  At any time after the diamond has been certified by
                GCAL and a Gemprint registered, the diamond may be matched to this
                database by taking another Gemprint of the diamond and comparing
                the
                digital image of the requested diamond to the registered database
                using
                the Gemprint proprietary algorithm.  This process provides
                assurance that a GCAL certified diamond can be matched to the original
                certificate, thereby making it possible to detect misrepresentations
                of
                the quality of the diamond by switching or altering its grading
                certificates.




*—*
            *Laser
                Inscription*, which is a service that inscribes information using a
                cold laser on the girdle of the diamond. Laser inscription is often
                used
                for quick identification, engraving of logos or particular phrases.
                Laser
                inscription is only a few microns deep into the diamond and can be
                easily
                removed and is one of the most often requested extra services that
                is
                included in the GCAL bundled
                services.




*—*
            *Grading
                Guarantee*, which is a limited warranty that provides assurance to the
                diamond purchaser that if the diamond is submitted for re-grading,
                within
                two years following the date of its original examination (which may
                occur
                as a result of a resale of the diamond), the color and clarity grades
                on
                the re-grading will be equal to the color and clarity grades assigned
                on
                the diamond’s original grading.  Due to the grading process
                employed by GCAL, the grading experts who re-grade a diamond are
                not able
                to determine the original grades assigned to the diamond and, therefore,
                the rating assigned on re-grading cannot be affected by the original
                grades given to the diamond.  This guarantee is the first and
                only warranty issued in the industry and provides the buyer with
                increased
                confidence in the quality rating provided by
                GCAL.




*—*
            *Fair
                and Consistent Clarity and Color Certification*, which is the result
                of the consensus process employed by GCAL, where at least two qualified
                diamond experts must agree on the subjective grading of Clarity and
                Color,
                two of the four “C’s” of diamond grading.  The other two “C’s”
                are Carat and Cut, both of which are measured by high technology
                machines.  Differences in one grade of Clarity or one grade of
                Color may result in value differences in the marketplace of from
                10% to
                50%.




•
            Launched
                the Source VeritasSM
                Passport
                that includes all of the benefits of the Five Star Diamond Grading
                Certificate and provides the assurance that the diamond was cut and
                polished from a rough diamond mined in compliance with the Kimberley
                Process (www.kimberleyprocess.com) and the 2003 Clean Diamond Act,
                as may
                be applicable, which are designed to assure that the diamond being
                sold
                was not mined in a country where diamond sales are used to fund rebel
                movements against legitimate
                countries.




•
            Launched
                the GemFactsSM
                Digital
                Certification Data Delivery System, by which the information on a
                GCAL
                grading certificate is delivered, digitally, on a mini-CD along with
                the
                printed certificate at the time of retail sale or on the Internet
                in a
                certificate look-up feature on the GCAL website.  This digital
                delivery system allows for co-marketing of certain diamond retail
                programs, including co-branding with the retail seller and may include
                a
                digital marketing video for the retail seller.  Educational
                “pop-up” windows are available when any one of 19 key terms are touched
                with the cursor, making the GemFacts digital certificate interactive
                for
                the user and a helpful sales tool at the retail
                counter.




*Increasing**AGL**’s Share of the Colored Gemstone Market*. We believe we
      can increase AGL’s share of the colored gemstone authentication and grading
      market, because authentication and grading services are requested on less than
      1% of all the colored gemstones purchased for $500 or more.  According to
      the U.S. Geological Survey 2005 Minerals Yearbook, imports into the United
      States of cut and unset colored gemstones included 2.6 million carats of
      emeralds, 4.4 million carats of rubies and 7.7 million carats of sapphires,
      along with 1.6 billion carats of other colored gemstones.  We estimate
      that, in the high-value market, served by auctioneers such as Sotheby’s and
      Christies, third party authentication and grading is requested for 30% to 50%
      of
      the colored gemstones sold at those auctions.  We also estimate that
      AGL’s share of the certification services purchased by sellers or purchasers of
      colored gemstones at those auctions is approximately 50%.  In the lower-end
      general market, colored gemstones are generally sold at retail in similar stores
      and in similar venues as diamonds, providing a selling environment
      already




15


familiar
      with the concept of third party authentication and grading of the stones.
 Further, the Federal Trade Commission has promulgated regulations,
      requiring disclosure of enhancements to colored gemstones where those
      enhancements (a) are not permanent or may not be permanent; (b) create
      special care requirements; or (c) have a significant effect on the stone’s
      value.  Because most retailers do not have sufficient information or
      expertise to make the determination required to satisfy these disclosure
      requirements, we believe we can increase the volume of our colored gemstone
      certification services by offering an independent, third party certificate
      of
      color, tone and clarity with disclosure about enhancements, priced at a level
      that makes the certificate economically feasible for a larger number of colored
      gemstones.  In addition, we believe there is a cross-marketing opportunity
      between GCAL and AGL through (i) marketing AGL services to the retailers
      with which GCAL has existing relationships, including Blue Nile, and
      (ii) marketing GCAL services to the auctioneers and retailers with which
      AGL has existing relationships such as Sotheby’s, Christies and Cartier. As
      a result of those cross-marketing efforts, Christies will soon begin including,
      in its diamond auction catalogues, descriptions or copies of GCAL certificates
      for the GCAL-certified diamonds it offers at its auctions.




*Entering
      Other Collectibles and High-Value Asset Markets*.  There are
      additional high-value collectibles and high-value assets with respect to which
      marketability and value depend primarily on their authenticity and state of
      preservation or quality.  We believe that the growth of some of these
      markets has been hampered by the absence or limited availability of independent
      authentication and grading services.  We continue to evaluate
      opportunities with the intention to expand our business into one or more of
      those markets.




Other
      markets that we are considering for possible expansion include:




Antique
                silver
            Musical
                instrumentsArt
            Political
                memorabiliaArt
                glass
            PostcardsComic
                books
            Rare
                booksEntertainment
                memorabilia
            WatchesEstate
                jewelry
            Wine




We
      intend
      to consider the following criteria in selecting markets for future
      expansion:




•
            *Market
                Size*.  The size of the target market, measured both in
                terms of the volume and the value of the collectibles or high-value
                assets
                that trade in the market;




•
            *Trading
                Prices*.  The prices at which collectibles or other
                high-value assets trade in the target market, because we have found
                that
                the more valuable the collectible or asset, the greater is the demand
                for
                authentication and grading
                services;




•
            *Competitive
                Environment*.  The presence or absence of existing
                independent authentication and grading services in the target market,
                its
                capacity for new entrants and the satisfaction of dealers and collectors
                with the services offered by existing
                providers;




•
            *Availability
                of Experts*.  The availability of experts needed to succeed
                in entering a target market; and




•
            *Means
                of Entry*.  The benefits and costs of entry by means of an
                opportunistic acquisition, as opposed to starting a new authentication
                and
                grading service that would require the development of a new
                brand.




The
      largest of these currently targeted markets are estate and pre-owned jewelry,
      including watches, and entertainment memorabilia, such as Hollywood props,
      scripts and wardrobes.  According to data available from eBay, at any
      one time there are approximately 300,000 to 500,000 items of entertainment
      memorabilia and from 80,000 to 100,000 watches listed on eBay’s auction
      websites.  We are not aware of any significant third party
      authentication or grading services in any of these markets.




There
      is
      no assurance that we will succeed in expanding our business into any of these
      new markets or, even if we do succeed in doing so, that the authentication
      or
      grading services we will offer in those markets will gain market acceptance
      or
      become profitable.




16


**Operations**




We
      offer
      authentication and grading services for coins, sportscards, autographs and
      autographed memorabilia, stamps, vintage U.S. and currency notes, and for
      diamonds and colored gemstones.  Our trained and experienced
      authentication and grading experts determine the authenticity of and, using
      uniform quality standards, assign a quality grade to these collectibles and
      to
      diamonds and colored gemstones.




*PCGS*.  Since
      our inception in 1986, we have graded approximately 14 million coins. We now
      authenticate and grade approximately 1.5 million coins per year. We typically
      charge authentication and grading fees that range between $5 and $200 per coin,
      depending primarily on the turn-around time requested by the customer, which
      varies from one day for the highest level of service to approximately 60 days
      for the lowest level of service.  In the fiscal year ended June 30,
      2007, our fee per coin averaged approximately $13.74.  We authenticate
      and grade coins in accordance with standards that we developed and which have
      become generally accepted in the industry. We use both an adjectival and numeric
      system, with a scale of 1-to-70, to rate the quality of the coins, with the
      highest number representing “gem” or perfect quality. We have authenticated and
      graded, either before or after sale, two of the three highest priced U.S. coins
      ever sold at public auction, including an 1804 Draped Bust Silver Dollar, that
      was sold by the owner at an auction in 1999 for approximately $4.1 million,
      and
      a U.S. 1913 Liberty Head Nickel, that was recently sold for $4.15 million,
      the
      second highest price paid for any coin.




Our
      grading of coins involves an exacting and standardized process.  We
      receive coins from dealers and collectors and remove all packaging that
      identifies the submitter in any way.  We then enter information
      regarding the coins into our proprietary computerized inventory system, which
      tracks the coins at every stage of our authentication and grading
      process.  Generally, our process requires that two of our experts
      evaluate each coin independently, and no authenticity opinion is issued and
      no
      quality grade is assigned unless their opinions of authenticity and the grades
      independently assigned by each of them are the same.   In some
      cases, depending on the type of coin being authenticated and graded or on the
      results of the initial review process, a third expert is involved to make the
      final determinations of authenticity and grade.  The coin, the
      determination of authenticity and its grade are then verified by one of our
      senior experts, who has the authority to resubmit the coin for further review
      if
      deemed to be necessary. Only after this process is complete is the coin reunited
      with its invoice, thus keeping the authentication and grading process
      independent of the identity of the owner and the history of the coin. The coin
      is then sonically sealed in our specially-designed, tamper-evident, clear
      plastic holder, which also encases a label describing the coin, the quality
      grade that we have assigned to it, a unique certificate number and bar code,
      and
      the PCGS hologram and brand name.




*PSA*.  We
      launched our PSA sportscard authentication and grading service in 1991 and,
      through June 30, 2007, had authenticated and graded over 10 million
      sportscards.  Our sportscard grading system uses both an adjectival
      and a numeric system with a scale from 1-to-10, with the highest number
      representing “mint” condition or perfect quality.  We employ
      sportscard authentication and grading procedures that are similar to our coin
      authentication and grading procedures and at a minimum, two graders are assigned
      to every card.  On receipt of sportscards from dealers and collectors,
      we remove all packaging that identifies the submitter in any way and enter
      information regarding the sportscards into our proprietary computerized
      inventory system that enables us to track the sportscards throughout our
      authentication and grading process.  Only after the authentication and
      grading process is complete is the sportscard reunited with its invoice, thus
      keeping the authentication and grading process independent of the identity
      of
      the owner and the history of the sportscard.  The sportscard is then
      sonically sealed in our specially-designed, tamper-evident, clear plastic
      holder, which also encases a label that identifies the sportscard, the quality
      grade that we have assigned to it and a unique certificate number, and the
      PSA
      hologram and brand name.




We
      primarily authenticate and grade baseball sportscards and, to a lesser extent,
      football, basketball and hockey sportscards, as well as entertainment and other
      collectible cards.  We typically charge fees ranging between $4 and
      $50 per card, with an average fee of $6 per card in 2007.  As is the
      case with coin authentication and grading, sportscard authentication and grading
      fees are based on the particular turn-around time requested by the submitter,
      ranging from one day’s turn-around for the highest level of service to
      approximately 60 days for the lowest level of service.




The
      sportscards submitted to us for authentication and grading include primarily
      (i)
      older or vintage sportscards, particularly of memorable or historically famous
      players, such as Honus Wagner, Joe DiMaggio, Ted Williams and Mickey Mantle,
      and
      (ii) modern or newly produced sportscards of current or new athletes who
      have




17


become
      popular with sports fans or have achieved new records or milestones, such as
      Nolan Ryan and Roger Clemens.  These sportscards have, or are
      perceived to have, sufficient collectible value 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.  Also, the
      production and sale of each new series of sportscards, which take place at
      the
      beginning and during the course of each new sports season, create new
      collectibles that provide a source of future additional authentication and
      grading submissions to us.  Among the sportscards that we have
      authenticated and graded is a 1909 Honus Wagner baseball card, which received
      a
      PSA grade of NM-MT8 and was sold by the owner, via auction, in 2007 for
      approximately $2.35 million and resold in September 2007 for $2.8
      million.




*PSA**/**DNA*.  In
      1999, we began offering authentication services for vintage sports
      autographs.  Because of the variability in the size of autographed
      memorabilia, the procedures we use necessarily differ from those used in
      authenticating and grading coins and sportscards.  Customers may ship
      the autographed memorabilia to us for authentication at our offices or, in
      the
      case of dealers or collectors that desire to have a large number of items
      authenticated, we will sometimes send an expert to the customer’s location for
“on-site” examination and authentication.  Our experts reference what
      we believe is one of the largest databases of known genuine examples of
      signatures for comparison to a submitted specimen and draw upon their training
      and experience in handwriting analysis. In most cases, we take a digital
      photograph of the autographs that we authenticate and store those photographs
      in
      a master database.  Before shipping the item back to the customer, a
      tamper-evident label is affixed to the collectible.  The label
      contains our PSA/DNA name and logo and a unique certificate
      number.  For additional security, in all cases when an item is fully
      authenticated, we tag the items with synthetic DNA-laced ink, which is odorless,
      colorless and tasteless and visible only when exposed to a narrow band
      wavelength of laser light using a hand-held, battery-powered lamp. Additional
      verification can be obtained by a chemical analysis of the ink to verify the
      unique DNA code used by PSA/DNA is, in fact, applied to the item.  As
      a result, if the label is removed from the item, it is still possible to verify
      that the item was authenticated by us.




Memorabilia
      that have been authenticated by our vintage autograph service include Mark
      McGwire’s 70th home run baseball, which was sold at auction in 1999 for more
      than $3 million, and the baseball bat, autographed by Babe Ruth, which he used
      to hit the first home run ever hit in Yankee Stadium in 1923.  That
      bat recently was sold by Sotheby’s for more than $1.2 million.




We
      also
      offer grading services for autographs.  We use uniform grading
      standards that we have developed to assign two grades to the collectible, one
      based on the physical condition or state of preservation of the autograph,
      and
      the other based on the physical condition of the collectible, using a numeric
      scale of 1-to-10, the highest number representing “Gem Mint” condition or
      perfect quality.




*PSE*.  We
      commenced our PSE stamp authentication and grading service in January
      2000.  In rating the quality of stamps, we assign a numeric grade to
      each stamp that ranges from 1-to-100.  The grade assigned to a stamp
      is based on several characteristics, including the centering of the image on
      the
      stamp and the absence or presence of various faults, such as creases,
      perforation problems and other imperfections that, if present, will reduce
      the
      value of the stamp. For a stamp to receive a grade of 100, which means that
      it
      is in “gem” condition, the image on the stamp must be perfectly centered and the
      stamp must be faultless.  Stamps submitted to us for grading are
      independently examined and graded by at least two of our stamp
      experts.  After a stamp has been authenticated and graded, we
      generally issue a certificate of authentication that briefly describes the
      stamp
      and the grade assigned to it and has a digital image of the stamp
      attached.  The certificate bears the PSE name and logo and a unique
      certification number that we assign to the stamp for record keeping
      purposes.  We also offer our customers the option of having the stamp
      encapsulated in a tamper-evident, clear plastic holder with an encased label
      that, like the certificate, identifies the stamp and sets forth the grade
      assigned to it, its unique certification number and the PSE name and
      logo.




Stamps
      that have been authenticated and graded by us include an 1868 1¢ “Z” Grill U.S.
      postage stamp, which received a PSE grade of Extremely Fine (XF) 90 and was
      last
      sold at auction in 1989 for more than $900,000.  The owner submitted
      the stamp to us shortly after we initiated our stamp authentication and grading
      service in 2000.




The
      volume of stamp authentication and grading submissions through fiscal 2007,
      relative to the number of coin and sportscard submissions, has not been
      material.  Since stamp grading services are relatively new to the
      market, we cannot predict when or even whether our services will gain the level
      of market acceptance needed for stamp grading to become a material contributor
      to our operating results.




18


*Vintage**U.S.**Paper Currency*.  PCGS began marketing a
      vintage U.S. paper currency grading service, under the brand name “PCGS
      Currency” in the third quarter of fiscal 2005.  We have engaged a
      number of paper currency experts to grow this business and to authenticate
      and
      grade vintage paper currency.  We use an adjectival and numeric
      grading system, with a scale of 1-to-70, which is similar to the system that
      we
      use for grading coins, largely because most vintage currency dealers are already
      familiar with that system.  Currently, there are two relatively small
      vintage paper currency authentication and grading companies with which we
      compete, one of which is a subsidiary of, Numismatic Guaranty Corporation of
      America, our principal coin authentication and grading competitor, which started
      a separate vintage paper currency authentication and grading service in the
      first calendar quarter of 2005.  The rare currency market is smaller
      than our other collectibles markets and there is no assurance that our currency
      authentication and grading service will gain broad market acceptance or that
      demand for such services or our entry into that market will generate material
      revenues for us or enable this service to become profitable.




*Diamonds*.**GCAL
      was founded in 2001 and was acquired by the Company in the second quarter of
      fiscal 2006.  We employ diamond grading experts and mineralogists to
      examine, authenticate and grade diamonds.  We use a combination of
      technology and the application of industry standards in this
      process.  To authenticate diamonds, we use a Raman Spectrometer to
      examine the chemical composition and Fourier Transform Infrared Spectrometer
      to
      assist in determining various treatments that may be applied to
      diamonds.  In addition, we use DiamondSure and DiamondView to verify
      diamonds and Sarin instruments to weigh and measure the dimensions along with
      a
      Colorimeter to assist in color grading.  Experts review each diamond
      with respect to established color reference sets and various magnification
      devices to closely examine for imperfections and inclusions that would affect
      the clarity grade and application of clarity standards.  In addition
      to providing information relative to the “4C’s” of diamond grading, we also
      provide a direct measurement of light performance with technology acquired
      as
      part of the GCAL acquisition, and we provide a registration of the Gemprint
      of
      each diamond using the patented technology that produces, records, stores,
      sorts
      and matches digital refractive images from a pinpoint, single laser light source
      applied to the diamond.




GCAL
      assigns
      a quality grade to the diamond by measuring its Cut, Carat, Color and Clarity
      (which are known as the “4C’s” of the diamond).  Cut and Carat are
      measured using measurement equipment, while the Color and Clarity are determined
      by our experts through the application of industry standards.  Grades
      are applied using a scale in Color from a top Color grade of “D” to a faint
      yellow lower Color grade of “M” or lower, and a Clarity grade of “Flawless”
(“FL”) to “Very, Very Slightly Included 1” to “Very, Very Slightly Included 2”
(“VS1” and “VS2”), to the much lower quality grade of “Included 3”
(“I3”).




*Colored
      Gemstones*.  AGL was founded in 1977 and was acquired by the
      Company in the first quarter of fiscal 2007.  We employ colored gemstone
      experts to examine, authenticate, grade, identify enhancements and determine
      the
      country of origin.  We utilize, in addition to industry standards and
      various technologies, a combination of standards, systems and terminology that
      were developed by AGL in grading and certifying colored gemstones.  To
      identify, authenticate and examine enhancements of colored gemstones, we use
      one
      or more technologies including multi-channel spectroscopy, Fourier Transform
      Infrared Spectrometer, Raman Spectrometer, x-ray fluorescence, ultra-violet
      near
      visible infrared spectroscopy, specimen comparison and trace element comparison
      to authenticate colored gemstones from our extensive reference collection of
      over 5,000 samples.  Weight is measured by technologically sophisticated
      scales. Color and tone are reviewed by our experts to determine the application
      of the three digit code for color and tone from a system we developed called
      ColorScan.  Color and hue are described on a numeric scale from 1 to 10 in
      half point increments with tone set forth on a scale from 0-100.  Clarity
      is reviewed to determine the application of a scale using descriptors such
      as
“FI” meaning “Free from Inclusions”, to “MI1” and “MI2” meaning “Moderately
      Included” to “E1”, “E2” and “E3” meaning “Excessively Included”.  A
      critical review of the stone for enhancements is completed relying on the
      reference collection and other testing resulting in the use of descriptions
      and
      disclosures that we developed.  If requested, an analysis of the country of
      origin is performed, comparing the subject stone and its trace elements and
      crystalline structure to those in the reference collection.




19


*Publications
      and Content*.  We publish authoritative price guides and rarity
      reports for coins, sportscards, sports autographs and memorabilia and
      stamps.  This information is available on our website and in our
      publications. These publications include:




•
            *Price
                Guides*.  We provide a wide variety of authoritative price
                guides for a number of collectible markets. For example, we track
                the
                prices at which the 3,000 most actively-traded U.S. coins are sold,
                dating
                back to 1970, and compile and publish this information in a generally
                recognized collectible coin index, known as the
                *CU3000*.




•
            *Rarity
                Reports*.  We compile and publish reports that list the
                total number of coins and sportscards we have graded since our inception,
                categorized by item type and grade determination. We can publish,
                for
                example, the exact number of Mint State (MS) 67-grade 1881-S Morgan
                silver
                dollars that we have graded. We believe that collectors use this
                information to make more 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 collectibles. We write
                informative articles and publish them on our websites. A sense of
                community is also important to collectors. We therefore encourage
                our
                customers to communicate and to write articles which we sometimes
                publish
                on our websites or include in our
                publications.




•
            *Historical
                Content*.  Collecting is often about history, and, in many
                instances, historical events associated with a collectible enhance
                its
                value. In our publications, we provide short histories about unusual
                and
                rare collectibles.  We believe that these historical accounts
                add to the attractiveness and excitement of purchasing such
                items.  During 2004, House of Collectibles, a division of Random
                House, published the second edition of the *Official Guide to Coin
                Grading and Counterfeit Detection*, which was authored by our
                collectible coin experts.  To enhance the historical content
                that we are able to provide dealers and collectors, in the first
                quarter
                of the current fiscal year we acquired CoinFacts.com, which operates
                a
                website at www.coinfacts.com, at which we are now able to offer coin
                dealers and collectors proprietary information about the date and
                mintmark
                combinations of U.S. Colonial Coins, early U.S. coins, such as the
                Liberty
                Cap Half Cent of 1794, to the most recent U.S. minted coins, such
                as the
                Fifty State QuartersTM and the One Ounce American Eagle Gold and Silver
                Bullion Coins currently being produced by the U.S.
                Mint.




•
            *News*.  We
                provide market news and information that are accessible to collectors
                and
                dealers on our websites. The news and information most often relate
                to
                recent events, such as sales of collectibles at record prices, the
                introduction of new collectibles and trends and developments in the
                collectibles markets we serve.




**Marketing**




We
      employ
      both “pull” and “push” strategies in marketing our services to dealers and
      collectors of high-value collectibles and diamonds.  For collectibles,
      our “pull” strategies are designed to promote our brands and increase the
      preference among collectors for our authentication and grading services and
      to
      encourage collectors to communicate that preference to their collectibles
      dealers, because most authentication and grading submissions are made by
      dealers.  In our experience, if a customer requests a particular
      grading service, the dealer ordinarily will comply with that
      request.  On the other hand, if the customer expresses no preference,
      the dealer will make its own choice of authentication and grading service or
      may
      even decide not to submit the collectible to an independent service for
      authentication and grading.




For
      diamonds and colored gemstones, our “pull” strategy is designed to promote our
      services and brands to the retail consumers who are interested in buying a
      diamond or colored gemstone, principally by communicating over the Internet
      to
      this target market through our websites, to which consumers are linked when
      making search engine inquiries for information on diamonds or colored gemstones,
      diamond and colored gemstone pricing, purchasing assistance and other
      searches.  We believe that our websites are distinctive because they
      offer third party education, information and price guides that are not
      associated with the sale of diamonds, diamond jewelry or colored gemstones
      and,
      therefore, are attractive to consumers who are seeking independent and unbiased
      information that will make them more educated and better
      consumers.  Since most diamond submissions come from




20


diamond
      “sightholders” (authorized buyers of rough diamonds from the mining companies)
      and jewelry manufacturers, the objective of our “pull” strategy is to create
      demand from retail consumers for our brand at the retail counter.  For
      colored gemstones, the supply chain is more diversified than for diamonds,
      but
      the strategy to “pull” demand from the retailers and consumers is similar.
 We believe that consumer demand will lead diamond and colored gemstone and
      jewelry retailers to order diamonds, colored gemstones and diamond and colored
      gemstones jewelry that have been graded by one of our services.  In
      addition, we promote our services to the many independent and chain store
      retailers through trade publication advertising and trade show appearances
      to
      demonstrate the benefits of selling diamonds and colored gemstones with our
      diamond and colored gemstone grading certificates in order to encourage
      retailers to ask for or even demand our brand of certification on diamonds
      and
      colored gemstones and diamond or colored gemstone jewelry they purchase from
      sightholders and wholesale distributors.




Therefore,
      our “pull” oriented marketing programs emphasize (i) the protections that
      collectors and retail customers will have if they purchase collectibles,
      diamonds and colored gemstones that we have authenticated and graded, and
      (ii) the improved marketability and higher prices that they and the
      associated retailers can realize if they use our independent third party
      authentication and grading services.




*Our
      “Push” Strategy*, on the other hand, is designed to market our services
      directly to collectibles dealers and to diamond sightholders, colored gemstone
      suppliers and diamond and colored gemstone jewelry manufacturers to encourage
      them to use and promote our services.




*Our
      “Pull” Strategy*.  We have developed and implemented a number of
      marketing programs and initiatives designed to create consumer preference for
      collectibles that have been authenticated and graded by us.  Those
      programs and initiatives include:




•
            *Direct
                Advertising*.  We directly address collectors by advertising
                our services in trade journals and periodicals in each of our markets.
                Those journals include *Coin World*, *Linn’s Stamp News*,
                *Sports Collectors Digest* and *Autograph Collector
                Magazine*.  We make personal appearances at major,
                national-market trade shows around the United States that are attended
                by
                collectors, as well as dealers.  We also participate in and
                support programs conducted by non-profit associations whose members
                are
                primarily collectors, such as the American Numismatic Association
                and the
                American Stamp Dealers Association.




•
            *Set
                Registry Programs*.  We provide collectors with the
                opportunity to participate in free Internet “Set Registry” programs that
                we host on our collectibles websites.  These programs encourage
                collectors to assemble full sets of related collectibles that have
                been
                authenticated and graded by us.  Generally, each registered set
                is comprised of between 50 and 200 separate, but related,
                collectibles.  Examples include particular issues of coins, such
                as Twenty Dollar Gold Double Eagles or Morgan Silver Dollars; particular
                sets of sportscards, such as all Hall of Fame pitchers or a particular
                team, like the 1961 Yankees; or sets of collectible stamps, such
                as
                Columbian Commemoratives or Graf Zeppelin Airmail stamps.  Our
                Set Registry programs enable
                collectors:




—
            to
                register their sets on our websites, which provides them with an
                off-site
                reference source for insurance and informational
                purposes;




—
            to
                display on our websites, and compare the completeness and quality
                grades
                of, the collectibles making up their sets to those of other collectors
                who
                have registered similar sets on our websites, thereby creating a
                competitive aspect to collecting that adds to its excitement;
                and




—
            to
                enter our annual Company-sponsored Set Registry competitions and
                awards
                programs in which collectors can win awards for having collected
                the most
                complete and highest graded sets of particular series or issues of
                coins,
                sportscards or stamps.




The
      collectibles that may be registered on our Set Registries and included in our
      Set Registry competitions are limited to collectibles that have been
      authenticated and graded by us.  To register the collectibles to be
      included in a particular set, a collector is required to enter the unique
      certificate number that we had assigned to each of the collectibles when last
      authenticated and graded by us.  We use the certificate number to
      compare the information being submitted by the collector with our database
      of
      information to verify that the collectibles being registered by a participant
      for inclusion in a particular set qualify to be included in that
      set.






21




We
      have
      found that our Set Registry competitions (i) create a preference and
      increase demand among collectors for our brands, and (ii) promote the
      trading of collectibles authenticated and graded by us by set registrants
      seeking to improve the completeness and overall quality of their sets, which
      generally results in additional authentication and grading submissions to
      us.  Annual awards for set completeness and quality have been issued
      by PCGS and PSA each year since 2002 and by PSE beginning in 2004.  As
      an indication of the popularity of our Set Registry programs, more than 57,000
      sets were registered on our Set Registries as of June 30, 2007, which represents
      a 38% increase over the number registered as of June 30, 2006.




•
            *Collectors
                Clubs Subscription Program*.  We also have established
                “Collectors Clubs” for coin, currency and sportscard
                collectors.  For an annual membership fee, ranging from $50 to
                $230, collectors receive a number of benefits, including (i) the
                right to
                have, without any further charge, a specified number of collectibles
                authenticated and graded by us, a privilege that non-member collectors
                do
                not have; and (ii) access to certain proprietary data that we make
                available on our websites or in print.  As of June 30, 2007,
                there were approximately 18,000 members in our Collectors
                Clubs.




•
            *Certified
                Coin Exchange Business-to-Business Website*.  The Certified
                Con Exchange (CCE) website, which we purchased in 2005, is a
                business-to-business website for recognized dealers in the trade.
                Currently, there are over 200,000 certified coins being offered at
                bid and
                ask at an aggregate value of over $200 million, an increase in excess
                of
                100% of the number of items offered on average in the previous
                year.  The liquidity afforded the units traded on CCE increases
                the demand for PCGS certified
                coins.




•
            *Collectors
                Corner Business-to-Consumer Website*.  We have launched
                Collectors Corner (www.collectorscorner.com), a business-to-consumer
                website where consumers can visit, identify, search, select and sort
                over
                100,000 coins offered for sale by dealers, an increase of over nine
                times
                the number of coins offered on average at Collectors Corner in fiscal
                2006.  All coins on Collectors Corner are offered by members of
                the business-to-business website CCE.  In addition, we launched
                the functional ability for PCGS Set Registry participants to automatically
                search Collectors Corner for specific coins that would increase the
                value
                of the participant’s set on Set Registry by either filling a void in the
                set or by upgrading the quality of a coin currently a part of the
                participant’s set.  Collectors Corner has advantages over other
                business-to-consumer websites in that the counterparties to the consumer
                are members of the largest and best known coin exchange and the coins
                listed are at fixed prices with the opportunity to negotiate lower
                prices.  The increased turnover offered for coins on Collectors
                Corner in conjunction with the relative simplicity of the improvement
                of a
                set in Set Registry provides for increased brand preference for PCGS
                authenticated and graded coins.




•
            *Diamond**Trade**Buyer Website*.  We have launched
                the GCAL diamond website, which is directed to the trade to provide
                information on our services and processes.  The website includes
                details about our service levels and our unique warranty and Gemprint
                application, along with videos of our processes in the
                laboratory.  During the three month period ended June 30, 2007,
                we had (on average) approximately 700 unique visitors a week to this
                trade-oriented website.




•
            *Diamond
                Certificate Co-Branding*.  GCAL has a program of co-branding
                the diamond sightholder or the retailer on the diamond grading certificate
                in order to provide point-of-sale support for the brand or after-sale
                support for the brands once the consumer has taken the diamond
                home.  Diamond sightholders are requested by many diamond mining
                interests to conduct marketing programs to “brand” a diamond from that
                mining interest at the retail counter.  Co-branding on the
                diamond grading certificate is one of the most cost effective ways
                by
                which a sightholder can brand the diamonds it purchases and
                resells.  Retailers are searching for various points of
                differentiation in a sales presentation and co-branded diamond grading
                certificates can create a point of differentiation between the retailer
                and those of its competitors who are not using GCAL’s services.
                 Currently there are several co-branding programs in process
                including programs with retailers Bailey Banks & Biddle, a unit of
                Zale Corporation and Blue Nile, and product manufacturer Vision Cut
                for
                the Cushette brand diamond.




•
            *Certifi**ed
                Diamond Exchange Business-to-Business Website*.  In the very
                near future, we expect to launch the Certified Diamond Exchange,
                a
                business-to-business website for GCAL certified diamonds.  This
                website is targeted to diamond buyers comprised of more than 20,000
                independent, U.S. based jewelry retailers that are members of the
                Jewelers
                Board of Trade, a credit scoring business in the jewelry markets.
The
                targeted sellers are the diamond dealers who have loose diamond inventory
                for sale.  We believe that by making GCAL certified diamonds
                more widely available to theindependent jewelers, we can increase demand for GCAL
                certifications.  Buyers are admitted to the website at no cost,
                and during the launch phase, sellers will not have topay any
                fees to list GCAL certified diamonds on our Certified Diamond
                Exchange.  Similar websites offering diamonds require a fee to
                be paid by both the buyer and theseller.




22






•
            *Colored
                Gemstone Brand Extension*.  Because AGL has an established
                brand associated with the high-value colored gemstones, we believe
                we can
                extend that brand “down market” to the middle value market using the
                existing retail distribution channels and providing retailers and
                customers with information about the AGL brand and its prominence
                for high
                value colored gemstones.




•
            *Colored
                Gemstone Trade Buyer Website*.  We have launched the AGL colored
                gemstone website directed to the trade that provides information
                on our
                services and processes.  The website includes details about our
                service levels and our two key levels of service:  Prestige
                Services and Fast Track Services.




*Our
      “Push” Strategy*.  We also market our services directly to
      collectibles dealers and auctioneers to promote their use of our authentication
      and grading services.  Our marketing message is focused on the
      potential increase in marketability of the collectibles due to the increase
      in
      consumer confidence that is attributable to our authentication and grading
      of
      those collectibles.  These marketing programs include:




•
            *Trade
                Publication Advertising and Direct Communications*.  We
                communicate to dealers and auctioneers by direct contact and through
                advertising in trade journals and publications in the respective
                markets.
                Those journals include *Coin World*, *Linn’s Stamp News*,
                *Sports Collectors Digest* and *Autograph Collector
                Magazine*.  We also communicate with our dealers and with
                auctioneers by direct mail, email, and
                telephone.




•
            *Trade
                Shows and Conventions*.  There are numerous collectibles
                trade shows and conventions held annually in the United States, of
                which
                approximately 30 generally are considered to be the largest and most
                significant in the collectible coin, sportscard, autograph and stamp
                markets.  At these shows and conventions, collectibles dealers
                gather on a trading floor or “bourse” to buy and sell
                collectibles.  We offer same day, on-site authentication and
                grading services, which facilitate the trading and sales of collectibles
                at these shows and conventions.  At the same time, we obtain
                additional brand exposure and generate increased revenues, because
                dealers
                and collectors generally are willing to pay higher fees for same
                day,
                on-site services.




In
      July
      2006, we acquired Expos Unlimited LLC (“Expos”), a tradeshow management company
      that operates two of the larger and better known coin, stamp and collectibles
      shows in Long Beach and Santa Clara, California, respectively.  This
      acquisition assures us of the continued availability of these two show venues
      for our onsite authentication and grading services, provides us a platform
      for
      inaugurating and conducting collectibles shows in our other markets and adds
      management personnel who are experienced in managing and conducting collectibles
      trade shows.




•
            *Our
                Dealer Invitationals*.  We sponsor and host 8-to-10
                “invitation-only” events per year for our larger dealers that provide them
                with forums for buying and selling their collectibles.  We also
                offer same day, on-site authentication and grading services at these
                invitationals.  Like the other trade shows and conventions we
                attend, these invitationals enable us to generate additional
                authentication and grading revenues.  At the same time, because
                we host the invitationals, they provide additional brand exposure
                and
                build goodwill for us among the collectibles
                dealers.




•
            *Authorized
                Dealer Network*.  We have implemented authorized dealer
                programs for coin and sportscard collectibles dealers and auction
                companies.  Authorized dealers are able to use our marketing
                materials which are designed to promote our services and those of
                our
                authorized dealers to collectors.  Those materials include
                “point of sale” and “point of purchase” displays and brochures and direct
                mail pieces for insertion in customer mailings.  In addition,
                authorized dealers may use our brand logotypes on their websites
                to
                attract buyers for coins and sportscards that have been authenticated
                and
                graded by us.  We also conduct joint marketing programs with our
                authorized dealers in which we provide financial support for dealer
                marketing programs, approved by us, that promote both the dealer’s
                products and services and our authentication and grading
                services.





23


•
            *Jewelry
                Trade Publication Advertising, Trade Show Appearances and Educational
                Seminars.*GCAL advertises in the major jewelry trade publications and
                maintains an active press relations campaign. GCAL was featured in
                the May
                2007 issue of *New York Diamonds* for the introduction of GCAL
                services by the company. GCAL also attends the major jewelry trade
                shows
                primarily in the summer (targeted at the fall and holiday selling
                season)
                and late fall and winter (targeted at the Valentine’s Day and Mother’s Day
                season). GCAL also has the opportunity to hold educational seminars
                at
                some of the trade shows and in-store training on grading issues and
                the
                use of the GCAL diamond grading certificate in retail
                transactions.  Because colored gemstones are sold at retail
                through virtually identical channels of distribution, AGL utilizes
                these
                same communication channels in trade publications, trade show appearances
                and educational seminars. This increased utilization of the existing
                communications links, allows for significant synergy between GCAL
                and AGL
                with respect to the time, energy, messaging and expenses in these
                venues.





•
            *Cross-Marketing
                Between GCAL and**AGL*.  GCAL is establishing
                relationships with retailers to provide diamond authentication and
                grading
                services for the middle market.  By introducing the AGL brand to
                the retailers and drawing on the high value brand recognition of
                AGL and a
                more value-driven pricing program, we believe we can cross-market
                AGL
                services to the GCAL relationships.  At the same time, AGL has
                relationships with some of the high value sellers like Sotheby’s and
                Christies.  By introducing GCAL to these high value sellers and
                describing the benefits of GCAL certifications, including the grading
                warranties offered by GCAL and the security benefits of Gemprint,
                we
                believe we can cross-market GCAL to the AGL relationships.  As a
                result of those cross-marketing efforts, Christies, which is a long-time
                AGL customer, will soon begin including, in its diamond auction
                catalogues, descriptions or copies of GCAL grading certificates to
                promote
                the sale of GCAL certified-diamonds at its
                auctions.




*eBay
      Promotional Programs*.  Since 1999, we have worked with eBay on
      programs to increase the volume of collectibles traded on eBay and, at the
      same
      time, to provide greater exposure for our authentication and grading services.
      Current programs include:




•
            *Informative
                and Educational Web Pages*.  We have created web pages for
                eBay specifically designed to inform and educate eBay buyers and
                sellers
                about the benefits of our authentication and grading services. eBay
                includes, on its collectibles web pages, links to our web pages and
                encourages its collectibles customers to use our services. eBay has
                similar programs with other collectibles authentication and grading
                services.




•
            *Quick
                Opinion Autograph Authentication Service*.  We have
                developed, for eBay’s customers that visit its sports memorabilia auction
                website, a fee-based “Quick Opinion” autograph authentication
                service.  For a prescribed fee, currently $7 per autograph, an
                eBay visitor that is interested in selling or buying an autographed
                item
                of memorabilia on the eBay auction website can obtain, from one of
                our
                autograph experts, a “quick” opinion as to the authenticity of the
                autograph, generally provided within a day of submission.  The
                opinion is based on an examination of a digital image of the autograph
                posted on eBay and, due to the limitations inherent in this process,
                we do
                not warrant the accuracy of these opinions.  The fees generated
                by this service are shared between us and
                eBay.




24


**Intellectual
      Property**




Our
      intellectual property consists primarily of trademarks, copyrights, 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.  The following table sets forth a list of our
      trademarks, both registered and unregistered, that are currently being used
      in
      the conduct of our business:




**Registered
                Marks**
            
            **Unregistered
                Marks**Collectors
                Universe
            
            World
                Series of Grading
            
            PSEPCGS
            
            CU3000
            
            Coin
                UniverseProfessional
                Sports Authenticator
            
            PSE
            
            Collectors.comPSA
            
            History
                in Your Hands
            
            Record
                UniversePSA/DNA
            
            First
                Strike
            
            PCGS
                CurrencyCurrency
                Universe
            
            Diamond
                Market Monitor
            
            Set
                RegistryFirst
                Strike
            
            Diamond
                Profile
            
            Expos
                UnlimitedGemprint
                Appraiser
            
            Gemprint
            
            Long
                Beach Coin, Stamp and Collectibles ExpoPalmieri’s
                Market Monitor
            
            Professional
                Currency Grading
            
            Santa
                Clara Coin, Stamp and Collectibles ExpoQuick
                Opinion
            
            Source
                VeritasSports
                Market Report
            
            AGL




We
      have
      not conducted an exhaustive search of possible prior users of the unregistered
      trademarks listed above and, therefore, it is possible that our use of some
      of
      these trademarks may conflict with others.




The
      Company owns several patents related to the Gemprint process and scanning
      device. The principal patent is number 5,828,405 issued by the United States
      Patent and Trademark Office (“USPTO”) in 1998. Generally, this patent provides
      for the capture of the unique optical response of a gemstone (or optical
“fingerprint”) where a laser beam is focused on the gemstone and the optical
      response is recorded in a digital image. This is accomplished at a controlled
      site, currently in the form of a small rectangular box about the size of a
      breadbox, and connected to a desktop computer or other computing system for
      receiving and displaying a data signal from a two dimensional video camera.
      The
      two dimensional video camera id part of a light image capture arrangement
      comprising a laser diode in combination with optical means for producing a
      collimated light beam directed at a gemstone. The gemstone is oriented in a
      predetermined manner relative to the light beam and a screen surface is located
      to collect and display the unique light pattern from a gemstone. The video
      camera directed at the screen surface is sized to collect the image in a digital
      format and directs the data signal to the attached computing device. With a
      communication link to a database through a local area network or through the
      Internet, the digital image is stored in a standardized manner. In a similar
      manner, subsequent digital images can be obtained and then compared using an
      algorithm to those images on the database. Other related patents are 5,124,935
      and 2,679,821 issued by USPTO and related patents filed in the United Kingdom,
      Canada and Israel.




**Collectibles
      Experts**




As
      of
      June 30, 2007, we employed 47 experts in our authentication and grading
      operations, who have from 3 to 50 years, and an overall average of 25 years,
      of
      experience.  Our experts include individuals that either (i) had
      previously been collectibles dealers or were recognized as experts in the
      markets we serve, (ii) who we have trained in our authentication and
      grading methodologies and procedures, or in the case of diamonds, who have
      been
      trained in the vocational schools and/or have experience in grading in competing
      organizations.  However, talented authentication and grading experts
      in collectibles are in short supply and there is considerable competition among
      collectibles authentication and grading companies for their
      services.  As a result, we have recently increased our focus on
      training young authenticators and graders who we believe have the skills or
      knowledge base to become collectibles experts.  We also sometimes
      contract with outside experts, usually collectibles dealers, to assist us with
      special grading issues or to enable us to address short-term increases in
      authentication and grading orders.




**Service
      Warranties**




We
      issue
      an authenticity or grading warranty with every coin and sportscard authenticated
      or graded by us. Under the terms of the warranty, if a coin or sportscard that
      was graded by us later receives a lower grade upon resubmission to us for
      grading, we are obligated either to purchase the coin or sportscard at the
      price
      paid by the




25


then-owner
      of the coin or sportscard or, instead, if we so choose, to pay the difference
      in
      value of the item at its original grade as compared with its lower
      grade.  Similarly, if a coin or sportscard that has been authenticated
      by us is later determined not to have been authentic, we are obligated under
      our
      warranty to purchase the coin or sportscard at the price that the then-owner
      paid for that collectible.  We accrue for estimated warranty costs
      based on historical claims experience.




Before
      returning an authenticated or graded coin or sportscard to our customer, we
      place the coin or sportscard in a tamper-evident, clear plastic holder that
      encapsulates a label identifying the collectible as having been authenticated
      and graded by us.  The warranty is voided in the event the plastic
      holder has been broken or damaged or shows signs of tampering.




We
      do not
      provide a warranty with respect to our opinions regarding the authenticity
      or
      quality of autographs.




We
      recently began offering a warranty with respect to the color and clarity grades
      assigned by GCAL to the diamonds it grades, which is the first such warranty
      offered by any diamond grading service.  Under the terms of the
      warranty, if a diamond certified by GCAL is submitted for subsequent grading
      by
      GCAL within two years of the date of the original certification (which often
      occurs if the diamond is being sold), and, on that resubmittal receives a color
      or clarity grade that is lower than its original color or clarity grade, we
      will
      be obligated either to purchase the diamond at the price paid by the then-owner
      of the diamond or, instead, if we so choose, to pay the difference in value
      of
      the diamond at its original grade as compared with its lower grade.




**Customer
      Service and Support**




We
      devote
      significant resources, including a 24 person staff, to providing personalized
      customer service and support in a timely manner handling approximately 400
      customer service calls per day.  On our websites, customers are able to
      check the status of their collectibles submissions throughout the authentication
      and grading process and to confirm the authenticity of the over 18 million
      collectibles that we have graded. When customers need services or have any
      questions, they can telephone or e-mail our support staff, Monday through Friday
      between the hours of 7:00 A.M. and 5:00 P.M., Pacific Time. We also involve
      our
      collectibles and diamond experts in providing support services when necessary
      to
      address special issues.




**Supplies**




In
      order
      to obtain volume discounts, we have chosen to purchase most of the
      injection-molded plastic parts for our clear plastic holders principally from
      a
      single supplier.  There are numerous suppliers for these items,
      however, and we believe that, if necessary, we could obtain those items from
      any
      of those other suppliers without significant cost to us. However, if it were
      to
      become necessary for us to obtain another supplier, we might have to arrange
      for
      the fabrication of a die for the new supplier.  Fabrication of high
      precision dies can be a lengthy process.  Therefore, it is our
      practice to maintain at least a one month supply of these molded plastic parts
      in inventory.




**Competition**




*Coin
      Authentication and Grading*.  We have three primary competitors in
      the coin authentication and grading market: Numismatic Guaranty Corporation
      of
      America (“NGC”), Independent Coin Grading and ANACS, a subsidiary of Amos Press,
      Inc.




*Sportscard
      Authentication and Grading*.  We have two primary competitors in
      sportscard authentication and grading: Beckett Sportscard Grading Corporation,
      and Sportscard Guaranty, LLC.




*Autograph
      Authentication and Grading*.  In the vintage autograph
      authentication market, we compete with James Spence Authentication (“JSA”) and a
      few smaller competitors.




*Stamp
      Authentication and Grading*.  In stamp authentication, our
      principal competitors are the Philatelic Foundation and the American Philatelic
      Society, both of which are non-profit organizations.  The Philatelic
      Foundation also grades stamps.




26


*Currency
      Authentication and Grading.*  We have two competitors in
      currency:  Paper Money Guaranty, (a subsidiary of NGC), and a smaller
      startup competitor.




*Diamond
      Authentication and Grading.*  In the diamond grading market, we
      compete with ten other grading services, several of which are larger, have
      been
      in business longer and are better known than GCAL.  Our principal
      competitors are the Gemological Institute of America, a non-profit educational
      organization (GIA); AGS Laboratories, an affiliate of the American Gem Society,
      a non-profit trade association; European Gemological Laboratories; International
      Gemological Institute; and Gemological Science International.




*Colored
      Gemstone Authentication and Grading.*In the colored gemstone market, we
      compete with six or more such services, some of which have operating histories
      longer than AGL. Our principal competitors are Gubelin Gemological Laboratories,
      Schweizerische Stiftung für Edelstein-Forschung (SSEF, or the Swiss Gemological
      Institute), a non-profit organization, and Gemological Testing Center of the
      American Gem Trade Association, a non-profit trade association.




The
      principal competitive factors in our authentication and grading markets are
      (i) brand recognition and awareness, (ii) an established reputation
      for integrity, independence and consistency in the application of grading
      standards, and (iii) responsiveness of service.  Price is much
      less of a factor in the case of vintage collectibles, but is a more important
      consideration with respect to modern coins and sportscards because of their
      significantly lower values.  Price is a more important competitive
      factor in the diamond market, due to the larger number of
      competitors.  Because the current market in colored gemstones
      certification is primarily focused on high-value colored gemstones, price is
      not
      as important a consideration as the credibility and history of the particular
      grading service.  We believe that our PCGS, PSA, PSA/DNA, PSE and PCGS
      Currency brands compete favorably with respect to all of these factors and
      are
      among the leaders in each of their respective markets.  We believe that our
      GCAL brand is a premium brand in the diamond market, interpreting the grading
      standards in a rigorous and consistent manner, and one of the three or four
      top
      quality brands, despite the fact that it is the smallest, in terms of the volume
      of grading submissions, as compared to its principal competitors.  We
      believe that AGL is a premium brand and competes favorably with respect to
      all
      of these factors.




Barriers
      to entry into the authentication and grading market are relatively low,
      especially in the sportscard authentication and grading
      market.  However, brand name recognition and a reputation for
      integrity, independence and consistency in the application of grading standards
      can take several years to develop.  The limited supply of collectibles
      experts also operates as a barrier to entry or expansion in our collectibles
      markets.  By contrast, the supply of grading experts in the diamond
      and colored gemstone markets are much more plentiful.  In colored
      gemstones, the availability of a suitable and trusted reference collection
      is
      essential to providing accurate enhancement and country of origin
      analysis.





**Information
      Technology**




We
      have
      developed proprietary software systems that we use in our authentication and
      grading operations, principally for order tracking, processing and
      recordkeeping, and the operation and maintenance of our Internet websites.
      These
      software systems include Grading Management and Production Systems, Set
      Registry, Population Reports, Price Guides, Market Indexes, Article Libraries,
      QuickOpinion Systems and Featured Dealer Systems. These systems operate on
      software platforms in Microsoft Visual Basic.NET, Microsoft C#, Microsoft
      ASP.NET and Microsoft SQL Server. We also have legacy systems, which we are
      in
      process of replacing, in Cold Fusion and Visual Basic 6. We also maintain an
      integrated local area network that assists in and provides certain controls
      on
      production, physical product movement, accounting and financial functions,
      data
      warehousing and other tasks. During the fiscal year ended June 30, 2007, these
      systems tracked the authentication and grading process and generated records
      and
      data for over 3.1 million collectibles submitted to us for authentication and
      grading, without significant disruption or loss of service.




Although
      we do not primarily conduct our business on the Internet, we do use the Internet
      for information exchange and delivery of market-oriented content and for our
      Set
      Registry and certain of our other marketing programs. As a result, we have
      over
      50 Dell PowerEdge Servers with RAID protected storage, along with multiple
      fully
      redundant SQL Server 2000 and 2005 high-availability database clusters
      supporting over four terabytes of storage. The majority of this hardware resides
      at our headquarters in a server room that has 24/7 environmental monitoring
      and
      alerting through hardware sensors, 24/7 network availability and performance
      monitoring and




27


alerting
      through network management software and 24/7 Internet availability and
      performance monitoring and alerting through third party providers. The Internet
      connectivity flows through multiple Internet providers with an aggregate of
      47
      megabits of total Internet bandwidth using multiple layers of Internet firewall
      protection, including five Cisco PIX firewalls (across multiple locations).
      We
      maintain a multi-tiered antivirus and anti-spam SMTP infrastructure scanning
      all
      incoming mail through multiple different AV engines. Critical systems are backed
      up nightly using a backup infrastructure with a thirty terabyte capacity
      (expandable through drive upgrades to hundreds of terabytes).  The network
      servers and infrastructure are managed by administrators certified by Microsoft,
      Cisco and CompTIA.




Although
      we have limited redundancy with our remote computer systems in both the New
      York, NY and Santa Barbara, CA offices, we do not have real-time fully redundant
      computer systems at a location that is remote from Southern California, where
      our primary computer systems currently are located.  As a result, any
      damage to or failure of our computer systems due to a catastrophic event in
      Southern California, such as an earthquake, could cause an interruption in
      our
      services.




**Government
      Regulation**




With
      the
      exception of laws in some states that require memorabilia authenticators to
      certify to the accuracy of their authentication opinions, there are no material
      government regulations specifically relating to the authentication and grading
      businesses that we conduct, other than regulations that apply generally to
      businesses operating in the markets where we maintain operations or conduct
      business.  However, our dealer finance program will be subject to
      numerous laws and regulations in those states in which we may make loans to
      dealers.




**Disposition
      of Collectibles Sales Businesses**




During
      the period from 1999 through the latter part of fiscal 2004, we also were
      engaged in the business of marketing and selling collectible coins, sportscards,
      currency and sports entertainment and historical memorabilia, primarily at
      multi-venue auctions.  We also sold collectible coins by direct sales
      methods.




In
      December 2003, our Board of Directors authorized management to implement a
      plan
      to focus our financial and management resources, and collectibles expertise,
      on
      the operations and growth of our authentication and grading businesses, and
      to
      divest the collectibles auctions and direct sales businesses.




As
      a
      result of this decision, we sold our collectibles sales businesses during fiscal
      2004, but retained the collectibles inventory and accounts receivables of those
      businesses, which we have substantially liquidated.  We also
      terminated the licenses under which we operated our David Hall Rare Coins
      Division, which had been engaged in the business of selling collectible coins
      at
      retail.  We generated cash of $599,000, 751,000 and $2,332,000 in
      fiscal years ended June 30, 2007, 2006 and 2005, from the disposition of those
      businesses and the liquidation of their inventories and accounts
      receivables.




The
      divestiture of the collectibles sales businesses has enabled us to focus our
      financial and managerial resources on growing our existing authentication and
      grading revenues and extending our authentication and grading business into
      new
      markets, such as the diamond and colored gemstone markets, and to reduce our
      operating expenses, and, thereby, increase our overall profitability, as
      compared to the periods prior to the disposition of those collectibles sales
      businesses.





**Employees**




As
      of
      June 30, 2007, we had 248 full-time employees and 46 part-time employees, of
      which 201 were employed in our authentication and grading-related businesses,
      including our 47 experts and 24 customer service and support personnel. The
      other employees included 15 in information services, 5 in marketing, 3 in our
      CCE subscription business, 25 in our Expos business, of which 24 were
      part-time employees, and 45 in other business and administrative
      services.  We have never had a work stoppage, and no employees are
      represented under collective bargaining agreements. We consider relations with
      our employees to be good.




28


**ITEM
      1A                      RISK
      FACTORS**




Our
      business is subject to a number of risks and uncertainties that could prevent
      us
      from achieving our business objectives and that could hurt our future financial
      performance and the price performance of our common stock, and cause our future
      financial condition and future financial performance to differ significantly
      from our current expectations, which are described in the forward-looking
      statements contained in this Annual Report.  Those risks and
      uncertainties, many of which are outside of our control, include the
      following:




**A
      decline in the popularity of high-value collectibles and a resulting decrease
      in
      submissions for our services could adversely impact our
      business.**




The
      volume of collectibles submitted to us for authentication and grading is
      affected by the demand for and market value of those collectibles.  As
      the demand for and value of collectibles increase, authentication and grading
      submissions, as well as requests by submitters for higher price, faster
      turn-around times, also increase.  However, that also means that a decline
      in popularity and, therefore in the value, of the collectibles that we
      authenticate and grade would cause decreases in authentication and grading
      submissions and in the requests we receive for faster turn-around times and,
      therefore, also in our revenues and profitability.  We have found, over the
      years, that the popularity of collectibles can vary due to a number of factors,
      most of which are outside of our control, including perceived scarcity of
      collectibles, general consumer confidence and trends and their impact on
      disposable income, precious metals prices, interest rates and other general
      economic conditions.  For example, declines in gold prices or further
      increases in interest rates could lead to reductions in authentication and
      grading submissions and, therefore, could adversely affect our profitability
      and
      financial condition.




**Declines
      in general economic conditions could result in decreased demand for our
      services, which could adversely affect our operating
      results.**




The
      availability of discretionary or disposable income is an important factor in
      the
      willingness and ability of collectors and consumers to purchase, and the prices
      that they are willing to pay for, high-value collectibles, diamonds and colored
      gemstones.  Declines in purchases and sales, and in the value, of
      collectibles, diamonds or colored gemstones usually result in declines in the
      use 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 adversely affect our operating results
      by
      (i) reducing the frequency with which collectibles dealers and collectors
      submit their coins, sportscards and other collectibles for authentication and
      grading; (ii) consumers purchasing fewer diamonds; thereby leading to a lower
      number of diamonds for grading by retailers; (iii) causing collectibles dealers
      and collectors to request longer authentication and grading turn-around times
      with respect to the collectibles they submit to us for grading, which would
      reduce our revenues and profitability, and (iv) reducing the ability of
      customers to pay outstanding accounts receivable.




**Temporary
      popularity of some collectibles may result in short-term increases, followed
      by
      decreases, in the volume of submissions for our services, which could cause
      our
      revenues to fluctuate.**




Temporary
      consumer popularity or “fads” among collectors may lead to short-term or
      temporary increases, followed by decreases, in the volume of collectibles that
      we authenticate and grade.  These trends may result in significant
      period-to-period fluctuations in our operating results and could result in
      declines in our net revenues and profitability, not only because of a resulting
      decline in the volume of authenticating and grading submissions, but also
      because such trends could lead to increased price competition, which could
      require us to reduce our authentication and grading fees in order to maintain
      market share.  For example, the number of coins submitted to us for
      grading declined during 2007 relative to 2006 and 2005, due in part to a decline
      in the popularity of certain coin grading programs.




**Our
      revenues and income depend significantly on revenues generated by our coin
      authentication and grading services. A decrease in the level of submissions
      for
      these services, which historically has been impacted by changes in economic
      conditions, could adversely affect our revenues and results of
      operations.**




Coin
      authentication and grading and related services accounted for approximately
      58%,
      65% and 69% of our net revenues in fiscal 2007, 2006 and 2005,
      respectively.  In fiscal 2005, coin grading was the segment of our
      authentication and grading business that experienced the most significant
      increases in net revenues; whereas during




29


fiscal
      2006 and 2007, coin grading revenues experienced essentially no growth.  We
      believe that the fluctuations in coin grading submissions have been due, at
      least in part, to the volatility of and uncertainties regarding the performance
      of the stock markets, the level of interest rates, and fluctuations in the
      value of the U.S. Dollar, which can lead investors to shift some of their
      investments between stocks and bonds and precious metals.  The lack of
      diversity in our sources of revenues and our dependence on coin grading
      submissions for a majority of our net revenues make us more vulnerable to
      adverse changes in economic conditions.  These adverse changes include
      declines in the value of precious metals or recessionary conditions that could
      result in declines in collectibles authentication and grading submissions
      generally or, more particularly, in collectible coin submissions that would,
      in
      turn, result in reductions in our total net revenues and income.




**Our
      top 5 customers, account for approximately 14% of our total net
      revenues.**




During
      the year ended June 30, 2007, five of our coin authentication and grading
      customers accounted for approximately 14% of our total net
      revenues.  As a result, the loss of any of those customers, or a lower
      level of grading submissions by any of those customers, may cause our net
      revenues to decline and, therefore, could harm our profitability.




**Our currency,
      diamond and colored gemstone authentication and grading businesses are in their
      start-up phases.  There can be no assurance that these businesses will
      prove to be successful.**




We
      purchased our diamond grading and colored gemstone businesses in November 2005
      and August 2006, respectively, and we started our currency authentication and
      grading business in March 2005.  These businesses have yet to make a
      material contribution to our net revenues.  To date,
      our currency, diamond and colored gemstone grading businesses have incurred
      operating losses and there is no assurance that these services will gain
      market acceptance or will ever make a material contribution to our net revenues
      or achieve profitability.  If they do not, we may have to discontinue,
      and write off our investments in, those businesses.




**Future
      acquisitions and the commencement of new businesses present risks, and we may
      be
      unable to achieve the financial and strategic goals of any acquisition or
      commencement of any new business.**




One
      component of our growth strategy is to acquire existing or to start new
      businesses that serve other markets for other collectibles or high-value assets.
      In fiscal 2006, we acquired four businesses and, in fiscal 2007, we acquired
      two
      other businesses, a colored gemstone grading business and a trade show
      management company.  The purchase of these new businesses will present
      a number of risks and uncertainties, including:





•
            difficulties
                in integrating newly acquired or newly started businesses into existing
                operations, as a result of which we may incur increased operating
                costs
                that would adversely affect our operating
                results;




•
            the
                risk that our current and planned facilities, computer systems and
                personnel and controls will not be adequate to support our expanded
                operations;




•
            diversion
                of management time and capital resources from our existing businesses,
                which could adversely affect their performance and our operating
                results;




•
            dependence
                on key management personnel of acquired or newly started businesses
                and
                the risk that we will be unable to integrate or retain such
                personnel;




•
            the
                risk that new services we may introduce or begin offering, whether
                as a
                result of internal expansion or business acquisitions, will not gain
                acceptance;




•
            competition
                from established or larger competitors in new markets, such as (in
                our
                diamond grading business), which could adversely affect the financial
                performance of any of the businesses we may have acquired or started;
                and




•
            the
                risk that the anticipated benefits of any acquisition or of the
                commencement of any new business may not be realized, in which event
                we
                will not be able to achieve an acceptable return on our
                investment.




30


**There
      are risks associated with new service offerings, including our dealer financing
      program, with which we have little experience.**




We
      are
      continually exploring new services that we might introduce and offer to our
      existing authentication and grading customers as a means of increasing our
      net
      revenues and profitability.  Those new services, however, may prove to
      be unprofitable and negatively impact our operating results.




One
      of
      those new services that we introduced in fiscal year 2005 is a Dealer Financing
      Program that involves our making short-term loans to collectibles dealers that
      are collateralized by the collectibles that they submit or have been submitted
      to us for authentication and grading.  There is no assurance that we
      will be successful in achieving sustained profitability in our Dealer Financing
      Program.  Additionally the lending business is subject to a number of
      risks and uncertainties, and we have limited loan underwriting and collection
      experience.  In addition, the failure or inability of borrowers to
      repay their loans is an inherent risk in a lending business.  Our
      ability to minimize loan losses will depend on several factors,
      including:


•
            The
                loan underwriting policies and controls we continue to adopt and
                implement, which could prove to be inadequate to prevent loan losses
                from
                occurring;




•
            Our
                ability to sell collateral, when a borrower defaults in the payment
                of a
                loan, for amounts sufficient to offset loan losses, which can be
                affected
                by a number of factors outside of our control, including (i) changes
                in economic conditions, (ii) increases in market rates of interest
                and (iii) changes in the condition or value of the collateral that
                will secure the loans we make; and




•
            The
                reserves we will need to establish for potential loan losses, which
                may
                prove to be inadequate, in which case we would have to incur additional
                charges, which would have the effect of reducing our net income and
                could
                negatively impact our financial
                condition.




Additionally,
      the business of lending is subject to numerous state and certain federal laws
      and regulations, which may impose significant costs or limitations on the way
      we
      conduct or expand such a business.




We
      currently have a $7 million bank line of credit, expiring on September 30,
      2007,
      that we can use to fund some of the eligible loans we make.  To-date,
      we have not utilized this line of credit, as we have adequate cash resources
      to
      fund the Dealer Financing Program.  However, in the event we make
      borrowings under this line of credit in the future, we cannot assure that our
      cash flow from the operations of our dealer finance program will be sufficient
      to enable us to repay any borrowings under the line of credit.  Also,
      the loan agreements establishing the line of credit impose certain restrictive
      covenants on the Company which could operate to restrict our plans to grow
      our
      business.   We plan to seek a renewal of the existing line of
      credit or to establish a new line of credit at the time the existing line of
      credit expires at September 30, 2007.  However, there is no assurance
      that we will succeed in doing so.




**We
      are dependent on our key management personnel.**




Our
      performance is greatly dependent on the performance of our senior management
      and
      certain other key employees.  As a result, the loss of the services of
      any of our executive officers or other key employees could harm our business.
      Some of our executive officers and key employees are experts in the collectibles
      markets and have industry-wide reputations for authentication and grading of
      collectibles.  In particular, the loss of Michael R. Haynes, our Chief
      Executive Officer, or David G. Hall, our President, could have a negative effect
      on our reputation for expertise in the collectibles markets in which we operate
      and could lead to a reduction in authentication and grading submissions to
      us.




**We
      are dependent on our collectibles experts.**




In
      certain of our markets, there are a limited number of individuals who have
      the
      expertise to authenticate and grade collectibles, and competition for available
      collectibles experts is intense. Accordingly, our business and our growth
      initiatives are heavily dependent on our ability (i) to retain our existing
      collectibles experts, who have developed relatively unique skills and enjoy
      a
      reputation for being experts within the collectibles markets, and (ii) to
      implement personnel recruiting, succession and training programs that will
      enable us to add collectibles experts, as




31


necessary,
      to grow our business and offset employee turnover that can occur from time
      to
      time.  As a result, we have initiated an “apprentice program” in our
      coin grading business. If we are not successful in retaining our existing
      collectibles experts or in hiring and training new collectibles experts, this
      could limit our ability to grow our business and adversely affect our operating
      results and financial condition. Moreover, some of our experts could leave
      our
      company to join a competitor or start a competing business.




**We
      could suffer losses on authentication and grading
      warranties.**




Certain
      of our grading service businesses offer customers service
      warranties.  The warranties offered by our collectibles grading
      businesses provide that:




•
            if
                any collectible we have authenticated and sealed in our tamper-evident
                plastic cases is later determined not to have been genuine, we would
                have
                to purchase the collectible at the price paid for it by its then
                owner;
                and




•
            if
                any collectible that was graded by us and sealed in our tamper-evident
                plastic cases later receives a lower grade upon resubmission to us
                for
                grading, we would be obligated either to purchase the collectible
                at the
                price paid by its then owner or to pay the difference in its value
                at its
                original grade as compared to its value at the lower
                grade.




GCAL
      offers a grading warranty which provides that, if a diamond graded by us is
      submitted for re-grading within two years and, on re-grading is assigned a
      color
      or clarity grade that is more than one grade lower than the original color
      or clarity grade it received, GCAL will become obligated to purchase the diamond
      at the price paid by its then owner or, if GCAL so chooses, to pay the
      difference in its value at its original grade as compared to its value at the
      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 and financial
      condition.




**Increased
      competition could adversely affect our financial
      performance.**




Although
      there are few major competitors in the collectibles authentication and grading
      markets in which we currently operate, competition in these markets is,
      nevertheless, intense.  In addition, in the diamond market there are a
      number of grading services that are substantially larger, have been in business
      substantially longer and are better known than GCAL.  Increased
      competition in our collectibles markets could adversely affect our pricing
      and
      profit margins and our ability to achieve further growth, and we cannot assure
      that we will continue to be successful in competing against existing or future
      competitors in our collectibles markets.  In our diamond business, as
      we implement its growth strategy, we are likely to encounter intense competition
      from larger and more established competitors that have significant market
      shares.  Also, our entry into new collectibles or high-value asset
      markets could lead other potential competitors to enter those markets as
      well.  Such competition could adversely affect our ability to generate
      profits and could cause us to continue to incur losses in those markets and
      damage our financial condition.




**We
      depend on our ability to protect and enforce our intellectual property
      rights.**




We
      believe that our patents, trademarks and other proprietary rights are important
      to our success and competitive position. We rely on a combination of patents,
      trademarks, copyright and trade secret laws to establish and protect our
      proprietary rights.  However, the actions we take to establish and
      protect our intellectual and other proprietary rights may prove to be inadequate
      to prevent imitation of our services or products or to prevent others from
      claiming violations of their intellectual and proprietary rights by us. In
      addition, others may develop similar trade secrets or other intellectual
      property independently or assert rights in our intellectual and other
      proprietary rights that could lead them to seek to block sales of our services
      based on allegations that use of some of our marks or other intellectual
      property constitutes a violation of their intellectual property
      rights.




32


**Our
      unregistered trademarks could conflict with trademarks of
      others.**




We
      have
      not conducted an exhaustive search of possible prior users of our unregistered
      trademarks, including Coin Universe, Collectors.com and PSE. Therefore, it
      is
      possible that our use of some of these trademarks may conflict with others.
      As a
      result, we could face litigation or lose the use of some of these trademarks,
      which could have an adverse effect on our name recognition and result in a
      decrease in revenues and an increase in expenses.




**The
      imposition of government regulations could increase our costs of doing
      business.**




With
      the
      exception of state laws applicable to autograph authentication, the collectible
      coin and other high-value collectibles markets are not currently subject to
      direct federal, state or local regulation. 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,
      or regulating the conduct of auction businesses. Adoption of laws or regulations
      of this nature could lead to a decline in sales and purchases of collectibles
      and, therefore, also to a decline in the volume of coins, sportscards and other
      collectibles that are submitted to us for authentication and
      grading.




**Our
      reliance on a single source for principally all of our “tamper-evident,” clear
      plastic coin and sportscard holders exposes us to potential supply and quality
      problems.**




We
      place
      all of the coins, sportscards and currency notes, and sometimes also the stamps
      that we authenticate and grade, in tamper-evident, clear plastic
      holders.  In order to take advantage of volume pricing discounts, to
      date, we have chosen to purchase substantially all of those holders, on a
      purchase order basis, from one principal supplier.  Our reliance on a
      single supplier for a substantial portion of those plastic holders exposes
      us to
      the potential for delay in our ability to deliver timely authentication and
      grading services in the event that supplier were to terminate its services
      to us
      or to encounter financial or production problems.  If, in such an
      event, we were unable to obtain replacement holders in a relatively short period
      of time, we could lose customer orders, or incur additional production
      costs.  Therefore, we are currently evaluating new vendors, as an
      alternative source of supply for certain of our high-volume
      holders.  In addition, if the replacement holders were not of
      comparable quality to our existing supplier, we could expose ourselves to the
      potential for additional warranty claims in the event that tampering with our
      holders was not evident.  These occurrences could cause a decline in
      our net revenues and have a material adverse effect on our results of
      operations.




**Our
      computer and network systems may be vulnerable to unforeseen problems and
      security risks, and we are vulnerable to system failure due to a lack of
      redundant systems at another location.**




Our
      operations are dependent on our ability to protect our computer systems that
      we
      use in our authentication and grading operations and to maintain our websites
      against damage from fire, power loss, telecommunications failure, earthquakes
      and similar catastrophic events. In this regard, Southern California, where
      we
      are primarily located, is particularly vulnerable to earthquakes and fires
      that
      could result in damage to our computer systems.  In addition, our
      diamond operations are located in a New York City high-rise building that could
      be vulnerable to terrorist attacks or to fire or other disasters.  We
      do not have redundant computer systems at a location that is remote from
      Southern California. Any damage to or failure of our computer systems could
      cause an interruption in our services that could harm our business, operating
      results and financial condition.




In
      addition, our operations are dependent on our ability to protect our computer
      systems and network infrastructure from damage that could occur from physical
      break-ins, security breaches and other disruptive problems caused by the
      technology that we employ in our operations. Computer break-ins and security
      breaches also could jeopardize the security of information stored in and
      transmitted through our computer systems and network infrastructure, which
      could
      cause us to incur significant liability and possibly also damage our reputation.
      Other disruptions due to problems on the Internet or actions of Internet users
      could make it difficult for our customers to access our websites. In either
      case, problems of this nature could adversely affect our business and operating
      results, and security breaches that would adversely affect the privacy of
      customer information could lead existing customers to terminate their business
      relationships with us. Although we intend to continue to implement and upgrade
      sophisticated technology to prevent such disruptions and damage, there is no
      assurance that our security measures will prove to be successful.




33


**We
      rely on third parties for various Internet and processing
      services.**




Our
      operations depend on a number of third parties for Internet access and delivery
      services. We have limited control over these third parties and no long-term
      relationships with any of them. For example, we do not own a gateway onto the
      Internet, but, instead, rely on Internet service providers to connect our
      website to the Internet. Should the third parties that we rely on for Internet
      access or delivery services be unable to serve our needs for a sustained time
      period as a result of a strike, natural disaster or other reason, our revenues
      and business could be harmed.




**We
      are exposed to potential risks and we will continue to incur costs as a result
      of the internal control testing and evaluation process mandated by Section
      404
      of the Sarbanes-Oxley Act of 2002.**




Although
      we continue to document and test the effectiveness of our internal controls
      over
      financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of
      2002, we expect we will continue to incur costs, including accounting fees
      and
      other personnel costs in order to maintain compliance with that Section of
      the
      Sarbanes-Oxley Act.  Also, if our efforts to comply with new or
      changed laws, regulations and standards differ from the activities intended
      by
      regulatory or governing bodies due to ambiguities related to our practices,
      our
      reputation may be harmed or we may be subject to litigation.




**If
      our quarterly results are below the expectations of securities market analysts
      and investors or we decide to suspend or discontinue the payment of dividends,
      the price of our common stock may decline.**




Many
      factors, including those described in this “Risk Factors” section, can affect
      our business, financial condition and results of operations, which makes the
      prediction of our future financial results difficult.  These factors
      include:




•
            increases
                or decreases in number of collectibles or diamonds graded from period
                to
                period;




•
            changes
                in market conditions that can affect the demand for our authentication
                and
                grading services, such as a decline in the popularity of certain
                collectibles;




•
            general
                economic conditions that affect the availability of disposable income
                among collectors and consumers; and




•
            the
                actions of our competitors.




If
      our
      quarterly operating results fall below expectations or we decide to suspend
      or
      discontinue the payment of dividends, securities market analysts may downgrade
      our common stock and some of our stockholders may sell their shares, which
      could
      adversely affect the trading prices of our common stock. Additionally, in the
      past, companies that have experienced declines in the trading price of their
      shares due to events of this nature have been the subject of securities class
      action litigation. If we become involved in a securities class action litigation
      in the future, it could result in substantial costs and diversion of our
      management’s attention and resources, thus harming our business.




**No
      assurance that we will continue to pay cash dividends.**




On
      May
      31, 2006, the Company adopted a dividend policy that called for the payment
      of
      an expected total annual cash dividend of $0.32 per common share, payable in
      the
      amount of $0.08 per share, per quarter.  We subsequently increased the
      dividend on two occasions, initially to $0.48 per common share per year, payable
      in the amount of $0.12 per share per quarter, and in June 2007 to an annual
      dividend rate of $1.00 per common share, payable in the amount of $0.25 per
      share per quarter, beginning with the first quarter of fiscal year
      2008.  The payment of cash dividends in the future, pursuant to the
      Company’s dividend policy, 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.  For these reasons, as well as others, there can be no
      assurance that the amount of the Company’s current quarterly cash dividend will
      not be reduced or that the Board of Directors will not decide to suspend or
      discontinue the payment of cash dividends in the future.







34




Provisions in our charter documents or in Delaware
      law
      may make an acquisition of us more difficult or delay a change in control,
      which
      may adversely affect the market price of our common stock.





Our
      Amended and Restated Certificate of Incorporation and Bylaws contain
      anti-takeover provisions, including those listed below, that could make it
      more
      difficult for a third party to acquire control of us, even if that change of
      control would be beneficial to our stockholders:




•
            our
                board of directors has the authority to issue common stock and preferred
                stock and to determine the price, rights and preferences of any new
                series
                of preferred stock without stockholder
                approval;




•
            there
                are limitations on who can call special meetings of our stockholders;
                and




•
            stockholders
                may not take action by written
                consent.




In
      addition, provisions of Delaware law and our stock option plans may also
      discourage, delay or prevent a change in control of our company or unsolicited
      acquisition proposals.




**ITEM
      2.             PROPERTIES**




We
      lease
      approximately 59,000 square feet for our California-based headquarters under
      a
      nine-year lease that commenced in November 2000.  We currently
      sublease 2,184 square feet of this office space to a related party sub-tenant
      with an expiration date that coincides with the expiration of the Company's
      nine-year lease.  We lease approximately 7,300 and 2,133 square feet
      in New York City under operating leases through November 2015 in connection
      with our diamond grading business and through June 2007 with our colored
      gemstone grading business, respectively.  Following June 2007, the
      operating lease for our colored gemstone business is on a month-to-month basis,
      and we are in the process of renewing this lease.  In connection with
      our Expos shows management business, we lease approximately 1,000 square feet
      in
      Santa Barbara, CA under a lease agreement with a related party that commenced
      on
      July 1, 2006 and continues for a period of 3 years until June 30,
      2009.




**ITEM
      3.             LEGAL
      PROCEEDINGS**




Bill
      Miller v. Collectors Universe, Inc.  As previously reported, the
      Company was a defendant in this legal action, which was brought in the Superior
      Court of California, County of Orange, by Bill Miller, a former employee of
      the
      Company, who was president of one of the Company’s collectibles sales businesses
      that was sold in 2004 and an expert in the authentication of autographs and
      memorabilia.  Miller alleged that the Company had issued
      authentication certificates bearing his name without his consent, in violation
      of a California statute prohibiting unauthorized appropriation of a person’s
      name, signature or likeness.  The statute provides that a person whose
      name, signature or likeness has been misappropriated, in violation of the
      statute, is entitled to recover the greater of $750 or the actual damages
      suffered as a result of the unauthorized use, and any profits that were
      attributable to that unauthorized use that are not taken into account in
      computing the actual damages.  The Company denied Miller’s allegations
      and asserted that he was not entitled to any recovery under the statute in
      excess of his actual damages and that he had not suffered any actual damages
      as
      a result of the issuance of the certificates.




As
      also
      previously reported, at the conclusion of the trial, which took place in October
      2005, (i) the jury found that the Company had used Miller’s name without
      his consent on 14,060 authentication certificates, but that Miller had sustained
      actual damages from that use totaling $14,060; and (ii) the parties entered
      into a stipulated judgment in the case, which, among other things, provided
      that
      Miller’s statutory damages arising from the actions of the Company were
      zero.  The court left unresolved and for future determination the
      issue of which party, if any, was the prevailing party in the lawsuit, which
      would determine which party, if any, is entitled to recover its attorney’s fees
      from the other party.




In
      December, 2005, Miller filed a Notice of Appeal seeking an appellate court
      review, a reversal of the judgment entered by the trial court and a finding,
      that as a matter of law, he was entitled to statutory damages that should be
      determined by multiplying $750 times the 14,060 authentication certificates
      on
      which his name appeared without his consent, or approximately $10.5 million
      in
      total.




35


Oral
      arguments took place at the Court of Appeals on June 26, 2007.  On
      August 30, 2007, the Appellate Court issued it decision in which it ruled that,
      contrary to his assertions, Miller was not entitled to statutory damages of
      $10.5 million.  In reaching that decision, the Appellate Court found
      that the use of Miller’s name by the Company constituted, at most, a single
      violation of the statute in question and, therefore, Miller is not entitled
      to
      multiply $750.00 by the number of times his name was used.  The Appellate
      Court also ruled that Miller has the right to file a new trial in an effort
      to
      recover damages for the use by the Company of his name; however, in that lawsuit
      he must prove that Collectors Universe violated the statute at issue or common
      law and, if he succeeds in proving such a violation, he must show how, if at
      all, and in what amount, if any, he was damaged as a result of that
      violation.  However, the Appellate Court ruled that in any new trial
      that Miller might file, he cannot seek, as a measure of damages, to multiply
      $750.00 by the number of times, if any, that Collectors Universe used his name
      without his consent.  We cannot predict whether Miller will file a new
      trial.




The
      Appellate Court's decision becomes final 30 days from the date it was
      issued.  Prior to that date, Miller could petition the Appellate Court to
      reconsider its decision.  At the end of the 30-day period, Miller will have
      a period of 10 days within which to file a petition for review by the California
      Supreme Court.





The
      Company believes that, even if Miller does file a new trial, it will not incur
      any material liability to Miller.





Other
      Legal Actions





The
      Company is named from time to time, as a defendant in lawsuits that arise in
      the
      ordinary course of business.  Management of the Company believes that
      none of those lawsuits currently pending against it is likely to have a material
      adverse effect on the Company.





**ITEM
      4.         SUBMISSION OF MATTERS TO
      A VOTE OF SECURITY HOLDERS**


None.




36


**EXECUTIVE
      OFFICERS OF
      REGISTRANT**




**Name**
            
            **Age**
            
            **Positions**Michael
                R. Haynes
            
            56
            
            Chief
                Executive OfficerDavid
                G.
                Hall
            
            60
            
            PresidentJoseph
                J.
                Wallace
            
            47
            
            Chief
                Financial OfficerMichael
                J.
                Lewis
            
            63
            
            Senior
                Vice President – Finance and Chief Compliance
                Officer




**MICHAEL
      R. HAYNES** has served as Chief Executive Officer and Director since
      January 1, 2003.  He served as Chief Operating Officer, Chief
      Financial Officer and Director of Tangible Asset Galleries, Inc, a distributor
      of fine art, from 2000 to 2002.  He has been President, Chief
      Operating Officer and/or Chief Financial Officer of eight collectibles, precious
      metals, specialty retail, distribution, e-commerce and manufacturing
      businesses.  Overall, Mr. Haynes has more than 25 years of
      experience in managing the growth and development of growth companies, which
      includes over 19 years experience in managing both public and private companies
      engaged in the business of selling collectibles at auction, retail and
      wholesale.  He was also one of the co-founding board members of the
      Industry Council for Tangible Assets, a Washington, D.C. trade association
      for
      dealers and auctioneers of tangible and collectible assets, where he served
      for
      nine years.  Mr. Haynes holds a Master's degree in Business and a
      Bachelor of Science degree in mechanical engineering, both from Southern
      Methodist University.  He is a Certified Public Accountant and a
      Certified Financial Planner.





**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
      has served as Chairman of the Board and a Director of Professional Coin Grading
      Services, Inc., the Company’s predecessor, since it was founded in February 1986
      and also served as its President and Chief Executive Officer until January
      1999.  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.





**JOSEPH
      J. WALLACE** became the Company’s Chief Financial Officer effective
      September 15, 2005.  Prior to becoming Chief Financial Officer, he was
      the Company’s Vice President of Finance from November 2004 and Controller from
      June 2004.  From 1997 to 2003, Mr. Wallace was Vice President of
      Finance, Chief Financial Officer and Secretary of STM Wireless, Inc., a public
      traded company engaged in the business of developing, manufacturing and
      marketing satellite communications products and services, which filed for
      Chapter 11 protection under the Bankruptcy Code in February 2003.  Mr.
      Wallace is a Fellow of the Institute of Chartered Accountants, a member of
      the
      Institute of Certified Public Accountants, in Ireland, and a CPA in the State
      of
      California.





**MICHAEL
      J. LEWIS**served as Chief Financial Officer of Collectors Universe, Inc.
      from October 2001 until September 15, 2006, when he became Senior Vice President
      of Finance and Chief Compliance Officer.  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, a venture capital
      firm.  From 1994 to 1997, Mr. Lewis served as Chief Executive Officer
      of National Case Management.  Prior to that time, Mr. Lewis served as
      a Financial Consultant or as Chief Financial Officer in several companies,
      including Chief Financial Officer of Western Digital Corporation and Emulex
      Corporation.





37


**PART
      II**





**ITEM
      5.   MARKET FOR COMMON STOCK AND RELATED
      STOCKHOLDER MATTERS**





Our
      common stock is listed on the
      Nasdaq Global Market, trading under the symbol CLCT.  The following
      table sets forth the high and low closing prices of our common stock, as
      reported by NASDAQ and the cash dividends that we paid to our stockholders,
      in
      each of the fiscal quarters in the fiscal years ended June 30, 2007 and
      2006:





**Closing
                Share Prices**
            
            
            **Cash**
              **Dividends****Fiscal
                2007**
            
            **High**
            
            
            **Low**
            
            
            **Per
                Share**First
                Quarter
            
            $
            14.28
            
            
            $
            12.28
            
            
            $
            0.08Second
                Quarter
            
            
            14.39
            
            
            
            12.34
            
            
            
            0.08Third
                Quarter
            
            
            14.21
            
            
            
            12.73
            
            
            
            0.12Fourth
                Quarter
            
            
            15.29
            
            
            
            13.46
            
            
            
            0.12





**Closing
                Share Prices**
            
            
            **Cash**
              **Dividends****Fiscal
                2006**
            
            **High**
            
            
            **Low**
            
            
            **Per
                Share**First
                Quarter
            
            $
            17.54
            
            
            $
            12.58
            
            
            $
            -Second
                Quarter
            
            
            16.14
            
            
            
            11.78
            
            
            
            -Third
                Quarter
            
            
            17.56
            
            
            
            13.73
            
            
            
            -Fourth
                Quarter
            
            
            16.18
            
            
            
            13.44
            
            
            
            0.08





The
      Company had 108 holders of record of its common stock and approximately 2,134
      beneficial owners on June 30, 2007.





*Dividends.*****On
      May 31, 2006, the Company adopted a dividend policy that called for the payment
      of quarterly cash dividends of $0.08 per common share, for an expected annual
      cash dividend of $0.32 per share. The first such quarterly cash dividend was
      paid in the fourth quarter of fiscal 2006, and quarterly cash dividends of
      $0.08
      per share also were paid in the first and second quarters of fiscal 2007. The
      quarterly cash dividend was increased to $0.12 per share, in the third quarter,
      and dividends in that amount per share were paid in both the third and fourth
      quarters of 2007.





In
      June
      2007, the Board of Directors approved another increase in the quarterly cash
      dividend to $0.25 per common share, for an expected annual cash dividend to
      stockholders of $1.00 per common share.  The first of such quarterly
      cash dividends of $0.25 per share was paid on September 7, 2007 to all
      stockholders of record as of August 24, 2007.





The
      declaration of cash dividends in the future, pursuant to the Company’s dividend
      policy, 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.  For these reasons, as well as
      others, there can be no assurance that the amount of the quarterly cash dividend
      will not be reduced or that the Board of Directors will not decide to suspend
      or
      discontinue the payment of cash dividends in the future.





**Share
      Repurchases**




On
      December 6, 2005, the Company announced that its Board of Directors had approved
      a stock buyback program that authorized the Company to make up to $10 million
      of
      stock purchases in the open market or private transactions, in accordance with
      applicable SEC rules.  The Company is under no obligation to
      repurchase any shares under this program, and the timing, actual number and
      value of shares that may be repurchased under this program will depend on a
      number of factors, including the Company’s future financial performance, the
      Company’s available cash resources and competing uses for the cash that may
      arise in the future, prevailing market prices of the


38


Company’s
      common stock and the number of shares that become available for sale at prices
      that the Company believes are attractive.  During the years ended June
      30, 2007 and 2006, the Company repurchased and retired 72,517 and 181,851
      shares, respectively, for which it paid a total of approximately $949,000 and
      approximately $2,628,000, respectively.  No shares were purchased
      pursuant to this program prior to March 2006.





No
      shares
      were purchased pursuant to this program during the quarter ended June 30, 2007
      and, as of that date, the total dollar value of shares that could be purchased
      in the future under this program was $6,437,285.





**ITEM
      6.   SELECTED CONSOLIDATED FINANCIAL
      DATA**




The
      selected operating data for the fiscal years ended June 30, 2007, 2006 and
      2005,
      and the selected balance sheet data at June 30, 2007 and 2006, that are set
      forth below are derived from the Company’s audited consolidated financial
      statements included elsewhere in this Annual Report.  The selected
      operating data for the fiscal years ended June 30, 2004 and 2003 and the related
      balance sheet data at June 30, 2005, 2004 and 2003 were derived from audited
      consolidated financial statements that are not included in this Annual
      Report.  The following data should be read in conjunction with our
      consolidated financial statements and the related notes thereto and with
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” included below in this Annual Report.




On
      July
      14, 2005, the Company purchased substantially all the assets of CoinFacts.com,
      which operates an Internet website on which it publishes detailed proprietary
      information and history on U.S. Coins for $500,000 in cash and $15,000 in other
      directly-related costs.  On September 2, 2005, the Company acquired
      the common stock of Certified Coin Exchange (“CCE”), which operates a
      subscription-based dealer-to-dealer Internet bid-ask market for third-party
      certified coins for an aggregate purchase price of $2,377,000.




On
      November 8, 2005, the Company acquired Gem Certification & Appraisal Lab
      (“GCAL”), a gemological certification and grading laboratory.  As part
      of that transaction, the Company also acquired Diamond Profile Laboratory,
      Inc.
      (“DPL”), a scientific diamond light performance analysis laboratory, and all
      publishing and other rights to *Palmieri’s Market Monitor,* an
      educational and informative industry publication currently published by the
      Gemological Appraisal Association, Inc. (“GAA”).  The Company paid an
      aggregate acquisition price of $3,268,000 in cash for GCAL, DPL and the
      publishing and other rights to *Palmieri’s Market Monitor.*




On
      December 22, 2005, the Company acquired the business and substantially all
      of
      the assets of Gemprint Corporation (“Gemprint”), consisting primarily of a
      patented technology for non-invasive diamond identification which Gemprint
      used
      to digitally capture the unique refractive light pattern (or “Gemprint”) of each
      diamond that is processed with that technology.  The Company paid an
      aggregate purchase price for Gemprint’s business and assets of $8,583,000 in
      cash, which included certain pre-acquisition liabilities and lease commitments,
      and agreed to pay additional contingent purchase price of $1 for each diamond
      that the Company registers using the Gemprint process in excess of 100,000
      registrations per year during the five year period ending December 22,
      2010.




Effective
      July 1, 2006, the Company acquired the business of Expos Unlimited LLC
      (“Expos”), a trade show management company that operates the Long Beach and the
      Santa Clara, California coins, stamp and collectibles
      expositions.  The aggregate purchase price paid for this business was
      $2,475,000 in cash.  Based on the future revenues of Expos, the
      Company may be obligated to make contingency payments up to an aggregate of
      $750,000 after five years, or July 2011.




On
      August
      18, 2006, the Company acquired American Gemological Laboratories (“AGL”), an
      international colored gemstone certification and grading
      laboratory.  The Company paid an aggregate acquisition price of
      $3,947,000 in cash for AGL, and, depending on AGL’s future revenues, may become
      obligated to make contingent payments up to an aggregate of $3,500,000 over
      the
      next five years.




The
      operating results of each of these acquired businesses have been included in
      our
      consolidated results of operations from the respective dates of their
      acquisition by us.




In
      the
      third quarter of fiscal 2005, we completed a public offering in which we sold
      a
      total of 2,195,856 shares of our common stock at a public offering price of
      $17.50 per share  The net proceeds to us from the sale of the shares
      in the offering, after payment of underwriting commissions and offering
      expenses, were approximately $35,657,000.




39


As
      previously disclosed, in December 2003 the Company approved, and during the
      balance of fiscal 2004 implemented, a plan to dispose of its collectibles sales
      businesses.  As a result, the consolidated selected financial data set
      out below for the five years ended June 30, 2007 have been restated to classify
      the assets and related liabilities of those businesses as held for sale and
      the
      related operating results as discontinued operations.  Therefore, for
      fiscal years 2003 through 2007, the income or loss from discontinued operations
      reflects the after-tax results of operations of those businesses through the
      respective dates of their disposal, plus any gain or loss recognized on the
      disposal of those businesses, plus any profit or loss realized on the disposal
      of the remaining assets of those businesses.  In addition, in fiscal
      year 2006, discontinued operations also included the operations of CTP (a
      business we acquired as part of the CCE acquisition) for the three month period
      ended November 30, 2005, when we sold that business.




40





**Years
                Ended June 30,**(in
                thousands, except per share data)**2007(1)**
            
            
            **2006(1)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Consolidated
                Statement of Operations Data:**Net
                revenues
            
            $
            40,452
            
            
            $
            36,914
            
            
            $
            33,607
            
            
            $
            26,420
            
            
            $
            20,337Cost
                of revenues
            
            
            19,297
            
            
            
            14,890
            
            
            
            12,239
            
            
            
            10,322
            
            
            
            8,754Gross
                profit
            
            
            21,155
            
            
            
            22,024
            
            
            
            21,368
            
            
            
            16,098
            
            
            
            11,583Selling,
                general and administrative expenses
            
            
            23,137
            
            
            
            17,986
            
            
            
            14,380
            
            
            
            11,829
            
            
            
            11,492Amortization
                of intangible assets
            
            
            950
            
            
            
            269
            
            
            
            21
            
            
            
            -
            
            
            
            -Operating
                income
                (loss)
            
            
            (2,932
            )
            
            
            3,769
            
            
            
            6,967
            
            
            
            4,269
            
            
            
            91Interest
                income, net
            
            
            2,144
            
            
            
            2,346
            
            
            
            906
            
            
            
            135
            
            
            
            94Other
                income (expense), net
            
            
            6
            
            
            
            22
            
            
            
            26
            
            
            
            (25
            )
            
            
            (6
            )Income
                (loss) before provision (benefit) for income taxes
            
            
            (782
            )
            
            
            6,137
            
            
            
            7,899
            
            
            
            4,379
            
            
            
            179Provision
                (benefit) for income taxes
            
            
            (39
            )
            
            
            2,733
            
            
            
            3,141
            
            
            
            1,581
            
            
            
            (557
            )Income
                (loss) from continuing operations
            
            
            (743
            )
            
            
            3,404
            
            
            
            4,758
            
            
            
            2,798
            
            
            
            736Income
                (loss) from discontinued operations, net of gain
              on
                sales of discontinued
                businesses (net of income taxes)
            
            
            228
            
            
            
            296
            
            
            
            60
            
            
            
            (1,068
            )
            
            
            (2,202
            )Cumulative
                effect of accounting change (net of income taxes)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,973
            )Net
                income (loss)
            
            $
            (515
            )
            
            $
            3,700
            
            
            $
            4,818
            
            
            $
            1,730
            
            
            $
            (10,439
            )Net
                income (loss) per basic share:Income
                (loss) from continuing operations
            
            $
            (0.09
            )
            
            $
            0.40
            
            
            $
            0.68
            
            
            $
            0.45
            
            
            $
            0.12Income
                (loss) from discontinued operations, net of gain
              on
                sales of discontinued
                businesses (net of income taxes)
            
            
            0.03
            
            
            
            0.04
            
            
            
            0.01
            
            
            
            (0.17
            )
            
            
            (0.35
            )Cumulative
                effect of accounting change (net of income taxes)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1.45
            )Net
                income (loss)
            
            $
            (0.06
            )
            
            $
            0.44
            
            
            $
            0.69
            
            
            $
            0.28
            
            
            $
            (1.68
            )Net
                income (loss) per diluted share:Income
                (loss) from continuing operations
            
            $
            (0.09
            )
            
            $
            0.39
            
            
            $
            0.64
            
            
            $
            0.44
            
            
            $
            0.12Income
                (loss) from discontinued operations, net of gain on sales
              of
                discontinued businesses (net of income taxes)
            
            
            0.03
            
            
            
            0.03
            
            
            
            0.01
            
            
            
            (0.17
            )
            
            
            (0.35
            )Cumulative
                effect of accounting change (net of income taxes)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1.43
            )Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.42
            
            
            $
            0.65
            
            
            $
            0.27
            
            
            $
            (1.66
            )Weighted
                average shares outstanding:Basic
            
            
            8,367
            
            
            
            8,473
            
            
            
            7,013
            
            
            
            6,170
            
            
            
            6,205Diluted
            
            
            8,367
            
            
            
            8,782
            
            
            
            7,452
            
            
            
            6,463
            
            
            
            6,294Cash
                dividends paid on common stock(2)
            
            $
            3,350
            
            
            $
            674
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Cash
                dividends paid per share of common stock
            
            $
            0.40
            
            
            $
            0.08
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -**Balance
                Sheet Data:**Cash
                and cash equivalents
            
            $
            42,386
            
            
            $
            52,110
            
            
            $
            65,439
            
            
            $
            21,454
            
            
            $
            4,482Working
                capital - continuing operations
            
            
            42,208
            
            
            
            54,812
            
            
            
            68,576
            
            
            
            22,308
            
            
            
            4,566Working
                capital – discontinued operations
            
            
            -
            
            
            
            75
            
            
            
            338
            
            
            
            991
            
            
            
            13,803Goodwill
                and Intangibles – continuing
            
            
            23,249
            
            
            
            14,473
            
            
            
            79
            
            
            
            -
            
            
            
            -Total
                assets – continuing operations
            
            
            78,101
            
            
            
            78,138
            
            
            
            75,123
            
            
            
            32,690
            
            
            
            15,926Total
                assets – discontinued operations
            
            
            -
            
            
            
            83
            
            
            
            411
            
            
            
            1,384
            
            
            
            16,365Stockholders'
                equity
            
            
            68,891
            
            
            
            71,906
            
            
            
            70,566
            
            
            
            29,366
            
            
            
            26,319








1.
            Effective
                July 1, 2005, the Company adopted SFAS 123R, using the modified
                prospective transition method.  Accordingly, in fiscal year
                2006, cost of revenues and selling, general and administrative costs
                include $302,000 and $368,000, respectively, of stock-based compensation
                expense that was not required to be recognized as an expense in prior
                years. During fiscal year 2007, cost of revenues and selling, general
                and
                administrative costs include $194,000 and $532,000, respectively,
                of
                stock-based compensation expense that was not required to be recognized
                prior to FY2006.  In addition, $164,000 was recognized during
                fiscal year 2007 as general and administrative expenses for restricted
                shares issued during FY 2007.





2.
            The
                payment of quarterly cash dividends commenced in the fourth quarter
                of
                fiscal year 2006 and cash dividends were paid in each of the four
                quarters
                of fiscal year 2007.  See “Market for Common Stock and Related
                Stockholders Matters – Dividends” in Item 5 of this Report
                above.


41


**ITEM
      7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION****AND
      RESULTS OF OPERATIONS**




*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the “Selected Consolidated
      Financial Data” and our Consolidated Financial Statements and related notes,
      included elsewhere in Part II of this Annual Report.   This
      discussion also should be read in conjunction with the information in Item
      IA of
      Part I of this Report, entitled “Risk Factors,” which contains information about
      certain risks and uncertainties that can affect our business and our financial
      performance in the future.*




**Introduction
      and Overview**




**Our
      Business**




Collectors
      Universe, Inc. (the “Company”) provides grading and authentication services to
      dealers and collectors of high-value coins, sportscards, autographs, stamps,
      and
      vintage U.S. currency notes and to sellers and purchasers of diamonds and
      colored gemstones.  We believe that our authentication and grading
      services add value to these collectibles and to diamonds and colored gemstones
      by enhancing their marketability and, thereby, providing increased liquidity
      to
      the dealers, collectors and consumers that own, buy and sell them.




We
      principally generate revenues from the fees paid for our authentication and
      grading services.  To a much lesser extent, we generate revenues from:
      the sale of advertising on our websites; the sale of printed publications and
      collectibles price guides and advertising in such publications; the sale of
      Collectors Club membership subscriptions; from subscriptions to our CCE
      dealer-to-dealer Internet bid-ask market for certified coins; and the
      collectibles trade show conventions that we conduct.




*Recent
      Business Acquisitions*.  On July 14, 2005, the Company purchased
      substantially all the assets of CoinFacts.com, which operates an Internet
      website on which it publishes detailed proprietary information and history
      on
      U.S. Coins for an aggregate purchase price of $515,000.




On
      September 2, 2005, the Company acquired the common stock of Certified Coin
      Exchange (“CCE”), which operates a subscription-based dealer-to-dealer Internet
      bid-ask market for third-party certified coins for an aggregate purchase price
      of $2,377,000.




On
      November 8, 2005, the Company acquired Gem Certification & Appraisal Lab
      (“GCAL”), a gemological certification and grading laboratory.  As part
      of that transaction, the Company also acquired Diamond Profile Laboratory,
      Inc.
      (“DPL”), a scientific diamond light performance analysis laboratory, and all
      publishing and other rights to *“Palmieri’s Market Monitor,”* an
      educational and informative industry publication currently published by the
      Gemological Appraisal Association, Inc. (“GAA”).  The Company paid an
      aggregate acquisition price of $3,268,000 in cash for GCAL, DPL and the
      publishing and other rights to *Palmieri’s Market Monitor.*




On
      December 22, 2005, the Company acquired the business and substantially all
      of
      the assets of Gemprint Corporation (“Gemprint”), consisting primarily of a
      patented technology for non-invasive diamond identification which Gemprint
      uses
      to digitally capture the unique refractive light pattern (or “Gemprint”) of each
      diamond that is processed with that technology.  The Company paid an
      aggregate purchase price for Gemprint’s business and assets of $8,583,000 in
      cash, assumed certain pre-acquisition liabilities and lease commitments, and
      agreed to pay additional contingent purchase price of $1 for each diamond that
      the Company registers using the Gemprint process in excess of 100,000
      registrations per year during the five year period ending December 22,
      2010.




GCAL
      has
      incorporated the Gemprint process into its diamond grading process, so that
      each
      GCAL authenticated and graded diamond also carries a Gemprint image stored
      in
      GCAL’s registered database, which enables GCAL to provide an additional measure
      of protection against misrepresentations of diamond quality that can occur
      by,
      for example, switching a diamond grading certificate issued for a higher quality
      diamond to a lower quality diamond.




42


Effective
      July 1, 2006, we acquired all of the outstanding ownership interests of Expos
      Unlimited LLC (“Expos”), a California limited liability company engaged in the
      business of owning and conducting collectibles trade shows and conventions,
      for
      an aggregate purchase price of $2,475,000 in cash.  Depending on the
      future revenue performance of Expos, the Company may become obligated to make
      contingent payments to those former owners of up to an aggregate of $750,000
      in
      July 2011.  Expos owns and operates the Long Beach Coin, Stamp &
Collectibles Expo (“Long Beach”) and the Santa Clara Coin, Stamp &
Collectibles Expo (“Santa Clara”), which comprise, in total, five trade shows
      that are held annually.  At both the Long Beach and Santa Clara Expos,
      leading numismatic, philatelic and collectibles dealers offer rare and valuable
      collectibles to the public, while auctions of coins and currency are conducted
      by third party auction companies alongside exhibitions of major numismatic
      and
      collectible interest.  We offer on-site authentication and grading
      services for the collectibles exhibited and bought and sold at those shows,
      with
      same day turnaround.




On
      August
      18, 2006, we acquired American Gemological Laboratories (“AGL”), an
      international colored gemstone certification and grading
      laboratory.  AGL is one of the leading third party authentication and
      grading services for colored gemstones, including colored gemstones that are
      sold at auction through Sotheby’s and Christies and by jewelry retailers such as
      Cartier and Fred Leighton.  The Company paid an aggregate acquisition
      price of $3,947,000 in cash for AGL, and, depending on the future revenue
      performance of AGL, the Company may become obligated to make payments of up
      to
      an aggregate of an additional $3,500,000 over the next five years.




The
      operating results of these acquired businesses have been consolidated into
      our
      operating results from the respective dates of their acquisition




*Discontinued
      Operations*.  As previously disclosed, the remaining activities
      resulting from our divestiture of our collectibles auctions and sales businesses
      have been classified as discontinued operations and the discussion that follows
      focuses almost entirely on our authentication and grading businesses, which
      comprise substantially all of our continuing operations.  During the
      year ended June 30, 2007, we generated cash of $599,000 from the sales of our
      discontinued collectibles sales businesses and the liquidation of the
      inventories and accounts receivable of those businesses that were not included
      in those sales.  All of the remaining assets of those businesses,
      which totaled approximately $83,000 at June 30, 2006, were either liquidated
      during the fiscal year ended June 30, 2007 or fully reserved for on our balance
      sheet at June 30, 2007.




**Factors
      That Can Affect our Financial Position and Operating
      Results**




*Factors
      that Can Affect our Revenues*.  Our revenues are comprised of
      (i) fees generated by the authentication and grading of high-value
      collectibles, and other high value assets consisting of diamonds and colored
      gemstones, and (ii) to a lesser extent, revenues from sales of collectibles
      club memberships; advertising on our websites and in printed publications and
      collectibles price guides; subscription-based revenues primarily related to
      our
      CCE dealer-to-dealer Internet bid-ask market for certified coins; and fees
      earned from the management, operation and promotion of collectibles trade shows
      and conventions.




Our
      authentication and grading revenues, which accounted for approximately 84%
      of
      our total net revenues in the fiscal year ended June 30, 2007, are primarily
      affected by (i) the volume and mix, among coins, sportscards and other
      collectibles and high value assets, of authentication and grading submissions;
      (ii) in the case of coins and sportscards, the “turn-around” times
      requested by our customers, because we charge higher fees for faster service
      times and (iii) the mix of authentication and grading submissions between
      vintage or “classic” coins and sportscards, on the one hand, and modern coins
      and sportscards, on the other hand, because dealers generally request faster
      turn-around times for vintage or classic coins and sports cards than they do
      for
      modern submissions, as vintage or classic collectibles are of significantly
      higher value and are more saleable by dealers than modern coins and
      sportscards.




Five
      of
      our coin authentication and grading customers accounted for approximately 14%
      and 22%, respectively, of our total net revenues in the fiscal years ended
      June
      30, 2007 and 2006.  As a result, the loss of any of those customers,
      or a decrease in the volume of grading submissions from any of them to us,
      would
      cause our net revenues to decline and, therefore, could adversely affect our
      profitability.  During the fiscal year ended June 30, 2007, revenue
      earned from our trade show related activities decreased by approximately
      $1,660,000 as a result of a lower volume of authentication and grading
      submissions at trade shows primarily by these customers.  We believe
      that this decline was primarily the result of lower gold prices in the first
      quarter of the current fiscal year, compared with the three months ended June
      30, 2006, which reduced the volume of coin transactions and, therefore, the
      demand for our services at those shows.  However, trade show activity
      can vary depending on a number of factors, including the timing of the shows
      or
      short-term decisions made by dealers during shows.




43


*Factors
      Affecting our Gross Profit Margins*.  The gross profit margins on
      authentication and grading submissions also are primarily affected by
      (i) the volume and mix, among coins, sportscards and other collectibles and
      high value assets, of authentication and grading submissions, because we
      generally realize higher margins on coin submissions than on submissions of
      other collectibles and high-value assets; (ii) in the case of coins and
      sportscards, the “turn-around” times requested by our customers, because we
      charge higher fees for faster service times, (iii) the mix of
      authentication and grading submissions between vintage or “classic” coins and
      sportscards, on the one hand, and modern coins and sportscards, on the other
      hand, because dealers generally request faster turn-around times for vintage
      or
      classic coins and sports cards than they do for modern submissions, and
      (iv) the stage of development and the seasonality of our newly acquired
      businesses.  Furthermore, because a significant proportion of our
      direct costs are fixed in nature, our gross profit is also affected by the
      overall volume of collectibles authenticated and graded in any
      period.




*Impact
      of Economic Conditions on Financial Performance*.  We generate
      substantially all of our revenues from the collectibles and the diamond and
      colored gemstone markets.  Accordingly, our operating results are
      affected by the financial performance of those markets, which depends to a
      great
      extent on (i) discretionary consumer spending and, hence, on the
      availability of disposable income, (ii) on other economic conditions, including
      prevailing interest and inflation rates, which affect consumer confidence,
      and
      (iii) the performance and volatility of the gold and other precious metals
      markets and the stock markets.  These conditions primarily affect the
      volume of purchases and sales of collectibles which, in turn, affects the volume
      of authentication and grading submissions to us, because our services facilitate
      commerce in collectibles.  Accordingly, factors such as improving
      economic conditions which usually result in increases in disposable income
      and
      consumer confidence, and volatility in and declines in the prices of stocks
      and
      a weakening in the value of the U.S. Dollar, which often lead investors to
      increase their purchases of precious metals, such as gold bullion and other
      coins and collectibles, usually result in increases in submissions of
      collectibles for our services.  By contrast, the volume of
      collectibles sales and purchases and, therefore, the volume of authentication
      and grading submissions, usually decline during periods characterized by
      recessionary economic conditions and by declines in disposable income and
      consumer confidence or by increasing stock prices and relative stability in
      the
      stock markets.




44


The
      following table provides information regarding the respective number of coins,
      sportscards, autographs, currency, diamonds and colored gemstones that we graded
      or authenticated in the fiscal years ended June 30, 2007, 2006, and 2005 and
      their estimated values, which are the amounts at which those coins, sportscards
      and stamps and other high value assets were insured by the dealers and
      collectors who submitted them to us for grading and authentication.





**Units
                Processed****2007**
            
            
            **2006**
            
            
            **2005**Coins
            
            
            1,559,000
            
            
            
            50
            %
            
            
            1,789,000
            
            
            
            55
            %
            
            
            1,670,000
            
            
            
            58
            %Sportscards
            
            
            1,262,000
            
            
            
            41
            %
            
            
            1,199,000
            
            
            
            37
            %
            
            
            1,084,000
            
            
            
            38
            %Autographs
            
            
            170,000
            
            
            
            5
            %
            
            
            181,000
            
            
            
            6
            %
            
            
            77,000
            
            
            
            3
            %Stamps
            
            
            66,000
            
            
            
            2
            %
            
            
            38,000
            
            
            
            1
            %
            
            
            26,000
            
            
            
            1
            %Currency(1)
            
            
            36,000
            
            
            
            1
            %
            
            
            29,000
            
            
            
            1
            %
            
            
            3,000
            
            
            
            -Diamonds(2)
            
            
            25,000
            
            
            
            1
            %
            
            
            5,000
            
            
            
            -
            
            
            
            -
            
            
            
            -Colored
                Gemstones(3)
            
            
            1,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            3,119,000
            
            
            
            100
            %
            
            
            3,241,000
            
            
            
            100
            %
            
            
            2,860,000
            
            
            
            100
            %





**Declared
                Values (000)****2007**
            
            
            **2006**
            
            
            **2005**Coins
            
            $
            1,435,000
            
            
            
            82
            %
            
            $
            1,613,000
            
            
            
            90
            %
            
            $
            1,191,000
            
            
            
            91
            %Sportscards
            
            
            88,000
            
            
            
            5
            %
            
            
            75,000
            
            
            
            4
            %
            
            
            66,000
            
            
            
            5
            %Autographs
            
            
            24,000
            
            
            
            1
            %
            
            
            15,000
            
            
            
            1
            %
            
            
            26,000
            
            
            
            2
            %Stamps
            
            
            12,000
            
            
            
            -
            
            
            
            21,000
            
            
            
            1
            %
            
            
            17,000
            
            
            
            1
            %Currency(1)
            
            
            32,000
            
            
            
            2
            %
            
            
            43,000
            
            
            
            2
            %
            
            
            8,000
            
            
            
            1
            %Diamonds(2)
            
            
            97,000
            
            
            
            6
            %
            
            
            27,000
            
            
            
            2
            %
            
            
            -
            
            
            
            -Colored
                Gemstones(3)
            
            
            62,000
            
            
            
            4
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            $
            1,750,000
            
            
            
            100
            %
            
            $
            1,794,000
            
            
            
            100
            %
            
            $
            1,308,000
            
            
            
            100
            %








1.
            We
                commenced our currency authentication and grading business in fourth
                quarter of 2005.


2.
            We
                commenced the authentication and grading of diamonds in the second
                quarter
                of 2006 when we acquiredGCAL
                and Gemprint.





3.
            We
                commenced the authentication and grading of colored gemstones in
                the first
                quarter of 2007, when we acquired
                AGL.





45


**Overview
      of Fiscal 2007 Operating Results**





As
      the
      following table indicates, we sustained an operating loss of nearly
      $3.0 million in fiscal 2007 as compared to operating income of nearly
      $3.8 million in fiscal 2006, despite a 9.6% increase in net revenues, due
      primarily to the combined effects of an increase in costs of revenues, a decline
      in our gross profit margin and an increase in selling, general and
      administrative expenses and amortization of intangible assets.  As a
      result we sustained a loss from continuing operations of $743,000 in fiscal
      2007
      as compared to income from continuing operations of $3.4 million in fiscal
      2006,
      primarily as a result of the above factors that impacted operating income,
      as
      well as decreased interest income earned in fiscal 2007.







**2007**
            
            
            
            
            
            **2006**
            
            
            
            
            
            **2007
                vs 2006****Amount**
            
            
            **%**
            
            
            **Amount**
            
            
            **%**
            
            
            **%
                of Change**Net
                revenues
            
            $
            40,452
            
            
            
            100.0
            %
            
            $
            36,914
            
            
            
            100.0
            %
            
            
            9.6
            %Cost
                of revenues
            
            
            19,297
            
            
            
            47.7
            %
            
            
            14,890
            
            
            
            40.3
            %
            
            
            29.6
            %Gross
                profit
            
            
            21,155
            
            
            
            52.3
            %
            
            
            22,024
            
            
            
            59.7
            %
            
            
            (3.9
            )%Selling
                and marketing expenses
            
            
            7,497
            
            
            
            18.5
            %
            
            
            4,918
            
            
            
            13.4
            %
            
            
            52.4
            %General
                and administrative expenses
            
            
            15,640
            
            
            
            38.7
            %
            
            
            13,068
            
            
            
            35.4
            %
            
            
            19.7
            %Amortization
                of intangible assets
            
            
            950
            
            
            
            2.3
            %
            
            
            269
            
            
            
            0.7
            %
            
            
            253.1
            %Operating
                income (loss)
            
            
            (2,932
            )
            
            
            (7.2
            )%
            
            
            3,769
            
            
            
            10.2
            %
            
            
            (177.8
            )%Interest
                income, net
            
            
            2,144
            
            
            
            5.3
            %
            
            
            2,346
            
            
            
            6.3
            %
            
            
            (8.6
            )%Other
                income
            
            
            6
            
            
            
            -
            
            
            
            22
            
            
            
            0.1
            %
            
            
            (72.7
            )%Income
                before provision for income taxes
            
            
            (782
            )
            
            
            (1.9
            )%
            
            
            6,137
            
            
            
            16.6
            %
            
            
            (112.7
            )%Provision
                (benefit) for income taxes
            
            
            (39
            )
            
            
            (0.1
            )%
            
            
            2,733
            
            
            
            7.4
            %
            
            
            (101.4
            )%Income
                (loss) from continuing operations
            
            
            (743
            )
            
            
            (1.8
            )%
            
            
            3,404
            
            
            
            9.2
            %
            
            
            (121.8
            )%Income
                from discontinued operations(1)
            
            
            228
            
            
            
            0.5
            %
            
            
            296
            
            
            
            0.8
            %
            
            
            (23.0
            )%Net
                income (loss)
            
            $
            (515
            )
            
            
            (1.3
            )%
            
            $
            3,700
            
            
            
            10.0
            %
            
            
            (113.9
            )%Net
                income (loss) per diluted share:Income
                from continuing operations
            
            $
            (0.09
            )
            
            
            
            
            
            $
            0.39
            
            
            
            
            
            
            
            (123.2
            )%Income
                from discontinued operations(1)
            
            
            0.03
            
            
            
            
            
            
            
            0.03
            
            
            
            
            
            
            
            -Net
                income
                (loss)
            
            $
            (0.06
            )
            
            
            
            
            
            $
            0.42
            
            
            
            
            
            
            
            (114.2
            )%





(1)
            Net
                of gain on sales of discontinued businesses (net of income
                taxes).





The
      decline in our gross margin in fiscal 2007 was due primarily to (i) an
      increase in coin grader-related compensation costs, which are classified as
      costs of revenues in our statements of operations, (ii) a change in the mix
      of collectibles and high value assets graded to a lower proportion of coins,
      on
      which we realize higher margins than on authentication and grading of other
      collectibles; and (iii) the early stage of our diamond and colored gemstone
      businesses, as we build capacity in anticipation of increased revenues in future
      periods.




The
      increase in selling and marketing costs in fiscal 2007 was primarily due to
      (i) costs of approximately $1,863,000, primarily related to the promotion
      and marketing of our new businesses; and (ii) increased collectibles
      trade-show expenses and promotional expenses, due primarily to an increase
      in
      the number of collectibles trade shows in which we participated in fiscal 2007
      and increased resources allocated to each show.




The
      increase in general and administrative expenses in fiscal 2007, was primarily
      attributable to expenses incurred in connection with (i) the acquisition
      and operation of newly acquired businesses, (ii) investments in
      infrastructure to support our expanded operations, and (iii) stock-based
      compensation costs arising from new option grants and the issuance of restricted
      shares in fiscal 2007.




The
      increase in amortization of intangible assets, primarily reflects amortization
      expense from (i) business acquisitions; and (ii) capitalized software
      projects.




These,
      as
      well as other factors affecting our operating results in fiscal 2007, are
      described in more detail below.




46


**Critical
      Accounting Policies and Estimates**




*General.*  In
      accordance with accounting principles generally accepted in the United States
      of
      America (“GAAP”), we record our assets at the lower of cost or fair
      value.  In determining the fair value of certain of our assets,
      principally accounts and notes receivable and inventories, we must make
      judgments, estimates and assumptions regarding circumstances or trends that
      could affect the value of those assets, such as economic conditions or trends
      that could impact our ability to fully collect our accounts receivable or
      realize the value of our inventories in future periods.  Those
      judgments, estimates, and assumptions are based on current information available
      to us at that time.  Many of those conditions, trends and
      circumstances, however, are outside of our control and, if changes were to
      occur
      in the events, trends or other circumstances on which our judgments or estimates
      were based, or other unanticipated events were to happen that might affect
      our
      operations, we may be required under GAAP to adjust our earlier
      estimates.  Changes in such estimates may require that we reduce the
      carrying value of the affected assets on our balance sheet (which are commonly
      referred to as “write-downs” of the assets involved).




It
      is our
      practice to establish reserves or allowances to record such downward adjustments
      or “write-downs” in the carrying value of assets such as accounts and notes
      receivable and inventory.  Such write-downs are recorded as charges to
      income or increases in expense in our statement of operations in the periods
      when those reserves or allowances are established or increased to take account
      of changed conditions or events.  As a result, our judgments,
      estimates and assumptions about future events and changes in the conditions,
      events or trends upon which those estimates and judgments were made, can and
      will affect not only the amounts at which we record such assets on our balance
      sheet, but also our results of operations.




The
      decisions as to the timing of adjustments or write-downs of this nature also
      require subjective evaluations or assessments about the effects and duration
      of
      events or changes in circumstances.  For example, it is difficult to
      predict whether events or conditions, such as increases in interest rates or
      economic slowdowns, will have short or longer term consequences for our
      business, and it is not uncommon for it to take some time after the occurrence
      of an event or the onset of changes in economic circumstances for the full
      effects of such events or changes to be recognized. Therefore, management makes
      such estimates based upon the information available at that time and reevaluates
      and adjusts its reserves and allowances for potential write-downs on a quarterly
      basis.




Under
      GAAP, businesses also must make estimates or judgments regarding the periods
      during which, and also regarding the amounts at which, sales are
      recorded.  Those estimates and judgments will depend on a number of
      factors, including whether customers are granted rights to reject or adjust
      the
      payment for the services provided to them.




During
      fiscal year 2006 and in the first quarter of fiscal year 2007, we acquired
      certain businesses and, in accordance with GAAP, we accounted for those
      acquisitions using the purchase method of accounting.  That accounting
      method required us to allocate the amount paid for those businesses in excess
      of
      the fair value of the assets and liabilities acquired and assumed, and to
      classify that excess as goodwill.  In accordance with GAAP, we
      evaluate goodwill for impairment at least annually or more frequently if we
      believe that goodwill has been impaired in the interim due to changing facts
      or
      events (see “*Long-Lived Assets*” below).  Other intangible
      assets that are separable from goodwill and have definite lives are subject
      to
      amortization over their remaining useful lives.  Indefinite-lived
      intangible assets are subject to on-going evaluation for
      impairment.  Management formally evaluates the carrying value of its
      goodwill and other indefinite-lived intangible assets for impairment on the
      anniversary date of each of the acquisitions that gave rise to the recording
      of
      such assets.  In the event it was determined, from any such impairment
      analysis, that the estimated fair value of any such asset had declined below
      its
      carrying value, we would be required to recognize an impairment charge that
      would have the effect of reducing our income in the period when that charge
      was
      recognized.




In
      making
      our estimates and assumptions, we follow GAAP in order to enable us to make
      fair
      and consistent estimates of the fair value of assets and to establish adequate
      reserves or allowances for possible write-downs in the carrying values of our
      assets.




Set
      forth
      below is a summary of the accounting policies and critical estimates that we
      believe are material to an understanding of our financial condition and results
      of operations.




47


*Revenue
      Recognition Policies*.  We generally record revenue at the time of
      shipment of the authenticated and graded collectible or high-value assets to
      the
      customer.  Many of our authentication and grading customers prepay our
      authentication and grading fees when they submit their collectible items to
      us
      for authentication and grading.  We record those prepayments as
      deferred revenue until their graded collectibles are shipped back to
      them.  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 open account
      privileges, we record revenue at the time of shipment of the authenticated
      and
      graded collectible to the dealer.




With
      respect to our Expos trade show business, we recognize revenue generated by
      the
      promotion, management and operation of collectibles conventions and trade shows
      in the periods in which the shows take place.




A
      portion
      of our net revenues are comprised of subscription fees paid by customers for
      a
      membership in our Collectors Club.  Those memberships entitle members
      access to our on-line and printed publications, and sometimes also to vouchers
      for free grading services.  We record revenue for this multi-element
      service arrangement in accordance with EITF**00-21*, Accounting
      for Revenue Arrangements With Multiple Deliverables,*by recognizing
      approximately 60% of the subscription fee in the month following the membership
      purchase, on the basis that Collectors Club members typically utilize their
      vouchers for free grading services within 30 days of subscribing for
      memberships.  The balance of the membership fee is recognized as
      revenue over the life of the membership, which can range from one to two
      years.  We evaluate, at least semi-annually, the relative fair values
      of the deliverables and the percentage factors used to allocate the membership
      fee between the grading and the publication services provided under this
      membership service.




*Accounts
      Receivable, Notes Receivable and the Allowance for Doubtful
      Accounts.*In the normal course of our authentication and grading
      business, we extend payment terms to many of the larger, more creditworthy
      dealers or distributors who submit collectibles or high-value assets to us
      for
      authentication and grading on a recurring basis.  In addition,
      primarily in connection with our coin dealer financing programs, we make
      advances or extend credit under notes receivable arrangements.  We
      regularly review our accounts and notes receivable, estimate the amount of,
      and
      establish an allowance for, uncollectible amounts in each quarterly
      period.  The amount of that allowance is based on several factors,
      including the age and extent of significant past due amounts, and in the case
      of
      notes receivable, the current value of the collateral we hold as security for
      the payment obligations under the notes receivable, and known conditions or
      trends that may affect the ability of account debtors or note obligors to pay
      their accounts or notes receivable balances.  Each quarter we review
      estimates of uncollectible amounts and such economic or other conditions or
      trends in order to enable us to determine whether or not to adjust the amount
      of
      the allowance.  For example, if the financial condition of certain
      dealers or economic conditions were to deteriorate, adversely affecting their
      ability to make payments on their accounts or notes, increases in the allowance
      may be required.  Since the allowance is created by recording a charge
      against income that is reflected in general and administrative expenses, an
      increase in the allowance will cause a decline in our operating results in
      the
      period when the increase is recorded.




*Inventory
      Valuation Reserve*.  Our collectibles inventories are valued at
      the lower of cost or fair value and have been reduced by an inventory valuation
      allowance to provide for potential declines in the value of those
      inventories.  The amount of the allowance is determined and is
      periodically adjusted on the basis of market knowledge, historical experience
      and estimates concerning future economic conditions or trends that may impact
      the sale value of the collectibles inventories.  Additionally, due to
      the relative uniqueness of some of the collectibles included in our collectibles
      inventory, valuation of such collectibles often involves judgments that are
      more
      subjective than those that are required when determining the market values
      of
      more standardized products.




If
      there
      were to be****an economic downturn or there were to
      occur****other events or circumstances that are likely to
      make it more difficult to sell, or that would lead us to reduce the
      sales****prices of,****those collectibles,
      it may become necessary to increase the reserve.  Increases in this
      reserve will cause a decline in operating results, because such increases are
      recorded by charges against income.




*Grading
      Warranty Costs*.  We offer a limited warranty covering the coins,
      sportscards, stamps and currency that we authenticate and
      grade.  Under the warranty, if any collectible 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 resubmittal or (ii) is
      determined not to have been authentic, we will offer to purchase the collectible
      or pay the difference in value of the item at its original grade as compared
      with its lower grade.  However, this warranty is voided if the
      collectible, upon




48


resubmittal
      to us, is not in the same tamper resistant holder in which it was placed at
      the
      time we last graded it.  We offer a similar limited warranty of two
      years’ duration on the diamonds we grade.  We accrue for estimated
      warranty costs based on historical trends and related experience.  To
      date our reserves have proved to be adequate.  However, if warranty
      claims were to increase in relation to historical trends and experience, we
      would be required to increase our warranty reserves and incur additional charges
      that would adversely affect our results of operations in those periods during
      which the warranty reserve is increased.




*Long-Lived
      Assets*.  We regularly conduct reviews of property and equipment
      and other long-lived assets, including certain identifiable intangibles and
      goodwill, for possible impairment.  Such reviews occur annually or
      more frequently if events or changes in circumstances indicate the carrying
      amount of the asset may not be recoverable in full.  In order to
      determine if the value of a definitive-lived asset is impaired, we make an
      estimate of the future undiscounted cash flows expected to result from the
      use
      of that asset and its eventual disposition and determine its fair value by
      discounting those cash flows to present value using a discount rate commensurate
      with management’s estimates of the business risks associated with the
      asset.  If that estimated fair value is less than the carrying amount
      of the asset, an impairment loss is recognized to write down the asset to its
      estimated fair value.  During fiscal 2007, we recognized approximately
      $55,000 in impairment charges related to fixed assets.




*Stock-Based
      Compensation.*We recognize share-based compensation expense
      based on the fair value recognition provision of SFAS No. 123(R),
*Share-Based Payment*, using the Black-Scholes option valuation
      method.  Under that method, assumptions are made with respect to the
      expected lives of the options or other stock awards granted, the expected
      volatility of the Company’s stock, dividend yield percentage and the risk-free
      interest rate at the date of grant.  In addition, under SFAS
      No. 123(R), we recognize and report share-based compensation expense net of
      an estimated forfeiture rate that we expect will occur over the vesting period,
      which we estimate on the basis of historical forfeiture experience or other
      factors that could affect future forfeitures.  Once we determine the
      compensation expense of a stock award, that expense is recognized in our
      Consolidated Statements of Operations over its vesting period using the
      straight-line attribution method.  During fiscal 2007, we issued
      restricted shares to outside members of the Board of Directors and to our CEO
      and, accordingly, we recognized stock-based compensation over the vesting period
      of such restricted shares, based upon the closing stock prices of the shares
      on
      their respective dates of the grant, net of an estimated forfeiture
      rate.




*Capitalized
      Software*.  In the fiscal year 2007 and 2006, we capitalized
      approximately $1,483,000 and $421,000, respectively, of software development
      costs related to a number of in-house software development projects, in
      accordance with Statement of Position (“SOP”) 98-1, *Accounting for the Costs
      of Computer Software Developed or Obtained for Internal Use*.  SOP
      98-1 requires that certain costs incurred, either from internal or external
      sources, be capitalized as part of intangible assets and amortized on a
      straight-line basis over the useful life of the software.  Planning,
      training, support and maintenance costs incurred either prior to or following
      the implementation phase are recognized as expense in the period in which they
      are incurred.  During the fiscal year ended June 30, 2007 and 2006, we
      recorded approximately $193,000 and $11,000, respectively, as amortization
      expense related to such capitalized software projects.  We evaluate
      the carrying values of capitalized software to determine if the carrying values
      are impaired, and, if necessary, an impairment loss is recorded in the period
      in
      which the impairment occurs.




*Income
      Taxes and Deferred Tax Assets.*  We account for income taxes in
      accordance with SFAS No. 109*, Accounting for Income
      Taxes*.  This statement requires the recognition of deferred tax
      assets and liabilities for the future consequences of events that have been
      recognized in the Company’s financial statements or tax
      returns.  Measurement of the deferred items is based on enacted tax
      laws.  In the event the future consequences of differences between
      financial reporting bases and tax bases of the Company’s assets or liabilities
      result in a deferred tax asset, SFAS No. 109 requires an evaluation of the
      probability of being able to realize the future benefits indicated by such
      asset.  A valuation allowance related to a deferred tax asset is
      recorded when it is more likely than not that some portion or all of the
      deferred tax asset will not be realized.  At June 30, 2006 and 2007,
      approximately $1,756,000 and $1,020,000, respectively, were recorded as deferred
      tax assets, and management believes that it is more likely than not that these
      deferred tax assets will be realized in the future.  As of June 30,
      2006 and 2007, there was $0 and $22,000, respectively, recorded as a valuation
      allowance.  At June 30, 2007, we recorded a deferred tax liability in
      the amount of $869,000, primarily related to the acquisition of
      AGL.







49


***Results
      of Operations***




The
      following table sets forth certain financial data, expressed as a percentage
      of
      net revenues, derived from our Consolidated Statements of Operations for the
      respective periods indicated below:





**Fiscal
                Years Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**Net
                revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
                of revenues
            
            
            47.7
            %
            
            
            40.3
            %
            
            
            36.4
            %Gross
                profit
            
            
            52.3
            %
            
            
            59.7
            %
            
            
            63.6
            %Operating
                expenses:Selling
                and marketing
                expenses
            
            
            18.5
            %
            
            
            13.4
            %
            
            
            10.5
            %General
&
administrative
                expenses
            
            
            38.7
            %
            
            
            35.4
            %
            
            
            32.3
            %Amortization
                of intangible
                assets
            
            
            2.3
            %
            
            
            0.7
            %
            
            
            0.1
            %Total
                operating expenses
            
            
            59.5
            %
            
            
            49.5
            %
            
            
            42.9
            %Operating
                income (loss)
            
            
            (7.2
            )%
            
            
            10.2
            %
            
            
            20.7
            %Interest
                income, net
            
            
            5.3
            %
            
            
            6.4
            %
            
            
            2.7
            %Other income
            
            
            -
            
            
            
            -
            
            
            
            0.1
            %Income
                (loss) before provision for income taxes
            
            
            (1.9
            )%
            
            
            16.6
            %
            
            
            23.5
            %Provision
                (benefit) for income taxes
            
            
            (0.1
            )%
            
            
            7.4
            %
            
            
            9.3
            %Income
                (loss) from continuing operations
            
            
            (1.8
            )%
            
            
            9.2
            %
            
            
            14.2
            %Income
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            0.5
            %
            
            
            0.8
            %
            
            
            0.1
            %Net
                income (loss)
            
            
            (1.3
            )%
            
            
            10.0
            %
            
            
            14.3
            %




*Net
      Revenues*.  Grading and authentication fees consist primarily of
      fees generated from the authentication and grading of high-value collectibles
      and high-value assets.  Fees generated from the authentication and
      grading of collectibles include coins, sportscards, autographs, stamps and
      currency and for high-value assets, diamonds and colored
      gemstones.  To a lesser extent, we generate other-related service
      revenues from sales of collectibles club memberships; the sale of advertising
      on
      our websites and in printed publications and collectibles price guides;
      subscription-based revenues primarily related to our CCE dealer-to-dealer
      Internet bid-ask market for certified coins; and fees earned from promoting,
      managing and operating collectibles conventions.  Net revenues are
      determined net of discounts and allowances.




The
      following tables set forth our total net revenues for the fiscal years ended
      June 30, 2007, 2006 and 2005, broken out between grading and authentication
      services and other related services:





**2007
                vs. 2006****2007**
            
            
            **2006**
            
            
            **Increase
                (Decrease)****Amount**
            
            
            **%
                of Net**
              **Revenues**
            
            
            **Amount**
            
            
            **%
                of Net**
              **Revenues**
            
            
            **Amount**
            
            
            **%
                of Net**
              **Revenues**(Dollars
                in thousands)Grading
                and authentication fees
            
            $
            34,003
            
            
            
            84.1
            %
            
            $
            33,221
            
            
            
            90.0
            %
            
            $
            782
            
            
            
            2.4
            %Other
                related services
            
            
            6,449
            
            
            
            15.9
            %
            
            
            3,693
            
            
            
            10.0
            %
            
            
            2,756
            
            
            
            74.6
            %Total
                net revenues
            
            $
            40,452
            
            
            
            100.0
            %
            
            $
            36,914
            
            
            
            100.0
            %
            
            $
            3,538
            
            
            
            9.6
            %





**2006
                vs. 2005****2006**
            
            
            **2005**
            
            
            **Increase
                (Decrease)****Amount**
            
            
            **%
                of Net**
              **Revenues**
            
            
            **Amount**
            
            
            **%
                of Net**
              **Revenues**
            
            
            **Amount**
            
            
            **%
                of Net**
              **Revenues**(Dollars
                in thousands)Grading
                and authentication fees
            
            $
            33,221
            
            
            
            90.0
            %
            
            $
            30,955
            
            
            
            92.1
            %
            
            $
            2,266
            
            
            
            7.3
            %Other
                related services
            
            
            3,693
            
            
            
            10.0
            %
            
            
            2,652
            
            
            
            7.9
            %
            
            
            1,041
            
            
            
            39.2
            %Total
                net revenues
            
            $
            36,914
            
            
            
            100.0
            %
            
            $
            33,607
            
            
            
            100.0
            %
            
            $
            3,307
            
            
            
            9.8
            %





50


The
      following tables set forth certain information regarding the increases or
      decreases in net revenues in our larger markets (which are inclusive of revenues
      from our other related services) and in the numbers of collectibles and diamonds
      and colored gemstones that we authenticated and graded in the fiscal years
      ended
      June 30, 2007, 2006 and 2005:





**2007
                vs. 2006****2007**
            
            
            **2006**
            
            
            **Increase
                (Decrease)****%
                of Net**
            
            
            
            
            
            **%
                of Net**
            
            
            **Revenues**
            
            
            **Units
                Processed****Amount**
            
            
            **Revenues**
            
            
            **Amount**
            
            
            **Revenues**
            
            
            **Amounts**
            
            
            **Percent**
            
            
            **Number**
            
            
            **Percent**(Dollars
                in thousands)Coins
            
            $
            23,317
            
            
            
            57.6
            %
            
            $
            23,829
            
            
            
            64.6
            %
            
            $
            (512
            )
            
            
            (2.1
            )%
            
            
            (230,000
            )
            
            
            (12.9
            )%Sportscards
            
            
            8,797
            
            
            
            21.8
            %
            
            
            8,461
            
            
            
            22.9
            %
            
            
            336
            
            
            
            4.0
            %
            
            
            63,000
            
            
            
            5.3
            %Other
                (1)
            
            
            8,338
            
            
            
            20.6
            %
            
            
            4,624
            
            
            
            12.5
            %
            
            
            3,714
            
            
            
            80.3
            %
            
            
            45,000
            
            
            
            17.8
            %$
            40,452
            
            
            
            100.0
            %
            
            $
            36,914
            
            
            
            100.0
            %
            
            $
            3,538
            
            
            
            9.6
            %
            
            
            (122,000
            )
            
            
            (3.8
            )%








**2006
                vs. 2005****2006**
            
            
            **2005**
            
            
            **Increase
                (Decrease)****%
                of Net**
            
            
            
            
            
            **%
                of Net**
            
            
            **Revenues**
            
            
            **Units
                Processed****Amount**
            
            
            **Revenues**
            
            
            **Amount**
            
            
            **Revenues**
            
            
            **Amounts**
            
            
            **Percent**
            
            
            **Number**
            
            
            **Percent**(Dollars
                in thousands)Coins
            
            $
            23,829
            
            
            
            64.6
            %
            
            $
            23,203
            
            
            
            69.0
            %
            
            $
            626
            
            
            
            2.7
            %
            
            
            119,000
            
            
            
            7.1
            %Sportscards
            
            
            8,461
            
            
            
            22.9
            %
            
            
            8,143
            
            
            
            24.2
            %
            
            
            318
            
            
            
            3.9
            %
            
            
            115,000
            
            
            
            10.6
            %Other
                (1)
            
            
            4,624
            
            
            
            12.5
            %
            
            
            2,261
            
            
            
            6.8
            %
            
            
            2,363
            
            
            
            104.5
            %
            
            
            147,000
            
            
            
            138.7
            %$
            36,914
            
            
            
            100.0
            %
            
            $
            33,607
            
            
            
            100.0
            %
            
            $
            3,307
            
            
            
            9.8
            %
            
            
            381,000
            
            
            
            13.3
            %










(1)
            Consists
                of revenues from the authentication and grading of autographs, stamps,
                currency businesses and our CFC dealer financing business during
                all
                periods presented.  Also includes revenues from (i) the CCE
                subscription business from September 2, 2005, (ii) the authentication
                and
                grading of diamonds from November 2005, when we completed our acquisition
                of GCAL, (iii) the collectibles convention business from July 2006,
                when we completed our acquisition of Expos, and (iv) the
                authentication and grading of colored gemstones from August 2006,
                when we
                completed our acquisition of AGL.




*Fiscal
      2007 vs. 2006*





Revenues
      increased by $3,538,000 or 9.6% to $40,452,000 in fiscal year 2007, compared
      to
      $36,914,000 in fiscal year 2006.  This increase was attributable
      primarily to (i) an increase of approximately $2,756,000, or 74.6%, in
      revenues generated primarily by the non-grading related services, primarily
      related to businesses we acquired in the fiscal year 2006 and first three months
      of fiscal 2007, and (ii) an increase of approximately $782,000, or 2.4%, in
      grading and authentication revenues.  The increase in grading and
      authentication revenues was largely attributable to increases in the volume
      of
      submissions of sportscards, other collectibles and diamonds and colored
      gemstones, which more than offset a decline in coin authentication and grading
      revenues.  Approximately $2,200,000 of the increase in our fiscal 2007
      revenues was generated by the collectibles convention business and our colored
      gemstone grading business, AGL, both of which we acquired in the first three
      months of fiscal 2007.  Excluding the contribution made by those two
      businesses, revenues grew by 3.6% in 2007 as compared to fiscal
      2006.





The
      74.6%
      increase in revenues generated by our non-grading related service businesses
      in
      2007, as compared to fiscal 2006, was primarily attributable to
      (i) increased sales of Collectors Club memberships and CCE subscriptions,
      (ii) an increase in interest earned as a result of an increase in the
      average amount of loans outstanding to dealers under our dealer finance program,
      and (iii) revenues generated by our collectibles convention business that
      was acquired at the beginning of fiscal 2007.





The
      2.4%
      increase in grading and authentication revenues was driven by a 6.4% increase
      in
      the average service price per unit for our grading and authentication
      businesses, compared to the prior fiscal year, offset by a 3.8% decrease in
      total units graded.  Coin grading revenues decreased by 4.3% and the
      number of units graded decreased by 12.9%, primarily driven by (i) a $1,660,000
      decrease in show and invitational revenues (ii) a net $170,000 decrease in
      revenue attributable to a decrease in First Strike/Bulk units graded, partially
      offset by an


51


increase
      in the average service fees earned on those units; (iii) a $880,000 increase
      in
      revenue due to an increase in the volume of vintage collectibles submissions;
      and (iv) increases in other coin-related services.  We believe the
      reduction in the First Strike submissions was due to a number of factors,
      including a dispute related to PCGS’ trademarked First Strike designation, which
      has since been resolved.





For
      sportscards, the 5.3% increase in the number of units graded was partially
      offset by a 14.9% decrease in advertising revenue, and resulted in a 4.0%
      increase in net revenues.





A
      17.8%
      increase in units graded and authenticated for other collectibles and diamonds
      and colored gemstones resulted in a 35.5% increase in the grading and
      authentication revenues generated by those businesses in 2007, as compared
      to
      2006, primarily driven by increases in the volume of diamond and stamp grading
      submissions, as well as the contribution to our revenues of our colored gemstone
      authentication and grading business, which we acquired in August of
      2006.





*Fiscal
      2006 vs. 2005*





Revenues
      increased by $3,307,000 or 9.8% to $36,914,000 in fiscal year 2006, compared
      to
      $33,607,000 in fiscal year 2005.  This increase was comprised of
      (i) an increase of $2,266,000, or 7%, in grading and authentication
      revenues, and (ii) an increase in revenues from other services that we sell
      of approximately $1,041,000, or 39%, that was primarily attributable to revenues
      generated by the businesses we acquired in the first six months of fiscal year
      2006.  Approximately $1,600,000 of our fiscal 2006 revenues were
      generated by GCAL and CCE (which we acquired in the first half of fiscal 2006)
      and by our currency authentication and grading business and our dealer lending
      business, which recorded their first full year of operations following their
      launch in the latter half of 2005.  As a result, revenue growth in
      2006, excluding those four businesses, was 5% over fiscal 2005.





The
      7%
      increase in grading and authentication revenues in fiscal 2006 was driven by
      a
      13% increase in the number of units graded and authenticated, compared to the
      prior fiscal year.  Coin grading revenues increased by 2%, compared to
      a 7% increase in the number of units graded, because modern coin grading
      submissions (on which we earn a lower service fee) represented a higher
      proportion of total coins graded in fiscal year 2006, compared to fiscal 2005,
      primarily as a result of increased submissions attributable to the Company’s
*First Strike* program in fiscal 2006.  The number of
      sportscards graded increased by 11% in 2006, while sportscard grading revenues
      increased by 4%, reflecting a decrease in the average grading service fee due
      to
      a higher proportion of sportscards graded at special pricing than in
      2005.  The number of other collectibles graded and authenticated in
      2006 increased by 139%, while grading and authentication revenues attributable
      to grading submissions of such collectibles increased by 70%, primarily
      reflecting a reduction in pricing of our autograph authentication services
      to
      make those services more attractive to a larger number of dealers and
      collectors.





The
      number of coins graded and authenticated in fiscal 2006 increased by 7%, as
      compared to the prior year, due primarily to an increase in coin submissions
      under the Company’s *First Strike* program.  That increase more
      than offset a reduction in the number of units submitted by a coin dealer that
      had been our largest customer until the fourth quarter of fiscal 2005, when
      its
      owner sustained a serious illness.  Revenues attributable to coin
      submissions by that customer declined from 9% of total revenues in fiscal 2005
      to 4% of total revenues for fiscal 2006.





*Gross
      Profit*





Gross
      profit is calculated by subtracting the cost of revenues from net
      revenues.  Gross profit margin is gross profit stated as a percent of
      net revenues.  The costs of authentication and grading revenues
      consist primarily of labor to authenticate and grade collectibles, production
      costs, credit card fees, warranty expense, occupancy, security and insurance
      costs that directly relate to providing authentication and grading
      services.  Cost of revenues also includes printing and other direct
      costs of the revenues generated by our other (non-grading) service
      businesses.  In addition, costs of revenues include stock-based
      compensation earned by employees whose compensation is classified as part of
      the
      cost of authentication and grading revenues.





52


Set
      forth
      below is information regarding our gross profits in the fiscal years ended
      June
      30, 2007, 2006 and 2005.





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Gross
                profit
            
            $
            21,155
            
            
            $
            22,024
            
            
            $
            21,368Gross
                profit margin
            
            
            52.3
            %
            
            
            59.7
            %
            
            
            63.6
            %




*2007
      vs. 2006*.  The decline in our gross profit margin to 52.3% in the
      fiscal year ended June 30, 2007, from 59.7% in fiscal 2006, was attributable
      to
      a number of different factors, including the following: (i) a decline in
      the gross margin on coin authentication and grading, due primarily to an
      increase in costs resulting from the addition of new coin grading capacity
      in
      anticipation of increased volumes of submissions and to reduce the turnaround
      times within which coins are authenticated and graded; (ii) a decline in
      the gross margin realized on sportscard authentication and grading services,
      due
      primarily to a decrease in sportscard related advertising revenues and higher
      production costs incurred due to a change in the mix of sportscard units graded
      in 2007 as compared to 2006; (iii) a change in the mix of our
      authentication and grading revenues to a lower proportion of coin authentication
      and grading revenues, on which we have historically realized higher margins
      than
      on the authentication and grading of other collectibles, as coin revenues
      represented approximately 58% of total net revenues in the fiscal 2007, compared
      to approximately 65% of total net revenues in fiscal 2006; and (iv) the
      early stage of our diamond and colored gemstone grading businesses as we build
      our diamond grading capacity in anticipation of increased revenues in future
      periods.  The decline was partially offset by a $108,000 decrease in
      the stock-based compensation costs classified as cost of revenues in fiscal
      2007, from $302,000 in fiscal 2006.




*2006
      vs. 2005*.  The decline in our gross profit margin to 59.7% in
      fiscal year 2006 from 63.6% in fiscal 2005, was primarily attributable to
      (i) a modest decline in the average service fees for coin authentication
      and grading services due to a change in the mix of coin submissions in 2006
      as
      compared to 2005; (ii) a $410,000 increase in coin grader-related
      compensation costs in fiscal 2006, as a result of an increase in the number
      of
      graders and the implementation of changes to their compensation structure;
      (iii) a change in the mix of collectibles and diamonds graded to a lower
      proportion of coins, on which we realize higher margins than on the
      authentication and grading of other collectibles and diamonds; and (iv)
      stock-based compensation expense of $302,000 for fiscal 2006, recorded as
      required by SFAS No. 123(R).  Coin revenues represented approximately
      65% of total net revenues in fiscal 2006, compared to approximately 69% of
      total
      net revenues in fiscal 2005.




*Selling
      and Marketing Expenses*




Selling
      and marketing expenses are comprised primarily of advertising and promotions
      costs, trade-show related expenses, customer service personnel costs and third
      party consulting costs.





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Selling
                and marketing expenses
            
            $
            7,497
            
            
            $
            4,918
            
            
            $
            3,534As
                a percentage of net revenues
            
            
            18.5
            %
            
            
            13.4
            %
            
            
            10.5
            %







*2007
      vs. 2006*.  The increases in selling and marketing expenses of
      $2,579,000 in absolute dollars and 5.1% as a percentage of net revenues, in
      fiscal 2007, compared to the prior fiscal year, were primarily attributable
      to
      (i) an increase of approximately $1,863,000 in sales and marketing costs to
      market and promote our new businesses, including our diamond grading business
      (which we acquired in November 2005), our colored gemstone grading business
      (which we acquired in August 2006), and our CCE auction subscription business
      (which we acquired in September 2005); (ii) a $339,000  increase
      in sales and marketing costs primarily to promote our coin and sportscard
      authentication and grading services at trade shows (including an increase in
      the
      number of trade shows attended) and in other channels; and (iii) increases
      in general marketing costs, including an increase in marketing-related
      compensation costs attributable to the hiring, in November 2006, of a chief
      marketing officer for our diamond and colored gemstone grading
      businesses.




53


*2006
      vs. 2005*.  The increase of $1,384,000 in selling and marketing
      expenses in fiscal year 2006, compared to fiscal year 2005, was primarily
      attributable to (i) costs of approximately $850,000 incurred in fiscal 2006
      in
      connection with the commencement of marketing programs for the businesses that
      we acquired in the first six months of fiscal year 2006, including $600,000
      that
      was used to market our new diamond grading business, and the launch of the
      Company’s currency grading division; (ii) an increase of approximately
      $330,000 in marketing expenses incurred to promote our coin and sportscard
      grading services at trade shows, including an increase in the number of trade
      shows at which we offered those services to dealers and collectors, as compared
      to the number in 2005; (iii) increased advertising and promotional expenses
      of approximately $220,000 incurred primarily to promote the Company’s *First
      Strike* program; and (iv) increases in personnel costs in our customer
      service departments.  We made the decision to increase expenditures to
      promote our grading and authentication services at trade shows and to increase
      the number of trade shows at which we offer those services, because we are
      able
      to generate higher average coin and sportscard grading service fees at trade
      shows due to the faster turnaround times demanded by dealers and collectors
      attending those shows.




*General
      and Administrative Expenses.*  General and administrative
      (“G&A”) expenses are comprised primarily of compensation paid to general and
      administrative personnel, including executive management, finance and
      accounting, information technology personnel, facilities management costs and
      other miscellaneous expenses.  Since fiscal 2006, G&A expenses
      also have included stock-based compensation costs arising from the grant of
      stock awards to executive management, finance and accounting, information
      technology personnel, in accordance with SFAS No. 123(R) which, in the case
      of the Company, became effective as of July 1, 2005.





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**General
                & administrative expenses
            
            $
            15,640
            
            
            $
            13,068
            
            
            $
            10,846As
                a percentage of net revenues
            
            
            38.7
            %
            
            
            35.4
            %
            
            
            32.3
            %




*2007
      vs. 2006*.  The increase in G&A expenses of $2,572,000 in
      fiscal 2007, compared to prior fiscal year, was primarily attributable to
      (i) expenses, totaling approximately $1,723,000, incurred in connection
      with initiatives to grow our recently acquired diamond, colored gemstone, and
      trade show businesses; (ii) increased costs of approximately $560,000, to
      upgrade and expand our internal systems to support an increased volume of
      business and our entry into new markets; and (iii) increased business
      development costs of approximately $300,000, incurred in connection with our
      coin authentication and grading business.  Such cost increases were
      partially offset by a reduction in litigation-related costs in fiscal 2007,
      compared to the same periods of fiscal 2006, during which we incurred legal
      fees
      and expenses in connection with the Miller trial.  Stock-based
      compensation costs (including $164,000 of amortization expense related to
      restricted stock awards) included in general and administrative expenses for
      fiscal 2007 were $688,000, compared with $367,000 for fiscal 2006.




*2006
      vs. 2005*.  The increase in general and administrative expenses of
      $2,222,000 in fiscal 2006 was primarily attributable to expenses incurred in
      connection with the acquisition and integration into our operations of the
      businesses we acquired in the first half of 2006, investments in infrastructure
      to support the growth of our businesses, litigation costs, audit and
      Sarbanes-Oxley compliance costs and stock-based compensation costs (arising
      from
      the adoption of SFAS 123(R)).  The increased costs associated with the
      acquired businesses totaled approximately $840,000.  We also incurred
      approximately $300,000 in connection with the implementation of our business
      acquisition and expansion program in fiscal 2006.  The increased
      infrastructure costs of approximately $650,000 in fiscal 2006 included
      investments in information technology systems and one-time space-related costs
      to support the growth of our businesses.  Litigation costs were
      approximately $190,000 higher in fiscal 2006 than in fiscal 2005, primarily
      attributable to the costs of the trial in the Miller lawsuit that took
      place in the second quarter of fiscal 2006.  Increased audit,
      Sarbanes- Oxley and tax compliance costs of approximately $400,000 were incurred
      primarily in the first and fourth quarters of fiscal 2006.  These
      costs were partially offset by the $500,000 decrease in settlement of a lawsuit
      expense (as discussed below).  Stock-based compensation costs
      recognized pursuant to SFAS 123(R) and included in general and administrative
      expenses for fiscal 2006 were $367,000, as compared to fiscal 2005 during which
      no stock-based compensation costs were required to be recognized.




54


Also
      included in general and administrative expenses in 2005 is a settlement of
      a
      legal action brought by Real Legends, Inc., a seller of sports cards against
      When It Was a Game (“WIWAG”), a sports card dealer, and against us as a
      co-defendant.  Pursuant to the settlement terms, all of the claims
      asserted against the Company by plaintiff were settled and plaintiff terminated
      the litigation, with prejudice, and we paid plaintiff $600,000, of which
      $100,000 was reimbursed to us by one of our insurers.  As a result,
      the net cost to us of that settlement was $500,000, or 1.5% of our fiscal 2005
      net revenues.




*Amortization
      of Intangible Assets*





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Amortization
                Expense
            
            $
            950
            
            
            $
            269
            
            
            $
            21As
                a percentage of net revenues
            
            
            2.3
            %
            
            
            0.7
            %
            
            
            0.1
            %




The
      increases in amortization expense are due primarily to an increase in intangible
      assets that resulted from the business acquisitions that we consummated in
      fiscal 2006 and in the first quarter of fiscal 2007 and the amortization of
      capitalized software.  Those assets are being amortized over their
      estimated useful lives as described in note 2 to our Consolidated Financial
      Statements included in Item 8 of this Report.




*Stock-Based
      Compensation*




In
      accordance with SFAS No. 123(R) – *Share-Based Payment* which, in
      the Company’s case, became effective as of July 1, 2005, we recognized
      stock-based compensation of $890,000 and $670,000 during fiscal 2007 and 2006,
      respectively.  That stock-based compensation was recorded as part of
      (i) costs of sales, in the case of stock awards granted to employees in our
      authentication and grading businesses, (ii) selling and marketing expenses
      in the case of stock awards granted to marketing and sales personnel and
      (iii) general and administrative expenses in the case of stock awards
      granted to directors, executive and financial management and administrative
      personnel, as follows:





**Year
                Ended**
              **June
                30,**
            
            
            **Year
                Ended**
              **June
                30,****2007**
            
            
            **2006**Cost
                of revenues
            
            $
            194,000
            
            
            $
            302,000Selling
                and marketing expenses
            
            
            8,000
            
            
            
            1,000General
                and administrative expenses
            
            
            688,000
            
            
            
            367,000$
            890,000
            
            
            $
            670,000




Prior
      to
      the adoption of SFAS No 123(R), we accounted for stock-based compensation
      in accordance with the Accounting Principle Board Opinion No. 25, *Accounting
      for Stock Issued to Employees*, and related interpretations.  As
      such, compensation expense was recorded at the date of grant only if the quoted
      market price of the underlying stock on that date exceeded the exercise or
      purchase price of the options or stock awards.  However, we have
      disclosed, in the notes to our Consolidated Financial Statements, pro forma
      net
      earnings and pro forma net earnings per share for fiscal year 2005 as if the
      fair value of all stock options and other stock awards, as of their respective
      grant dates, were recognized as expense over the vesting periods of those
      options in accordance with SFAS No. 123 *Accounting
      for********Stock-Based
      Compensation.*




We
      adopted SFAS No. 123(R) using the modified prospective method.  Under
      this transition method, compensation costs recognized in fiscal 2006 include:
      (i) compensation cost for all share-based awards granted prior to, but not
      yet vested as of July 1, 2005, based on their respective grant date fair values
      estimated in accordance with the original provisions of SFAS No. 123; and
      (ii) compensation cost for all share-based awards granted subsequent to
      June 30, 2005, based on their respective grant-date fair values estimated in
      accordance with the provisions of SFAS No. 123(R).  In accordance
      with the modified prospective method, results for the corresponding periods
      of
      the prior year have not been restated and the Company will continue to disclose
      the pro forma effect of option grants on net earnings and net earnings per
      share
      for periods ended prior to July 1, 2005 in the notes to our Consolidated
      Financial Statements.




55


We
      will
      also continue to account for equity instruments issued to persons other than
      Company employees and directors (“non-employees”) in accordance with the
      provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No.
      96-18, *Accounting for Equity Instruments that are Issued to Other Than
      Employees for Acquiring, or in Conjunction with Selling Goods or
      Services.*  All transactions in which goods or services are the
      consideration received for equity instruments issued to non-employees are
      accounted for based on the fair value of the consideration received or the
      fair
      value of the equity instrument issued, whichever is more reliably
      measurable.  The measurement date used to determine the fair value of
      any such equity instrument is the earliest to occur of (i) the date on which
      the
      third-party performance is complete, (ii) the date on which it is probable
      that performance will occur, or (iii) if different, the date on which the
      compensation has been earned by the non-employee.  However, no equity
      instruments were issued to non-employees for goods or services during the three
      years ended June 30, 2007.




We
      issue
      stock options or make restricted stock grants to employees and outside directors
      whose only condition for vesting are continued employment or service during
      the
      related vesting period.  Typically, the vesting period is four years
      for employee awards and shorter periods for director awards, reflecting their
      service periods, although awards are sometimes granted with immediate
      vesting.




During
      fiscal 2007, we issued a total of approximately 57,000 shares of restricted
      stock to our CEO and the non-management members of the Board of Directors,
      which
      required us to recognize stock-based compensation expense of approximately
      $164,000 during fiscal 2007.  No shares of restricted stock were
      issued in fiscal 2006 and no stock-based compensation related to restricted
      shares was recognized in 2006. The shares of restricted stock issued to our
      CEO
      and our Board members have vesting periods of four years and one year,
      respectively.  Compensation cost is determined based on the closing
      price of our stock, as reported by NASDAQ, as of the date of the grant and
      is
      recognized as stock-based compensation expense over the vesting period on a
      straight-line basis, net of an estimated forfeiture rate of 7%. No shares of
      restricted stock were issued in fiscal 2006.




We
      calculate stock-based compensation by estimating the fair value of stock options
      as of the date granted using the Black-Scholes option valuation model and
      various assumptions that are described in note 2 to our Consolidated Financial
      Statements included in Item 8 of this Report.  Once the compensation
      cost of an option is determined, that cost is recognized on a straight-line
      basis over the vesting period of the option.




For
      fiscal years 2007 and 2006, stock-based compensation consisted of compensation
      costs attributable to options granted in prior years that were outstanding
      but
      were not fully vested as of July 1, 2005, the adoption date of SFAS No. 123(R),
      and compensation costs for options that were granted following July 1, 2005
      to
      June 30, 2007, prorated from their respective grant dates to June 30,
      2007.  Compensation costs, as determined, were adjusted for estimated
      forfeitures in accordance with SFAS No. 123(R).  Options to purchase a
      total of 65,000 and 42,000 shares of our common stock were granted to employees
      during fiscal 2007 and 2006, respectively.  These options are in
      addition to the restricted stock grants made in 2007, as described
      above.




The
      method we employ to calculate stock-based compensation is consistent with the
      method used to compute stock-based compensation under SFAS No. 123, except
      that
      under SFAS No. 123(R), we are required to estimate forfeitures, which we were
      not required to and did not estimate under SFAS No. 123.  During
      fiscal 2007, we revised our forfeiture rate for stock options from 10.5% for
      fiscal 2006 to 9% for 2007.




A
      total
      of $1,672,000 of compensation expense related to unvested stock-based
      compensation awards remained unrecognized as of June 30, 2007 and will be
      recognized as compensation expense as follows:





**Year
                Ending June 30,**
            
            **Amount**2008
            
            $
            864,0002009
            
            
            486,0002010
            
            
            233,0002011
            
            
            89,000Total
            
            $
            1,672,000




These
      amounts, which are non-cash expenses, do not include the cost of any additional
      stock-based compensation awards that may be granted in future periods nor,
      as
      mentioned above, any changes that might occur in the Company’s award forfeiture
      percentage.




56


*Interest
      Income, Net*




Interest
      income is generated on cash balances that we have invested, primarily in highly
      liquid money market accounts, short-term bank certificates of deposit, auction
      rate securities and commercial paper instruments.  Such interest
      income does not include the interest that we generate on loans we make pursuant
      to our dealer-finance program, which are included in net revenues.







**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Interest
                income,
                net
            
            $
            2,144
            
            
            $
            2,346
            
            
            $
            906Percent
                of net
                revenue
            
            
            5.3
            %
            
            
            6.4
            %
            
            
            2.7
            %




*2007
      vs. 2006*.  The reduction in interest income, net to $2,144,000 in
      fiscal 2007, from $2,346,000 in fiscal 2006, was primarily due to decreases
      in
      our average cash, cash equivalents and short-term investment balances during
      fiscal 2007, reflecting our use of cash to fund (i) business acquisitions
      in fiscal year 2007; (ii) capital expenditures, primarily for purchase of
      fixed assets; (iii) the payment of quarterly cash dividends to our
      stockholders; and (iv) repurchases of our common stock under our stock
      buyback program, which more than offset cash generated from operations and
      the
      effect on interest income of increases in prevailing interest rates in fiscal
      year 2007, as compared to fiscal 2006.




*2006
      vs. 2005*.  The increase in interest income, net to $2,346,000 in
      fiscal 2006 from $906,000 in fiscal 2005, was primarily attributable to
      increases in our average cash, cash equivalents and short-term investment
      balances, as a result of (i) the sale by us of 2,195,856 shares of our
      common stock in a public offering that we completed in the third quarter of
      fiscal 2005, which generated net proceeds to us of $35,657,000; (ii) cash
      generated from the disposition of our collectibles sales businesses; and
      (iii) cash generated by operations, which more than offset cash expended
      for business acquisitions completed in fiscal year 2006.  Also
      contributing to the increase in interest income, net in fiscal 2006 was an
      increase in prevailing interest rates, as compared to fiscal 2005.




*Provision
      (Benefit) for Income Taxes*





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Provision
                (benefit) for income taxes
            
            $
            (39
            )
            
            $
            2,733
            
            
            $
            3,141




The
      income tax benefit recorded in fiscal 2007 reflects a pre-tax loss in fiscal
      2007 and an increase in permanent differences between the Company’s income for
      book purposes and for tax purposes, due primarily to the non-deductibility
      of
      stock based compensation costs related to the grant of incentive stock
      options.  For fiscal 2006 and 2005, our effective tax rates were 45%
      and 40%, respectively, reflecting increased permanent differences in fiscal
      2006, between the Company’s income for book purposes and tax purposes, primarily
      related to the non-deductibility of compensation costs on incentive stock
      options, which the Company was required to recognize for the first time in
      fiscal 2006.




*Discontinued
      Operations*





**Fiscal
                Year Ended June 30,**
              (Dollars
                in thousands)**2007**
            
            
            **2006**
            
            
            **2005**Income
                from discontinued operations, net of gainson  sales
                of discontinued businesses
              (net
                of income
                taxes)
            
            $
            228
            
            
            $
            296
            
            
            $
            60





57


As
      a
      result of our decision in fiscal 2004 to dispose of our collectibles sales
      businesses, in accordance with SFAS No. 144 the assets and related liabilities
      of those businesses were classified as held for sale and their related operating
      results for the fiscal years 2007, 2006 and 2005 have been classified as
      discontinued operations in the Consolidated Financial Statements included in
      this Annual Report.  The income from discontinued operations includes
      (i) the losses or gains recognized on the sales of those businesses and the
      disposition of those assets of those businesses that we retained (consisting
      primarily of inventories and accounts receivables); and (ii) for fiscal
      2006 the results of CTP from September 2, 2005 to November 30, 2005 (the date
      of
      its disposition).   The gain on disposal of the discontinued
      businesses related to additional consideration on the sales of those businesses
      that became determinable in fiscal 2005, 2006 and 2007, as the terms of the
      sales of some of those businesses provided for the payment to us of future
      consideration based on the performance of those businesses for periods
      subsequent to their sales.





**Quarterly
      Results of Operations and Seasonality**




The
      following tables present unaudited quarterly financial information for each
      of
      the eight quarters beginning September 30, 2005 and ending on June 30,
      2007.  The information has been derived from our unaudited quarterly
      financial statements, which have been prepared by us on a basis consistent
      with
      our audited Consolidated Financial Statements appearing elsewhere in this Form
      10-K.  The consolidated financial information set forth below includes
      all adjustments (consisting of normal adjustments and accruals) that management
      considers necessary for a fair presentation of the unaudited quarterly results
      when read in conjunction with the consolidated financial statements and the
      notes thereto appearing elsewhere in this Form 10-K.  These quarterly
      operating results, which reflect the reclassification of our results of
      operations between continuing operations and discontinued operations as a result
      of the disposition of our collectibles sales businesses, are not necessarily
      indicative of results that may be expected for any subsequent
      periods.




Generally,
      the revenues generated by our collectibles grading and authentication businesses
      are lower during our second quarter, which ends on December 31, than in other
      quarterly periods.  On the other hand, diamond and colored gemstone
      grading businesses (which we acquired in November 2005 and August 2006,
      respectively), generate higher revenues in our second quarter, which coincides
      with the winter holiday season, than in other quarterly periods.  Our
      expectation is that, over time, our diamond and colored gemstone revenues will
      represent a higher proportion of total revenues and will reduce the effect
      of
      seasonality in the second fiscal quarter.




Our
      collectibles convention business, which we acquired in July 2006, adds to the
      variability in our quarter-to quarter operating results, as its revenues vary
      based on the timing of the collectibles conventions it
      holds.  Revenues for this business unit were significantly higher in
      the first, third and fourth quarters of 2007, as compared to the second quarter
      ended December 31, 2006, because both its Long Beach and the Santa Clara
      collectibles conventions took place during the first, third and fourth quarters,
      whereas only the Santa Clara convention took place during the second quarter
      of
      2007.




In
      the
      third and fourth quarters of fiscal 2006, the Company’s coin grading revenues
      benefited from the success of our First Strike program.  However, in
      the third and fourth quarters of fiscal 2007, First Strike revenues decreased
      by
      $820,000, due to a number of factors, including a dispute over rights to the
      “First Strike” designation that we had used for this
      program.  Although we expect that revenues from the First Strike will
      improve in fiscal 2008, as compared to fiscal 2007, as the dispute related
      to
      the First Strike designation has now been resolved, there is no assurance that
      revenues from this program will be concentrated in our third and fourth fiscal
      quarters in future periods, as in previous years, or will be comparable to
      the
      revenues generated by this program in fiscal 2006 or 2005.




58


The
      $1,105,000 decrease in revenue in the second quarter ended December 31, 2006,
      as
      compared to the immediately preceding quarter ended September 30, 2006, is
      net
      of a $185,000 increase in revenues generated by our diamond and colored gemstone
      grading and authentication businesses in that second quarter.





**Quarterly
                Reports of Operations**
            
            **Quarters
                Ended**
              **(In
                thousands, except per share data)**Sept.
                30,
              2005
            
            
            Dec.
                31,
              2005
            
            
            Mar.
                31,
              2006
            
            
            June
                30,
              2006
            
            
            Sept.
                30,
              2006
            
            
            Dec.
                31,
              2006
            
            
            Mar.
                31,
              2007
            
            
            June
                30,
              2007Statement
                of Operations Data:Net
                revenues
            
            $
            8,825
            
            
            $
            7,447
            
            
            $
            10,022
            
            
            $
            10,620
            
            
            $
            9,898
            
            
            $
            8,793
            
            
            $
            11,081
            
            
            $
            10,680Cost
                of revenues
            
            
            3,372
            
            
            
            3,118
            
            
            
            4,088
            
            
            
            4,312
            
            
            
            4,356
            
            
            
            4,367
            
            
            
            5,138
            
            
            
            5,436Gross
                profit
            
            
            5,453
            
            
            
            4,329
            
            
            
            5,934
            
            
            
            6,308
            
            
            
            5,542
            
            
            
            4,426
            
            
            
            5,943
            
            
            
            5,244SG&A
                expenses
            
            
            4,290
            
            
            
            3,909
            
            
            
            4,530
            
            
            
            5,257
            
            
            
            5,241
            
            
            
            5,114
            
            
            
            6,140
            
            
            
            6,642Amortization
                of intangible assets
            
            
            20
            
            
            
            35
            
            
            
            102
            
            
            
            112
            
            
            
            171
            
            
            
            187
            
            
            
            219
            
            
            
            373Operating
                income (loss)
            
            
            1,143
            
            
            
            385
            
            
            
            1,302
            
            
            
            939
            
            
            
            130
            
            
            
            (875
            )
            
            
            (416
            )
            
            
            (1,771
            )Interest
                and other income, net
            
            
            550
            
            
            
            616
            
            
            
            596
            
            
            
            606
            
            
            
            571
            
            
            
            548
            
            
            
            513
            
            
            
            518Income
                (loss) before income taxes
            
            
            1,693
            
            
            
            1,001
            
            
            
            1,898
            
            
            
            1,545
            
            
            
            701
            
            
            
            (327
            )
            
            
            97
            
            
            
            (1,253
            )Provision
                (benefit) for income taxes
            
            
            714
            
            
            
            447
            
            
            
            804
            
            
            
            768
            
            
            
            318
            
            
            
            (147
            )
            
            
            165
            
            
            
            (375
            )Income
                (loss) from continuing
              operations
            
            
            979
            
            
            
            554
            
            
            
            1,094
            
            
            
            777
            
            
            
            383
            
            
            
            (180
            )
            
            
            (68
            )
            
            
            (878
            )Income
                from discontinued
              operations,net
                of gain on sales
              of
                discontinued businesses
              (net
                of income
                taxes)
            
            
            (12
            )
            
            
            181
            
            
            
            -
            
            
            
            127
            
            
            
            11
            
            
            
            80
            
            
            
            99
            
            
            
            38Net
                income
                (loss)
            
            $
            967
            
            
            $
            735
            
            
            $
            1,094
            
            
            $
            904
            
            
            $
            394
            
            
            $
            (100
            )
            
            $
            31
            
            
            $
            (840
            )Net
                income (loss) per basic share:From
                continuing
                operations
            
            $
            0.11
            
            
            $
            0.07
            
            
            $
            0.13
            
            
            $
            0.09
            
            
            $
            0.05
            
            
            $
            (0.02
            )
            
            $
            (0.01
            )
            
            $
            (0.10
            )From
                discontinued operations,
              net
                of gain on salesof
              discontinued businesses
              (net
                of income taxes)
            
            
            -
            
            
            
            0.02
            
            
            
            -
            
            
            
            0.02
            
            
            
            -
            
            
            
            0.01
            
            
            
            0.01
            
            
            
            -Net
                income
                (loss)
            
            $
            0.11
            
            
            $
            0.09
            
            
            $
            0.13
            
            
            $
            0.11
            
            
            $
            0.05
            
            
            $
            (0.01
            )
            
            $
            0.00
            
            
            $
            (0.10
            )Net
                income (loss) per diluted share:From
                continuing
                operations
            
            $
            0.11
            
            
            $
            0.06
            
            
            $
            0.12
            
            
            $
            0.09
            
            
            $
            0.04
            
            
            $
            (0.02
            )
            
            $
            (0.01
            )
            
            $
            (0.10
            )From
                discontinued operations,
              net
                of gain on salesof
              discontinued businesses
              (net
                of income taxes)
            
            
            -
            
            
            
            0.02
            
            
            
            -
            
            
            
            0.01
            
            
            
            -
            
            
            
            0.01
            
            
            
            0.01
            
            
            
            -Net
                income (loss)
            
            $
            0.11
            
            
            $
            0.08
            
            
            $
            0.12
            
            
            $
            0.10
            
            
            $
            0.04
            
            
            $
            (0.01
            )
            
            $
            0.00
            
            
            $
            (0.10
            )Weighted
                average shares outstandingBasic
            
            
            8,486
            
            
            
            8,488
            
            
            
            8,485
            
            
            
            8,433
            
            
            
            8,351
            
            
            
            8,309
            
            
            
            8,381
            
            
            
            8,433Diluted
            
            
            8,806
            
            
            
            8,803
            
            
            
            8,822
            
            
            
            8,750
            
            
            
            8,628
            
            
            
            8,309
            
            
            
            8,587
            
            
            
            8,433








**Quarters
                Ended**
              **(In
                thousands)**Sept.
                30,
              2005
            
            
            Dec.
                31,
              2005
            
            
            Mar.
                31,
              2006
            
            
            June
                30,
              2006
            
            
            Sept.
                30,
              2006
            
            
            Dec.
                31,
              2006
            
            
            Mar.
                31,
              2007
            
            
            June
                30,
              2007**Selected
                Operating Data:**Units
                authenticated or gradedCoins
            
            
            395
            
            
            
            357
            
            
            
            474
            
            
            
            563
            
            
            
            482
            
            
            
            281
            
            
            
            400
            
            
            
            396Sportscards
            
            
            283
            
            
            
            275
            
            
            
            315
            
            
            
            326
            
            
            
            321
            
            
            
            296
            
            
            
            321
            
            
            
            324Autographs
            
            
            55
            
            
            
            34
            
            
            
            45
            
            
            
            47
            
            
            
            34
            
            
            
            44
            
            
            
            40
            
            
            
            52Stamps
            
            
            9
            
            
            
            7
            
            
            
            10
            
            
            
            12
            
            
            
            12
            
            
            
            18
            
            
            
            17
            
            
            
            19Currency
            
            
            9
            
            
            
            5
            
            
            
            9
            
            
            
            6
            
            
            
            9
            
            
            
            7
            
            
            
            9
            
            
            
            11Diamonds
            
            
            -
            
            
            
            1
            
            
            
            1
            
            
            
            3
            
            
            
            6
            
            
            
            9
            
            
            
            5
            
            
            
            5Colored
                gemstones
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1Total
            
            
            751
            
            
            
            679
            
            
            
            854
            
            
            
            957
            
            
            
            864
            
            
            
            655
            
            
            
            792
            
            
            
            808





59


**Liquidity
      and Capital Resources**





At
      June
      30, 2007, we had cash and cash equivalents of $42,836,000, as compared to
      $52,110,000 at June 30, 2006, as we used cash in fiscal 2007 to fund
      (i) business acquisitions; (ii) capital expenditures, primarily for
      purchases of fixed assets; (iii) the payment of quarterly cash dividends to
      our stockholders and (iv) repurchases of shares of our common stock under
      our stock buyback program.




Historically,
      we have relied on internally-generated funds, rather than borrowings, as our
      primary source of funds to support our operations.  We expect our
      authentication and grading services and our subscription services to provide
      us
      with positive operating cash flows, largely because (i) in many instances
      our customers prepay for those services at the time they submit their
      collectibles to us for authentication and grading or subscribe for our
      subscription-based services, and (ii) we expect that, in the event of an
      on-going decline in authentication and grading submissions, we will be able
      to
      reduce certain of our costs and thereby reduce the impact on our cash flows
      of
      such a decline.




During
      fiscal 2007, operating activities of our continuing operations provided net
      cash
      of $3,523,000, compared with $7,593,000 generated in fiscal 2006.




Investing
      activities used net cash of $9,338,000 during fiscal 2007, of which we used
      (i) $6,293,000 to fund the purchase of businesses that we acquired during
      the fiscal year 2007; and (ii) $3,073,000 and $1,483,000, primarily for the
      purchase of fixed assets and software development costs; and (iii) $5,038,000
      in
      advances on customer notes receivables offset by $6,416,000 proceeds from
      customer notes receivables attributed to Collectors Finance
      Corporation.




In
      fiscal
      2007, financing activities used net cash of $4,023,000, including $3,350,000
      to
      pay cash dividends to stockholders and $949,000 to repurchase shares of our
      common stock under our stock buyback program, partially offset by proceeds
      of
      $276,000 from the exercise of employee stock options.




*Bank
      Line of Credit*.  As previously reported, in fiscal 2005, we
      organized Collectors Finance Corporation (“CFC”), as a wholly-owned subsidiary,
      to engage in the business of making loans primarily to coin or sportscards
      dealers.  All such loans are required to be collateralized by the
      delivery to us of collectibles that have a fair market value of at least the
      amount of the loans.  The loans are required to be repaid to us when
      those collectibles are returned to the dealers.  To provide a source
      of funding for those loans, in June 2005, CFC obtained a revolving bank line
      of
      credit for the original term of two years pursuant to a loan and security
      agreement that permits CFC to borrow, at any one time, up to the lesser of
      (i) $7,000,000 or (ii) an amount equal to 85% of the aggregate
      principal amount of those of its loan receivables that meet the bank’s
      eligibility criteria.  Borrowings under that credit line, the term of
      which was extended to September 30, 2007, which had a term of two years ending
      in June 2007, are to bear interest at rates based on the bank’s prime rate or
      LIBOR, as applicable, and are to be secured by the loan receivables due
      CFC.  There were no borrowings outstanding under that line of credit
      during the fiscal year ended or at June 30, 2007.  We expect to secure
      a comparable line of credit by September 30, 2007.




CFC’s
      obligations under this line of credit have been guaranteed by the Company
      pursuant to a Continuing Guaranty Agreement with the bank lender.  The
      terms of that Agreement require the Company to be in compliance with certain
      financial and other restrictive covenants, and require the consent of the lender
      (i) for the payment of cash dividends or repurchases of our common stock in
      an aggregate amount exceeding its annual net income in any year, and
      (ii) to consummate more than $5,000,000 of business acquisitions in any
      year.  The Company was in compliance with all of these covenants at
      June 30, 2007 and received the required consents and a formal waiver from the
      lender for the purchases of Expos Unlimited and American Gemological
      Laboratories businesses, the repurchase of the Company’s common stock, and the
      payment of cash dividends during fiscal 2006 and 2007.




60


*Outstanding
      Financial Obligations*.  We had the following outstanding
      obligations under operating leases, net of sublease income at June 30, 2007,
      for
      years ending June 30:





2008
            
            $
            1,789,0002009
            
            
            1,803,0002010
            
            
            898,0002011
            
            
            433,0002012
            
            
            415,000Thereafter
            
            
            1,385,000$
            6,723,000




With
      the
      exception of these obligations, we do not have any material financial
      obligations, such as long-term debt, capital lease, or long-term purchase
      obligations.  In the event that CFC incurs any borrowings under its
      line of credit, we will have an obligation to repay such borrowings; however,
      as
      noted above, there were no borrowings outstanding under this line of credit
      at
      June 30, 2007 and CFC does not expect to incur any such borrowings during the
      quarter ending September 30, 2007.




*Stock
      Buyback Program.*In December 2005, our Board of Directors
      approved a stock buyback program that authorizes up to $10,000,000 of stock
      repurchases in open market or privately negotiated transactions, in accordance
      with applicable Securities Exchange Commission rules, when opportunities to
      make
      such repurchases, at attractive prices, become available.  The Company
      is under no obligation to repurchase any shares under the stock buyback program
      and the timing, actual number and value of shares that may be repurchased under
      that program will depend on a number of factors, including the Company's future
      financial performance, its available cash resources and competing uses for
      the
      cash that may arise in the future, prevailing market prices of the Company's
      common stock and the number of shares that become available for sale at prices
      that the Company believes are attractive.  During fiscal year 2006 and
      2007, the Company repurchased a total of 181,851 and 72,517 shares,
      respectively, of its common stock under this program for an aggregate purchase
      price of approximately $2,628,000 and $949,000, respectively (which includes
      transaction costs of approximately $10,000).  Additional information
      regarding these share repurchases is set forth in Item 5 of this
      Report.




*Dividends*.  In
      the fourth quarter of fiscal 2006, the Board of Directors adopted a dividend
      policy that called for the payment of quarterly cash dividends of $0.08 per
      common share, for an expected annual cash dividend of $0.32 per common
      share.  The first such quarterly cash dividend was paid in the fourth
      quarter of fiscal 2006 and quarterly cash dividends in that same per share
      amount were paid in the first and second quarters of fiscal 2007.  The
      quarterly cash dividend was increased to $0.12 per share, in the third quarter
      of fiscal 2007 and dividends in that same per share amount were paid in both
      the
      third and fourth quarters of 2007.




In
      June
      2007, the Board of Directors approved another increase in the quarterly cash
      dividend to $0.25 per common share, for an expected annual cash dividend to
      stockholders of $1.00 per common share.  The first of such quarterly
      cash dividends of $0.25 per share was paid on September 7, 2007 in the first
      quarter of fiscal 2008 to all stockholders of record as of August 24,
      2007.




Dividends
      paid in fiscal 2007 totaled $3,350,000 and, assuming that we continue to pay
      quarterly cash dividends of $0.25 per share during the balance of fiscal 2008,
      we estimate that we will pay an aggregate of approximately $8,500,000 in cash
      dividends in fiscal 2008.  We expect to fund those dividends with
      internally generated funds and available cash balances.




The
      declaration of cash dividends in the future, pursuant to the Company’s dividend
      policy, 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.  For these reasons, as well as
      others, there can be no assurance that the amount of the quarterly cash dividend
      will not be reduced, or that the Board of Directors will not decide to suspend
      or discontinue the payment of cash dividends, in the future.




61


*Uses
      and Sources of Cash*.  We plan to use our cash resources,
      consisting of internally generated cash flow and available cash and cash
      equivalent balances,  to (i) expand our existing and implement
      new marketing programs, (ii) introduce new services for our customers,
      (iii) acquire or start-up other high-value collectibles or high-value asset
      authentication and grading businesses, (iv) continue paying dividends to
      our stockholders, as determined by the Board of Directors, (v) make private
      and open market share repurchases under our stock buyback program if there
      are
      opportunities to do so at prices that we believe are attractive, and
      (vi) fund working capital requirements, and for other corporate
      purposes.  Although we have no current plans to do so, we also may
      seek borrowings, and we may issue additional shares of our stock, to finance
      acquisitions of additional authentication and grading businesses.




***Recent
      Accounting Pronouncements***




In
      July
      2006, the FASB issued FASB Interpretation 48, *Accounting for Uncertainty in
      Income Taxes: an Interpretation of FASB Statement No. 109
      (FIN48).*  Interpretation 48 clarifies Statement 109,
*Accounting for Income Taxes*, to indicate a criterion that an individual
      tax position would have to meet for some or all of the benefit of that position
      to be recognized in an entity’s financial statements.  Interpretation
      48 is effective for fiscal years beginning after December 15,
      2006.  Management is currently completing the process of evaluating
      the effect of FIN48 on its Consolidated Financial Statements, as of the
      beginning of the period of adoption, July 1, 2007.  The Company
      currently believes that the adoption of FIN48 will not have a material effect
      on
      the Company’s financial position and results of operation.





In
      September 2006, the FASB issued SFAS No. 157, *Fair Value Measurements*,
      which defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles (GAAP) and expands disclosure about
      fair value measurements.  The statement emphasizes that fair value is
      a market-based measurement, not an entity-specific measurement.  SFAS
      No. 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007, and interim periods within those fiscal
      years.  We do not expect the adoption of SFAS No. 157 to have a
      material impact on our financial position or results of operation.





In
      September 2006, the FASB issued SFAS No. 158, *Employers’ Accounting for
      Defined Benefit Pension and Other Post Retirement Plans*(an amendment of
      FASB Statement No. 87, 88, 106 and 132R).  SFAS No. 158 requires an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income.  As the Company currently does not sponsor one or more
      single-employer defined benefit plans, we do not expect the adoption of SFAS
      No.
      158 to have a material impact on our financial position or results of
      operation.




In
      September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108,
*“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.”*  SAB 108 was
      issued to provide consistency between how registrants quantify financial
      statements.  Historically, there have been two widely-used methods for
      quantifying the effects of financial statement misstatements.  These
      methods are referred to as the “roll-over” and “iron curtain”
method.  The roll-over method quantifies the amount by which the
      current year income statement is misstated.  Exclusive reliance on an
      income statement approach can result in the accumulation of errors on the
      balance sheet that may not have been material to any individual income
      statement, but which may misstate one or more balance sheet
      accounts.  The iron curtain method quantifies the error as the
      cumulative amount by which the current year balance sheet is
      misstated.  Exclusive reliance on a balance sheet approach can result
      in disregarding the effects of errors in the current year income statement
      that
      results from the correction of an error existing in previously issued financial
      statements. SAB 108 established an approach that requires quantification of
      financial statement misstatements based on the effects of the misstatement
      on
      each of the Company’s financial statements and the related financial statement
      disclosures.  This approach is commonly referred to as the “dual
      approach” because it requires quantification of errors under both the roll-over
      and iron curtain methods.  SAB 108 allows registrants to initially
      apply the dual approach either by (1) retroactively adjusting prior financial
      statements as if the dual approach had always been used or by (2) recording
      the
      cumulative effect of initially applying the dual approach as adjustments to
      the
      carrying values of assets and liabilities as of July 1, 2006 with an offsetting
      adjustment recorded to the opening balance of retained earnings (accumulated
      deficit).  Use of this “cumulative effect” transition method requires
      detailed disclosure of the nature and amount of each individual error being
      corrected through the cumulative adjustment and how and when it arose. We do
      not
      expect the initial application of SAB 108 to have a material impact on the
      Company’s financial position or results of operation.




62


In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115,* which**permits entities to choose to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. This Statement is expected to expand the use of fair
      value measurement, which is consistent with the FASB’s long-term measurement
      objectives for accounting for financial instruments. This Statement is effective
      as of the beginning of an entity’s first fiscal year that begins after November
      15, 2007. Early adoption is permitted as of the beginning of a fiscal year
      that
      begins on or before November 15, 2007, provided the entity also elects to apply
      the provisions of FASB Statement No. 157, *Fair Value Measurements*. As
      described above, we do not expect that the adoption of SFAS No. 157 or No.
      159
      will have a material impact on our financial position or results of
      operations.




**ITEM
      7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK**




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




Due
      to
      the cash and cash equivalent balances that we maintain, we are exposed to risk
      of changes in short-term interest rates.  At June 30, 2007, we had
      $42,386,000 in cash and cash equivalents, primarily invested in money market
      funds.  Reductions in short-term interest rates could result in
      reductions in the amount of that income.  However, the impact on our
      operating results of such changes is not expected to be material.




The
      Company has no activities that would expose it to foreign currency exchange
      rate
      risk or commodity price risks.













63


**ITEM
      8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA**





Index
      to Consolidated Financial Statements





**Page**Report
                of Independent Registered Public Accounting
                Firm
            65Consolidated
                Balance Sheets at June 30, 2007 and
                2006
            66Consolidated
                Statements of Operations for the Years Ended June 30, 2007, 2006
                and
                2005
            67Consolidated
                Statements of Stockholders’ Equity For the Years Ended June 30, 2007, 2006
                and 2005
            68Consolidated
                Statements of Cash Flows for the Years Ended June 30, 2007, 2006
                and
                2005
            69Notes
                to Consolidated Financial Statements For the Years Ended June 30,
                2007,
                2006 and 2005
            71











64


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








Board
      of
      Directors and Stockholders


Collectors
      Universe, Inc. and Subsidiaries








We
      have
      audited the accompanying consolidated balance sheets of Collectors Universe,
      Inc. and subsidiaries (the Company) as of June 30, 2007 and 2006, and the
      related consolidated statements of operations, stockholders’ equity and cash
      flows for each of the three years ended June 30, 2007.  These
      financial statements are the responsibility of the Company’s
      management.  Our responsibility is to express an opinion on these
      financial statements based on our audits.




We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements.  An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation.  We believe that our audits provide a reasonable basis
      for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above, present
      fairly, in all material respects, the financial position of Collectors Universe,
      Inc. and subsidiaries as of June 30, 2007 and 2006 and the results of their
      operations and their cash flows for each of the three years ended June 30,
      2007
      in conformity with accounting principles generally accepted in the United States
      of America.




As
      described in Note 2 to the consolidated financial statements, the Company
      changed its method of accounting for stock-based employee compensation as a
      result of adopting Statement of Financial Accounting Standards No. 123(R),
      *Share-Based Payment,*effective July 1, 2005.




Our
      audit
      was conducted for the purpose of forming an opinion on the basic consolidated
      financial statements taken as a whole.  The Schedule II is presented
      for purposes of additional analysis and is not a required part of the basic
      consolidated financial statements. This schedule has been subjected to the
      auditing procedures applied in the audit of the basic consolidated financial
      statements and, in our opinion, is fairly stated in all material respects in
      relation to the basic consolidated financial statements taken as a
      whole.




We
      have also audited, in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States), the effectiveness of Collectors Universe, Inc. and subsidiaries’
internal control over financial reporting as of June 30, 2007, based on criteria
      established in Internal Control – Integrated Framework issued by the Committee
      of Sponsoring Organizations of the Treadway Commission and our report dated
      September 10, 2007, expressed an unqualified opinion thereon.





/s/
      GRANT
      THORNTON LLP





Irvine,
      California


September
      10, 2007








65


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(in
      thousands, except per share data)





**June
                30,****ASSETS**
            
            **2007**
            
            
            **2006**Current
                assets:Cash
                and cash
                equivalents
            
            $
            42,386
            
            
            $
            52,110Accounts
                receivable, net of
                allowance of $60 in 2007 and $37 in 2006
            
            
            1,276
            
            
            
            1,753Refundable
                income
                taxes
            
            
            1,220
            
            
            
            -Inventories,
                net
            
            
            442
            
            
            
            437Prepaid
                expenses and other current
                assets
            
            
            1,060
            
            
            
            1,010Customer
                notes receivable, net of
                allowance of $23 in 2007 and $16 in 2006
            
            
            2,536
            
            
            
            3,797Net
                deferred income tax
                asset
            
            
            1,020
            
            
            
            1,414Receivables
                from sale of net
                assets of discontinued operations
            
            
            92
            
            
            
            196Current
                assets of discontinued
                operations held for sale
            
            
            -
            
            
            
            83Total
                current
                assets
            
            
            50,032
            
            
            
            60,800Property
                and equipment,
                net
            
            
            4,081
            
            
            
            1,897Goodwill
            
            
            12,884
            
            
            
            9,799Intangible
                assets,
                net
            
            
            10,365
            
            
            
            4,674Note
                receivable from sale of
                discontinued operation
            
            
            229
            
            
            
            321Net
                deferred income tax
                asset
            
            
            -
            
            
            
            342Other
                assets
            
            
            510
            
            
            
            388$
            78,101
            
            
            $
            78,221**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            1,435
            
            
            $
            907Accrued
                liabilities
            
            
            2,154
            
            
            
            2,043Accrued
                compensation and
                benefits
            
            
            1,988
            
            
            
            1,075Income
                taxes
                payable
            
            
            14
            
            
            
            496Deferred
                revenue
            
            
            2,233
            
            
            
            1,384Current
                liabilities of
                discontinued operations held for sale
            
            
            -
            
            
            
            8Total
                current
                liabilities
            
            
            7,824
            
            
            
            5,913Deferred
                rent
            
            
            477
            
            
            
            402Other
                long-term liabilities
            
            
            40
            
            
            
            -Net
                deferred income tax liability
            
            
            869
            
            
            
            -Commitments
                and contingencies (note 15)
            
            
            -
            
            
            
            -Stockholders’
                equity:Preferred
                stock, $.001 par value;
                5,000 shares authorized;no
                shares issued or
                outstanding
            
            
            -
            
            
            
            -Common
                stock, $.001 par value;
                45,000 shares authorized;Shares
                issued: 8,496 in 2007 and
                8,475 in 2006;Shares
                outstanding: 8,496 in 2007
                and 8,350 (net of treasury stock) in 2006
            
            
            9
            
            
            
            8Additional
                paid-in
                capital
            
            
            76,737
            
            
            
            76,909Accumulated
                deficit
            
            
            (7,855
            )
            
            
            (3,990
            )Treasury
                stock, at cost (0 shares
                in 2007 and 125 shares in 2006)
            
            
            -
            
            
            
            (1,021
            )Total
                stockholders’
                equity
            
            
            68,891
            
            
            
            71,906$
            78,101
            
            
            $
            78,221





The
      accompanying notes are an integral part of these consolidated financial
      statements.


66


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(in
      thousands, except per share data)


**Year
                Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**Net
                revenues:Grading,
                authentication and
                related services
            
            $
            40,452
            
            
            $
            36,914
            
            
            $
            33,607Cost
                of revenues:Cost
                of grading, authentication
                and related services
            
            
            19,297
            
            
            
            14,890
            
            
            
            12,239Gross
                profit
            
            
            21,155
            
            
            
            22,024
            
            
            
            21,368Operating
                expenses:Selling
                and marketing
                expenses
            
            
            7,497
            
            
            
            4,918
            
            
            
            3,534General
                and administrative
                expenses
            
            
            15,640
            
            
            
            13,068
            
            
            
            10,846Amortization
                of intangible
                assets
            
            
            950
            
            
            
            269
            
            
            
            21Total
                operating
                expenses
            
            
            24,087
            
            
            
            18,255
            
            
            
            14,401Operating
                income (loss)
            
            
            (2,932
            )
            
            
            3,769
            
            
            
            6,967Interest
                income, net
            
            
            2,144
            
            
            
            2,346
            
            
            
            906Other
                income, net
            
            
            6
            
            
            
            22
            
            
            
            26Income
                (loss) before provision for income taxes
            
            
            (782
            )
            
            
            6,137
            
            
            
            7,899Provision
                (benefit) for income taxes
            
            
            (39
            )
            
            
            2,733
            
            
            
            3,141Income
                (loss) from continuing operations
            
            
            (743
            )
            
            
            3,404
            
            
            
            4,758Income
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            228
            
            
            
            296
            
            
            
            60Net
                income (loss)
            
            $
            (515
            )
            
            $
            3,700
            
            
            $
            4,818Net
                income (loss) per basic share:Income
                (loss) from continuing
                operations
            
            $
            (0.09
            )
            
            $
            0.40
            
            
            $
            0.68Income
                from discontinued
                operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            0.03
            
            
            
            0.04
            
            
            
            0.01Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.44
            
            
            $
            0.69Net
                income (loss) per diluted share:Income
                (loss) from continuing
                operations
            
            $
            (0.09
            )
            
            $
            0.39
            
            
            $
            0.64Income
                from discontinued
                operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            0.03
            
            
            
            0.03
            
            
            
            0.01Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.42
            
            
            $
            0.65Weighted
                average shares outstanding:Basic
            
            
            8,367
            
            
            
            8,473
            
            
            
            7,013Diluted
            
            
            8,367
            
            
            
            8,782
            
            
            
            7,452Dividends
                declared per common share
            
            $
            0.40
            
            
            $
            0.08
            
            
            $
            -








The
      accompanying notes are an integral part of these consolidated financial
      statements.


67


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS'
      EQUITY**


(in
      thousands)





**Common
                Stock**
            
            
            **Additional**
              **Paid-in**
            
            
            **Accumulated**
            
            
            **Treasury
                Stock****Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Deficit**
            
            
            **Shares**
            
            
            **Amount**
            
            
            **Total**Balance
                at June 30, 2004
            
            
            6,338
            
            
            $
            6
            
            
            $
            42,215
            
            
            $
            (11,834
            )
            
            
            (125
            )
            
            $
            (1,021
            )
            
            $
            29,366Issuance
                of common stock inpublic
                offering
              (net of expenses)
            
            
            2,196
            
            
            
            2
            
            
            
            35,655
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            35,657Exercise
                of stock options
            
            
            71
            
            
            
            1
            
            
            
            283
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            284Tax
                benefit on exercise of
                stock options
            
            
            -
            
            
            
            -
            
            
            
            338
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            338Issuances
                of stock under stock purchase plan and related compensation
                expense
            
            
            5
            
            
            
            -
            
            
            
            103
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            103Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,818
            
            
            
            -
            
            
            
            -
            
            
            
            4,818Balance
                at June 30, 2005
            
            
            8,610
            
            
            $
            9
            
            
            $
            78,594
            
            
            $
            (7,016
            )
            
            
            (125
            )
            
            $
            (1,021
            )
            
            $
            70,566Exercise
                of stock options
            
            
            47
            
            
            
            -
            
            
            
            243
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            243Stock
                compensation expense
            
            
            -
            
            
            
            -
            
            
            
            670
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            670Tax
                benefit on exercise of
                stock options
            
            
            -
            
            
            
            -
            
            
            
            29
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            29Shares
                repurchased and cancelled under the Stock Repurchase Plan
            
            
            (182
            )
            
            
            (1
            )
            
            
            (2,627
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,628
            )Net
                income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,700
            
            
            
            -
            
            
            
            -
            
            
            
            3,700Dividends
                paid ($0.08 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (674
            )
            
            
            -
            
            
            
            -
            
            
            
            (674
            )Balance
                at June 30, 2006
            
            
            8,475
            
            
            $
            8
            
            
            $
            76,909
            
            
            $
            (3,990
            )
            
            
            (125
            )
            
            $
            (1,021
            )
            
            $
            71,906Exercise
                of stock options
            
            
            161
            
            
            
            1
            
            
            
            275
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            276Stock
                compensation expense
            
            
            -
            
            
            
            -
            
            
            
            726
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            726Issuance
                of restricted shares
            
            
            57
            
            
            
            -
            
            
            
            164
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            164Tax
                benefit on exercise of
                stock options
            
            
            -
            
            
            
            -
            
            
            
            633
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            633Shares
                repurchased and cancelled under the Stock Repurchase Plan
            
            
            (72
            )
            
            
            -
            
            
            
            (949
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (949
            )Net
                loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (515
            )
            
            
            -
            
            
            
            -
            
            
            
            (515
            )Retirement
                of treasury shares
            
            
            (125
            )
            
            
            -
            
            
            
            (1,021
            )
            
            
            -
            
            
            
            125
            
            
            
            1,021
            
            
            
            -Dividends
                paid ($0.40 per share)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,350
            )
            
            
            -
            
            
            
            -
            
            
            
            (3,350
            )Balance
                at June 30, 2007
            
            
            8,496
            
            
            $
            9
            
            
            $
            76,737
            
            
            $
            (7,855
            )
            
            
            -
            
            
            $
            -
            
            
            $
            68,891








The
      accompanying notes are in integral part of these consolidated financial
      statements.


68


**COLLECTORS
      UNIVERSE, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH
      FLOWS**


(in
      thousands)


**Year
                ended June 30,****2007**
            
            
            **2006**
            
            
            **2005****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
                (loss)
            
            $
            (515
            )
            
            $
            3,700
            
            
            $
            4,818Adjustments
                to reconcile
                net income (loss) to net cash providedby
                operating
                activities:Depreciation
                and amortization
                expense
            
            
            2,012
            
            
            
            919
            
            
            
            443Stock-based
                compensation
                expense
            
            
            890
            
            
            
            670
            
            
            
            33Impairment
                of long-lived
                assets
            
            
            55
            
            
            
            -
            
            
            
            -Tax
                benefit from exercise of
                stock options
            
            
            633
            
            
            
            29
            
            
            
            338Loss
                on termination of
                sublease
            
            
            -
            
            
            
            83
            
            
            
            -Loss
                on intangible
                asset
            
            
            16
            
            
            
            -
            
            
            
            -Discontinued
                operations
            
            
            (228
            )
            
            
            (296
            )
            
            
            (60
            )Provision
                for bad debts and
                returns
            
            
            27
            
            
            
            55
            
            
            
            38Provision
                (recovery) for
                inventory write-down
            
            
            (4
            )
            
            
            72
            
            
            
            -(Gain)
                loss on sale of property
                and equipment
            
            
            -
            
            
            
            8
            
            
            
            (10
            )Deferred
                income
                taxes
            
            
            400
            
            
            
            1,853
            
            
            
            2,474Changes
                in operating assets and
                liabilities:Accounts
                receivable
            
            
            552
            
            
            
            (115
            )
            
            
            (756
            )Inventories
            
            
            10
            
            
            
            (73
            )
            
            
            16Prepaid
                expenses and
                other
            
            
            (219
            )
            
            
            (63
            )
            
            
            (321
            )Refundable
                income
                taxes
            
            
            (1,220
            )
            
            
            -
            
            
            
            13Other
                assets
            
            
            (72
            )
            
            
            (278
            )
            
            
            (88
            )Accounts
                payable and accrued
                liabilities
            
            
            488
            
            
            
            403
            
            
            
            510Accrued
                compensation and
                benefits
            
            
            913
            
            
            
            (164
            )
            
            
            133Income
                taxes
                payable
            
            
            (671
            )
            
            
            496
            
            
            
            -Deferred
                revenue
            
            
            381
            
            
            
            278
            
            
            
            (224
            )Deferred
                rent
            
            
            75
            
            
            
            16
            
            
            
            (15
            )Other
                long-term
                liabilities
            
            
            -
            
            
            
            -
            
            
            
            105Net
                cash provided by operating
                activities
            
            
            3,523
            
            
            
            7,593
            
            
            
            7,447Net
                cash provided by operating
                activities of discontinued businesses
            
            
            114
            
            
            
            390
            
            
            
            784**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Proceeds
                from sale of property
                and equipment
            
            
            -
            
            
            
            8
            
            
            
            11Capital
                expenditures
            
            
            (3,073
            )
            
            
            (1,366
            )
            
            
            (256
            )Purchase
                of businesses, net of
                cash acquired
            
            
            (6,293
            )
            
            
            (14,582
            )
            
            
            -Purchase
                of other intangible
                assets
            
            
            (352
            )
            
            
            -
            
            
            
            -Advances
                on customer notes
                receivable
            
            
            (5,038
            )
            
            
            (4,283
            )
            
            
            (6,078
            )Proceeds
                from collection of
                customer notes receivable
            
            
            6,416
            
            
            
            2,030
            
            
            
            4,518Capitalized
                software
            
            
            (1,483
            )
            
            
            (421
            )
            
            
            -Cash
                received from sale of net
                assets of discontinued operations
            
            
            485
            
            
            
            361
            
            
            
            1,548Net
                cash used in investing activities
            
            
            (9,338
            )
            
            
            (18,253
            )
            
            
            (257
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                from employee stock
                purchase plan
            
            
            -
            
            
            
            -
            
            
            
            70Proceeds
                from sale of common
                stock, net
            
            
            -
            
            
            
            -
            
            
            
            35,657Proceeds
                from exercise of stock
                options
            
            
            276
            
            
            
            243
            
            
            
            284Payments
                for retirement of
                common stock
            
            
            (949
            )
            
            
            (2,628
            )
            
            
            -Dividends
                paid to common
                stockholders
            
            
            (3,350
            )
            
            
            (674
            )
            
            
            -Net
                cash provided by (used in)
                financing activities
            
            
            (4,023
            )
            
            
            (3,059
            )
            
            
            36,011Net
                increase (decrease) in cash
                and cash equivalents
            
            
            (9,724
            )
            
            
            (13,329
            )
            
            
            43,985Cash
                and cash equivalents at
                beginning of year
            
            
            52,110
            
            
            
            65,439
            
            
            
            21,454Cash
                and cash equivalents at end
                of year
            
            $
            42,386
            
            
            $
            52,110
            
            
            $
            65,439





The
      accompanying notes are an integral part of these consolidated financial
      statements.


69


**COLLECTORS
      UNIVERSE, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)**


(in
      thousands)


**Year
                ended June 30,****2007**
            
            
            **2006**
            
            
            **2005****SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION**Income
                taxes paid
            
            $
            743
            
            
            $
            624
            
            
            $
            213Interest
                paid
            
            $
            19
            
            
            $
            16
            
            
            $
            3Effective
                July 14, 2005, the Company acquired CoinFacts.com in a
                transactionsummarized as follows:Goodwill
            
            $
            -
            
            
            $
            515
            
            
            $
            -Purchase
                price
            
            $
            -
            
            
            $
            515
            
            
            $
            -Effective
                September 2, 2005, the Company acquired Certified Coin Exchange(CCE)
                in a
                transaction summarized as follows:Fair
                value of net liabilities
                assumed
            
            $
            -
            
            
            $
            (41
            )
            
            $
            -Deferred
                taxes recognized at
                acquisition
            
            
            -
            
            
            
            (296
            )
            
            
            -Intangible
                assets
            
            
            -
            
            
            
            947
            
            
            
            -Fair
                value of
                computertradingpost.com, Inc., including net assets
            
            
            -
            
            
            
            600
            
            
            
            -Goodwill
            
            
            -
            
            
            
            1,117
            
            
            
            -Purchase
                price, net of $50 cash
                acquired
            
            $
            -
            
            
            $
            2,327
            
            
            $
            -Effective
                November 8, 2005, the Company acquired Gem Certificationand
                Appraisal Lab (GCAL)
              in a transaction summarized as follows:Fair
                value of net assets
                acquired
            
            $
            -
            
            
            $
            119
            
            
            $
            -Intangible
                assets
            
            
            -
            
            
            
            53
            
            
            
            -Goodwill
            
            
            -
            
            
            
            3,068
            
            
            
            -Purchase
                price, net of $28 cash
                acquired
            
            $
            -
            
            
            $
            3,240
            
            
            $
            -Effective
                December 22, 2005, the Company acquired the business
                ofGemprintCorporation
              in a transaction summarized as follows:Fair
                value of net assets
                acquired
            
            $
            -
            
            
            $
            40
            
            
            $
            -Intangible
                assets
            
            
            -
            
            
            
            3,444
            
            
            
            -Goodwill
            
            
            1
            
            
            
            5,099
            
            
            
            -Purchase
                price
            
            $
            1
            
            
            $
            8,583
            
            
            $
            -Effective
                July 1, 2006, the Company acquired Expos Unlimited, LLC (Expos)in
                a transaction summarized as follows:Fair
                value of net liabilities
                assumed
            
            $
            (385
            )
            
            $
            -
            
            
            $
            -Intangible
                assets
            
            
            1,810
            
            
            
            -
            
            
            
            -Goodwill
            
            
            1,001
            
            
            
            -
            
            
            
            -Purchase
                price, net of $49 cash
                acquired
            
            $
            2,426
            
            
            $
            -
            
            
            $
            -Effective
                August 18, 2006, the Company acquired American GemologicalLaboratories,
                Inc. (AGL)
              in a transaction summarized as follows:Fair
                value of net liabilities
                assumed
            
            $
            (42
            )
            
            $
            -
            
            
            $
            -Deferred
                tax liability recognized
                at acquisition
            
            
            (1,205
            )
            
            
            -
            
            
            
            -Intangible
                assets
            
            
            3,030
            
            
            
            -
            
            
            
            -Goodwill
            
            
            2,083
            
            
            
            -
            
            
            
            -Purchase
                price, net of $81 cash
                acquired
            
            $
            3,866
            
            
            $
            -
            
            
            $
            -**SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:**In
                connection with the sale of CTP in November, 2005, the Company
                received
              a
                note receivable of $458,000, of which $321,000 and $413,000 were
                still
                outstanding at June 30, 2007 and 2006, respectively.
              
              In
                September 2006, the Company recorded a note receivable from a customer
                due
                in December 2007 in the amount of $114,000.
              
              In
                July 2006, the Company acquired partial rights to a patent application
                and
                recognized a liability due to the seller of $40,000 that matures
                no later
                than July 2011.





The
      accompanying notes are an integral part of these consolidated financial
      statements.


70


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.           Company
      Organization and Nature of Business**





***Organization***




Collectors
      Universe, Inc. (“We,” “us,” the “Company” or “Collectors Universe”) is a
      Delaware corporation that was organized on February 5, 1999 for the purpose
      of
      enabling Professional Coin Grading Service, Inc. (“PCGS”) to acquire other
      businesses that, like PCGS, would provide services to the collectibles
      markets.  On February 5, 1999, Collectors Universe issued 4,327,000
      shares of common stock in exchange for all of the outstanding shares of
      PCGS.  As a result of that exchange, the former stockholders of PCGS
      became stockholders of Collectors Universe, with each of them receiving a number
      of our shares based on his or her percentage ownership of the shares of
      PCGS.  Prior to this exchange, Collectors Universe had no operating
      assets or liabilities and had not yet conducted any operations.  The
      assets and liabilities acquired were recorded at the PCGS’ basis as the
      transaction represented a transfer of assets and liabilities between entities
      under common control.




Concurrently,
      with the exchange transaction with PCGS, Collectors Universe acquired the assets
      of the auction businesses of Lyn F. Knight Rare Coins, Inc. (“Lyn Knight”) and
      Kingswood Coin Auctions, LLC (“Kingswood”) and the minority ownership interests
      in Superior Sportscard Auctions, LLC (“Superior”) and Internet Universe, LLC
      (“IU”), both of which were majority-owned subsidiaries of PCGS at the time these
      acquisitions were consummated.  See note 4, Discontinued
      Operations.




In
      fiscal
      year 2005, Collectors Finance Corporation (“CFC”) began operations as a 100%
      subsidiary of the Company to engage in the business of making short-term loans
      to collectibles dealers pursuant to a Dealer Financing Program.  Under
      that program, CFC offers short-term loans to established collectibles
      dealers.  The loans are secured by the delivery of coins or other
      collectibles to us.  In March 2005, CFC received a California Finance
      Lenders License.




In
      fiscal
      year 2006, the Company acquired the following businesses, the results of
      operations of which have been consolidated into the financial statements of
      the
      Company from their respective dates of acquisition:




**Business**
            **Acquisition
                Date**
            **Purchase
                Price**CoinFacts.com
            July
                14, 2005
            $     0.5
                millionCertified
                Coin Exchange
            September
                2, 2005
            $     2.4
                millionGem
                Certification &  Appraisal Lab, LLC
            November
                8, 2005
            $     3.3
                millionGemprint
                Corporation
            December
                22, 2005
            $     8.6
                million





During
      fiscal year 2007, the Company acquired the following businesses, the results
      of
      operation of which have been consolidated into the financial statements of
      the
      Company from their respective dates:





**Business**
            **Acquisition
                Date**
            **Purchase
                Price**Expos
                Unlimited LLC
            July
                1, 2006
            $     2.5
                millionAmerican
                Gemological Laboratory
            August
                18, 2006
            $     3.9
                million





***Nature
      of the Business***




We
      are a
      collectibles company engaged in the provision of authentication, grading and
      related services for high-value collectibles and other high value
      assets.  We provide authentication and grading services for rare
      collectibles, consisting of coins, vintage U.S. paper currency, sportscards,
      stamps, sports memorabilia and autographs, and for diamonds and colored
      gemstones.  We also publish magazines that provide market prices and
      information for certain collectibles and high value assets, operate the CCE
      subscription business and sell advertising on our websites and in those
      magazines.




71


During
      the period from 1999 through the latter part of fiscal 2004, we also were
      engaged in the business of marketing and selling high-end collectible coins,
      sportscards and sports entertainment and historical memorabilia.  Most
      of those sales were made at multi-venue auctions that were conducted by our
      collectibles sales divisions, which were comprised of Bowers and Merena
      Galleries and Kingswood Coin Auctions for rare coins, Superior Sportscard
      Auctions for vintage sportscards and sports memorabilia and Odyssey for
      entertainment and historical memorabilia.  We also sold collectible
      coins by direct sales methods.




On
      December 4, 2003, our Board of Directors adopted a plan to focus the Company’s
      financial and management resources and collectibles expertise, on the operations
      and growth of its authentication and grading businesses, by divesting the
      collectibles auctions and direct sales businesses comprising its collectibles
      sales segment.  As a result, in the accompanying consolidated
      financial statements, the assets and related liabilities of the collectibles
      sales segment have been classified as held for sale and the related operating
      results have been classified as discontinued operations in accordance with
      Statement of Financial Accounting Standards (SFAS) No. 144 (see note
      4).




**2.           Summary
      of Significant Accounting Policies**




***Basis
      of Presentation***




The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of
      America.




***Principles
      of Consolidation***




The
      accompanying consolidated financial statements include the accounts of
      Collectors Universe, Inc. and its owned subsidiaries, all of which are 100%
      owned by the Company.  At June 30, 2007, such operating subsidiaries
      were Professional Coin Grading Services, Inc., Collectors Finance Corporation,
      Certified Asset Exchange, Inc., and Gem Certification and Assurance Lab, Inc.,
      Expos Unlimited, Inc., and American Gemological Laboratories, Inc.  In
      2004, the Company disposed of the businesses comprising its collectibles sales
      segment and, accordingly, the assets and liabilities of those businesses have
      been classified as held for sale and their related operating results (including
      the gains or losses recognized on the sales of those businesses) have been
      classified as discontinued operations (see note 4).  All significant
      intercompany accounts and transactions have been eliminated in
      consolidation.




***Use
      of Estimates***




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that 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 those
      estimates, and such differences could be material to the  consolidated
      financial statements.




***Cash
      and Cash Equivalents***




We
      consider all highly liquid investments with original maturities of three months
      or less at the date of purchase to be cash and cash equivalents.  At
      June 30, 2007 and 2006, we had approximately $42.4 million and $52.1 million,
      respectively, classified as cash and cash equivalents on the consolidated
      balance sheets, of which approximately $40.9 million and $51.6 million,
      respectively, of our cash and cash equivalents were invested primarily in money
      market funds.  During fiscal 2006 and 2005, the Company’s cash and
      cash equivalents were primarily invested in high-quality commercial paper and
      certificates of deposit issued by U.S. or foreign companies, money market funds,
      and bank certificates of deposit.  Under the Company’s investment
      policy, the minimum credit quality of a portfolio of trading securities must
      be
      rated no less than single-A long term or A1/P1 short term, and the portfolio
      must contain no more than 25% exposure to securities of issuers whose principal
      business activities are in the same industry.  However, the 25%
      limitation does not apply to securities guaranteed by the U.S. government or
      to
      bank obligations, subject to U.S. banking regulations.  In addition,
      the weighted average maturity of the portfolio must not exceed 90
      days.




72


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




***Concentrations***




Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk at June 30, 2007 consisted primarily of cash and cash
      equivalents, accounts receivables and notes receivables.




*Financial
      Instruments and Cash Balances.*At June 30, 2007 and 2006, the Company had
      funds of approximately $40,900,000 and $51,500,000, respectively, in money
      market funds and in high quality commercial paper.  In addition, at
      June 30, 2007 and 2006, the Company had approximately $1,500,000 and $600,000
      in
      a non-interest bearing bank accounts for general day-to-day
      operations.




*Accounts
      Receivable.*A substantial portion of accounts receivable is due
      from collectibles dealers.  At June 30, 2007, accounts receivable from
      one customer represented 13% of the Company’s total gross accounts receivable
      balances.  At June 30, 2006, accounts receivable from two customers
      represented 31% of the Company’s total gross accounts receivable
      balances.  We perform an analysis of the expected collectibility of
      accounts receivable based on several factors, including the age and extent
      of
      significant past due accounts and economic conditions or trends that may impact
      the ability of the debtor to pay their account receivable
      balances.  Based on such review, we establish an allowance for
      doubtful accounts, when necessary.  The allowance for doubtful
      accounts receivable was $60,000 and $37,000 at June 30, 2007 and June 30, 2006,
      respectively.




*Customers.*The
      authentication and grading of collectible coins and related services accounted
      for approximately 58%, 65% and 69% of our net revenues for the years ended
      June
      30, 2007, 2006 and 2005, respectively.




*Customer
      Notes Receivable.*At June 30, 2007 and 2006, the outstanding principal
      amount of customer notes receivable, which evidenced primarily short term
      advances made to customers by CFC, totaled $2,536,000 and $3,797,000,
      respectively, net of allowances for uncollectible amounts of $23,000 and
      $16,000, respectively. Two of these notes, each greater than 10% of the total
      respective year ending balances for all notes outstanding represented a total
      of
      68% and 92% of the total principal amounts of the short-term customer advances
      that were outstanding at June 30, 2007 and 2006, respectively.





*Suppliers*.  We
      purchase injection-molded parts, holograms and printed labels for our grading
      services.  There are numerous suppliers for these items and, as a
      result, it is possible to change suppliers 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 manufacturing of high precision dies can be a lengthy
      process and requires considerable expertise in their
      fabrication.  Although, we do not have back-up dies for some of our
      high volume injection-molded parts and we rely on one supplier for these
      requirements, we believe that this supplier maintains a large enough inventory
      of the injection-molded parts to allow time for us to have new molds
      manufactured for us by other suppliers should the need to do so
      arise.




***Fair
      Value of Financial Instruments***




The
      carrying value of cash and cash equivalents, accounts receivable, customer
      notes
      receivable, receivables from sale of net assets of discontinued operations,
      accounts payable and accrued liabilities approximate their respective fair
      values due to the short-term nature of such instruments.  The carrying
      value of the note receivable related to the sale of a discontinued operation
      approximates fair value, as the interest rate on such note approximates an
      amount that would be extended to parties with similar credit risk and remaining
      maturities.




***Inventories***




Our
      inventories consist primarily of (i) our coin and stamp collectibles
      inventories, and (ii) consumable supplies that we use in our continuing
      authentication and grading businesses.  We account for those
      collectibles inventories under the specific identification
      method.  Inventories are valued at the lower of cost or
      market.  Inventories are periodically reviewed to identify slow moving
      items, and the allowance for inventory loss is recognized, as
      necessary.  The allowance for inventory loss was $91,000 and $106,000
      at June 30, 2007 and 2006,




73


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




respectively.  It
      is possible that our estimates of market value could change in the near term
      due
      to market conditions in the various collectibles markets served by the Company
      which could require us to increase that allowance.




***Property
      and Equipment***




Property
      and equipment are stated at cost.  Depreciation and amortization are
      provided using the straight-line method over the estimated useful lives ranging
      from three to seven years.  Leasehold improvements are amortized over
      the shorter of the estimated useful lives of the improvements or the term of
      the
      related lease.  Repair and maintenance costs are expensed as
      incurred.




***Long-Lived
      Assets***




Management
      regularly reviews property and equipment and other long-lived assets, including
      certain identifiable intangibles, for possible impairment.  This
      review occurs annually, or more frequently if events or changes in circumstances
      indicate the carrying amount of the asset may not be recoverable in
      full.  If there is indication of impairment of property, equipment or
      amortizable intangible assets, then management would prepare an estimate of
      future undiscounted cash flows expected to result from the use of that asset
      and
      its eventual disposition.  If these cash flows are less than the
      carrying amount of the asset, an impairment loss would be recognized to write
      down the asset to its estimated fair value.  The fair value would be
      estimated at the present value of the future cash flows discounted at a rate
      commensurate with management’s estimates of the business
      risks.  During fiscal year 2007, $55,000 was recognized as impairment
      of long-lived assets and was classified as part of general and administrative
      expenses on the Consolidated Statement of Operations for that year.




***Revenue
      Recognition***




Net
      revenues consist primarily of fees generated from the authentication and grading
      of coins, sportscards, autographs, currency, stamps, diamonds and colored
      gemstones.  With the acquisition of Expos, we recognize revenues
      earned from the promotion management and operation of collectibles trade shows
      and conventions in the respective periods that such shows and conventions are
      conducted.  Authentication and grading revenues are recognized when
      those services have been performed by us and the item is shipped back to the
      customer.  Authentication and grading fees generally are prepaid,
      although we offer open account privileges to larger dealers.  Advance
      payments received for grading services are deferred until the service is
      performed and the graded item is shipped to the customer.  In the case
      of dealers to whom we have extended credit, we record revenues at the time
      the
      item is shipped to the customer.




A
      portion
      of our net revenues are comprised of subscription fees paid by customers for
      a
      membership in our Collectors Club.  Those memberships entitle members
      access to our on-line and printed publications, and sometimes also to vouchers
      for free grading services.  We record revenue for this multi-element
      service arrangement in accordance with EITF**00-21*, Accounting
      for Revenue Arrangements With Multiple Deliverables,*by recognizing
      approximately 60% of the subscription fee in the month following the membership
      purchase, on the basis that Collectors Club members typically utilize their
      vouchers for free grading services within 30 days of subscribing for
      memberships.  The balance of the membership fee is recognized as
      revenue over the life of the membership, which can range from one to two
      years.  We evaluate, at least semi-annually, the relative fair values
      of the deliverables and the percentage factors used to allocate the membership
      fee between the grading and the publication services provided under this
      membership service.




***Shipping
      and Handling Costs***




Shipping
      and handling costs incurred to
      return to our customers their collectibles property submitted to us for grading
      or authentication are recorded as costs of revenues, net of amounts received
      from such customers.





74


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




***Cooperative
      Marketing
      Arrangements***





In
      accordance with EITF 01-09,
*Accounting for Consideration Given By a Vendor to a Customer (Including
      a
      Reseller of the Vendor’s Products)*, marketing allowances given to a
      customer have been classified as a reduction of revenues in the years ended
      June
      30, 2007 and 2006.





***Warranty
      Costs***




We
      offer
      a warranty covering the coins, sportscards, stamps and currency that we
      authenticate and grade.  Under the warranty, if any collectible 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 resubmittal or
      (ii) is determined not to have been authentic, we will offer to purchase
      the collectible or higher-value asset, or, in the alternative, at our option,
      pay the difference in value of the item at its original grade as compared with
      its lower grade.  However, this warranty is voided if the collectible,
      upon resubmittal to us, is not in the same tamper-resistant holder in which
      it
      was placed at the time we last graded it.  We also offer a similar
      grading warranty of two years’ duration, and subject to certain limitations,
      covering the diamonds that we authenticate and grade. We accrue for estimated
      warranty costs based on historical trends and related
      experience.  To-date, our reserves have proved to be adequate;
      however, if warranty claims were to increase in relation to historical trends
      and experience, we would be required to increase our warranty reserves and
      incur
      additional charges that would adversely affect our results of operations in
      those periods during which the warranty reserve is increased.




***Advertising
      Costs***




Advertising
      costs are expensed as incurred and amounted to approximately $1,122,000,
      $620,000 and $260,000 in the fiscal years ended June 30, 2007, 2006 and 2005,
      respectively.




***Income
      Taxes***




We
      account for income taxes in accordance with SFAS No. 109*, Accounting for
      Income Taxes*.  This statement requires the recognition of
      deferred tax assets and liabilities for the future consequences of events that
      have been recognized in the Company’s financial statements or tax
      returns.  Measurement of the deferred items is based on enacted tax
      laws.  In the event the future consequences of differences between
      financial reporting bases and tax bases of the Company’s assets or liabilities
      result in a deferred tax asset, SFAS No. 109 requires an evaluation of the
      probability of being able to realize the future benefits indicated by such
      asset.  A valuation allowance related to a deferred tax asset is
      recorded when it is more likely than not that some portion or all of the
      deferred tax asset will not be realized.  Approximately $22,000 was
      recognized as a valuation allowance at June 30, 2007, and $0 at June 30,
      2006.




***Capitalized
      Software***




Through
      June 30, 2007, the Company had capitalized approximately $1,700,000 as
      capitalized software net of accumulated amortization of $204,000 in accordance
      with Statement of Position (“SOP”) 98-1, *Accounting for the Costs of
      Computer Software Developed or Obtained for Internal Use*.  SOP
      98-1 requires that certain costs incurred, either from internal or external
      sources, be capitalized as part of intangible assets and amortized on a
      straight-line basis over the useful life of the software.  During
      fiscal 2007, the Company recorded approximately $193,000 as amortization expense
      for certain projects that were completed.  Planning, training, support
      and maintenance costs incurred either prior to or following the implementation
      phase are recognized as expense in the period in which they
      occur.  The Company evaluates the carrying values of capitalized
      software to determine if the carrying values are impaired, and, if necessary,
      an
      impairment loss is recorded in the period in which the impairment is determined
      to have occurred.  At June 30, 2006, approximately $410,000 was
      capitalized as internally-developed software, net of accumulated amortization
      of
      $11,000.  There were no costs capitalized in fiscal year
      2005.









75


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




***Stock-Based
      Compensation***




During
      the second quarter of fiscal year 2007, the Company adopted and our stockholders
      approved the 2006 Equity Incentive Plan (“2006 Plan”), which provides for the
      grant of stock options, stock appreciation rights (commonly referred to as
      “SARs”), restricted stock purchase rights and restricted stock units
      (collectively, “stock awards”), to officers and other employees and non-employee
      directors of and consultants to the Company or its subsidiaries.  At
      the time of the adoption of the 2006 Plan, there were three other stock
      incentive plans in existence (the “Existing Plans”), under which a total of
      444,000 shares of common stock were still available for the future grant of
      stock options and restricted stock purchase awards.  Pursuant to the
      provisions of the 2006 Plan, those 444,000 shares were “rolled over” into and
      become available for grants of stock awards only under the 2006 Plan and the
      right to grant additional stock awards under the Existing Plans
      terminated.  In addition, while the stock options and restricted
      shares that were outstanding under the Existing Plans, which covered a total
      of
      911,000 shares at the time the 2006 Plan was approved, were unaffected by the
      adoption of the 2006 Plan, in the event any of those stock awards were to
      terminate or any shares that were subject to outstanding restricted stock grants
      under the Existing Plans were to be reacquired by the Company, those shares
      would become available for future grants of stock awards under the 2006 Plan,
      rather than under the Existing Plans.  As a result, the adoption of
      the 2006 Plan did not increase the number of shares authorized for issuance
      under the Company’s stock incentive plans.  Instead, the 2006 Plan was
      adopted to provide greater flexibility to the Company in terms of the types
      of
      stock incentives that could be granted to eligible participants.  At
      June 30, 2007, a total of 390,000 shares of common stock were available for
      future grants under the 2006 Plan and no shares were available for new grants
      under any of the other Plans.




Prior
      to
      July 1, 2005, the Company accounted for stock awards granted under its stock
      incentive plans under the recognition and measurement provisions of Accounting
      Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to
      Employees*, and related interpretations, as permitted by SFAS No. 123,
*Accounting for Stock Based Compensation*.  No stock-based
      employee compensation cost, with the exception of $33,000 recognized as
      compensation expense in fiscal 2005 in connection with an Employee Stock
      Purchase Plan, was recognized in the Consolidated Statements of Operations
      for
      fiscal years prior to June 30, 2005, as all options granted under these plans
      had an exercise price equal to the market value of the underlying common stock
      on the date of grant.




Effective
      July 1, 2005, which was the first day of the Company’s fiscal year 2006, the
      Company adopted the fair value recognition provisions of SFAS No. 123(R),
*Share-Based Payment*, using the modified-prospective transition
      method.  Under this method, compensation cost recognized in each of
      the fiscal years ended June 30, 2006 and 2007 includes: (a) compensation cost
      for all share-based payments granted and not vested prior to July 1, 2005,
      based
      on the grant date fair value estimated in accordance with the original
      provisions of SFAS No. 123, and (b) compensation cost for all share-based
      payments granted subsequent to June 30, 2005 based on the grant-date fair value
      estimated in accordance with the provisions of SFAS No. 123(R).





Since
      stock-based compensation expense recognized in the Consolidated Statement of
      Operations for the fiscal year ended June 30, 2007 is based on awards expected
      to vest, the compensation expense has been reduced for estimated
      forfeitures.  SFAS No. 123(R) requires forfeitures to be estimated at
      the time of grant and revised, if necessary, in subsequent periods if actual
      forfeitures differ from those estimates.  The Company considers
      historical forfeiture rates to be the best indicator of future forfeitures
      and,
      accordingly, reduced the forfeiture rate from 10.5% at June 30, 2006 to 9%
      at
      June 30, 2007.





During
      fiscal year 2007, the Company awarded an aggregate of 56,760 shares of
      restricted stock to the CEO and the non-management directors, and recorded,
      as
      part of general administrative expenses in the consolidated statement of
      operations for the year ended June 30, 2007, approximately $164,000 in
      stock-based compensation expenses net of a 7% forfeiture
      rate.  Compensation expense is determined for the issuance of
      restricted shares to employees or  non-employee directors by
      amortizing over the requisite service period, or the vesting period, the
      aggregate fair value of the restricted shares awarded based on the closing
      price
      of the Company’s common stock effective on the date the award is
      made.





76


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




For
      stock
      option grants, the Company calculates stock-based compensation by estimating
      the
      fair value of each option using the Black-Scholes option pricing
      model.  The Company’s determination of the fair value of share-based
      payment awards is made as of their respective dates of grant using that option
      pricing model and that determination is affected by the Company’s stock price as
      well as assumptions regarding a number of subjective variables.  These
      variables include, but are not limited to, the Company’s expected stock price
      volatility over the term of the awards, the expected term of the options, the
      dividend yield and actual and projected employee stock option exercise
      behavior.  The Black-Scholes option pricing model was developed for
      use in estimating the value of traded options that have no vesting or hedging
      restrictions and are fully transferable.  Because the Company’s
      employee stock options have certain characteristics that are significantly
      different from traded options, the Black-Scholes option pricing model may not
      provide an accurate measure of the fair value of the Company’s outstanding stock
      options.  Although the fair value of employee stock options is
      determined in accordance with SFAS No. 123(R) using an option-pricing model,
      that fair value also may not be indicative of the fair value that would be
      paid
      in a willing buyer/willing seller market transaction.





The
      Company issues stock options and restricted stock to employees and outside
      directors whose only condition for vesting is continued employment or service
      during the related vesting period.  Typically, the vesting period is
      four years for employee awards and six months to one year for director awards,
      although awards are sometimes granted with immediate vesting or longer vesting
      periods.  The contractual expiration period for options generally is
      ten years.





The
      calculated compensation cost, net of estimated forfeitures, is recognized on
      a
      straight-line basis over the vesting period of the option beginning as of the
      adoption date of SFAS No. 123(R), which was of July 1, 2005, or the date the
      option was granted, whichever date occurred later.





The
      weighted-average grant date fair value of employee stock options granted during
      the fiscal years ended June 30, 2007 and 2006 was $5.56 and $6.57, respectively,
      using the Black-Scholes option pricing model with the following weighted-average
      assumptions:





**2007**
            
            
            **2006**
            
            
            **2005**Dividend
                yield
            
            
            2.6
            %
            
            
            2.3
            %
            
            
            -Expected
                volatility
            
            
            51
            %
            
            
            58
            %
            
            
            62
            %Risk-free
                interest rate
            
            
            4.6
            %
            
            
            4.7
            %
            
            
            3.5
            %Expected
                lives
            
            5.1 years
            
            
            5.1 years
            
            
            4.1 years





As
      a
      result of adopting SFAS No. 123(R) on July 1, 2005, the Company’s net income
      before income taxes for the fiscal year ended June 30, 2006 was $670,000 lower
      than if it had continued to account for share-based compensation under APB
      Opinion No. 25.  Of the $670,000 of such compensation expense that was
      recognized in the accompanying Consolidated Statement of Operations for the
      year
      ended June 30, 2006, $302,000 was recorded as a cost of revenues, $1,000 as
      selling and marketing expenses, and $367,000 as general and administrative
      expenses.  Basic and diluted net income per share for the fiscal year
      ended June 30, 2006 would have been $0.51 and $0.49, respectively, if the
      Company had not adopted SFAS No. 123(R), compared to reported basic and diluted
      net income per share of $0.44 and $0.42, respectively.





For
      fiscal year 2007 as a result of the adoption of SFAS No. 123(R), the Company’s
      net loss before income tax expense was $726,000 more than what the amount would
      have been under APB Opinion No. 25, or a pretax loss of approximately $56,000
      for fiscal year 2007. Of the $726,000 of such compensation expense recognized
      during fiscal year 2007, $194,000 was recognized as part of cost of revenues,
      $8,000 was recognized as part of selling and marketing expenses and $524,000
      was
      recognized as part of general and administrative expenses.  Basic and
      diluted earnings, per share, would have been $0.02 and $0.02, respectively,
      if
      the Company had not adopted the provisions of SFAS No. 123(R), compared to
      reported basic and diluted loss, per share, of $0.06 and $0.06,
      respectively.





Because
      the Company paid its first quarterly dividend of $0.08 per common share
      beginning in the fourth quarter of 2006, the Company incorporated a dividend
      yield percentage assumption of 2.3% for stock option grants issued in 2006,
      based on an expected annual dividend of $0.32 per share of common
      stock.  In the third quarter of


77


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




2007,
      the
      quarterly dividend rate was increased to $0.12 per share of common stock ($0.48
      per year)  Partly as a result, the dividend yield assumption increased
      from 2.3% for fiscal year 2006 to 2.6% for those stock option grants made during
      fiscal 2007.





The
      total
      amount of compensation expense related to unvested stock option and restricted
      stock awards not yet recognized at June 30, 2007 was $1,672,000 and that amount
      will be recognized as compensation expense as follows:





Fiscal
                Year Ending June 30,
            
            Amount2008
            
            
            864,0002009
            
            
            486,0002010
            
            
            233,0002011
            
            
            89,000$
            1,672,000





However,
      such amounts do not include the cost of new stock options or stock awards that
      may be granted in future periods nor any changes in the Company’s forfeiture
      percentage.





Prior
      to the adoption of SFAS No.
      123(R), the Company classified all tax benefits resulting from the exercise
      of
      stock options as operating cash flows in the statements of cash
      flows.  SFAS No. 123(R) requires the cash flows from the tax benefits
      resulting from tax deductions in excess of the compensation cost recognized
      for
      those options (excess tax benefits) to be classified as financing cash
      flows.  There were no such excess tax benefits resulting from the
      exercise of stock options for the fiscal years ended June 30, 2007 and
      2006.





SFAS
      No.
      123(R) requires the Company to continue to provide the pro forma disclosures
      in
      accordance with SFAS No. 123, as amended, for all prior periods presented in
      which share-based payments to employees are accounted for under APB Opinion
      No.
      25.





The
      following table illustrates the effect on net income and net income per share
      for the fiscal year ended June 30, 2005 if the Company had applied the fair
      value recognition provisions of SFAS No. 123(R) to share-based employee
      compensation:





(in
                thousands,
              except
              per
                share data)**2005**Net
                income, as reported
            
            $
            4,818Add:
                Stock-based compensation included in reported net income, netof tax
                effects
            
            
            20Deduct:
                Total stock-based compensation expense determined under fair
                value based method for awards, net of related tax effects
            
            
            (1,068
            )Pro
                forma net income
            
            $
            3,770Net
                income per common share – basic:As
                reported
            
            $
            0.69Pro
                forma
            
            $
            0.54Net
                income per common share – diluted:As
                reported
            
            $
            0.65Pro
                forma
            
            $
            0.51





***Net
      Income Per Share***




We
      compute net income or loss per share in accordance with SFAS No. 128,
*Earnings Per Share.*SFAS No. 128 requires the
      presentation of basic and diluted earnings per share.  Basic net
      income per share is computed by dividing net income attributable to common
      stockholders by the weighted-average number of common shares




78


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




outstanding
      during the periods presented.  Diluted net income per share is
      computed by dividing net income attributable to common stockholders by the
      weighted-average number of common and common equivalent shares outstanding
      during the periods presented assuming the exercise of all outstanding stock
      options and other dilutive securities.  However, options with exercise
      prices that exceed the average market price of the Company’s shares for the
      period for which the calculation of diluted net income per share is made are
      disregarded, because they are non-dilutive in their effect.




The
      following table sets forth the computation of basic and diluted net income
      (loss) per common share (in thousands except per share data):




**2007**
            
            
            **2006**
            
            
            **2005**Income
                (loss) from continuing operations
            
            $
            (743
            )
            
            $
            3,404
            
            
            $
            4,758Income
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            228
            
            
            
            296
            
            
            
            60Net
                income (loss)
            
            $
            (515
            )
            
            $
            3,700
            
            
            $
            4,818Net
                income (loss) per basic share:From
                continuing
                operations
            
            $
            (0.09
            )
            
            $
            0.40
            
            
            $
            0.68From
                discontinued operations,
                net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            0.03
            
            
            
            0.04
            
            
            
            0.01Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.44
            
            
            $
            0.69Net
                income (loss) per diluted share:From
                continuing
                operations
            
            $
            (0.09
            )
            
            $
            0.39
            
            
            $
            0.64From
                discontinued operations,
                net of gain on sales ofdiscontinued businesses (net of income
                taxes)
            
            
            0.03
            
            
            
            0.03
            
            
            
            0.01Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.42
            
            
            $
            0.65Weighted-average
                shares outstanding:Basic
            
            
            8,367
            
            
            
            8,473
            
            
            
            7,013Effect
                of dilutive
                shares
            
            
            -
            
            
            
            309
            
            
            
            439Diluted
            
            
            8,367
            
            
            
            8,782
            
            
            
            7,452




Options
      and warrants to purchase approximately 689,000 and 406,000 shares of common
      stock for the years ended June 30, 2006 and 2005, respectively, at exercise
      prices up to $24.00 per share, were not included in the computation of diluted
      earnings per share because the respective exercise prices of those options
      and
      warrants were greater than the average market price for the respective
      period.  For 2007, approximately 1,062,000 options and warrants were
      excluded from the computation of diluted earnings, as they would have been
      anti-dilutive in the calculation of earnings per share.




***Comprehensive
      Income***




The
      Company does not have any items of other comprehensive income requiring separate
      disclosure.




***Goodwill
      and Other Intangible Assets***




In
      accordance with SFAS No. 142, *Goodwill and Other Intangible Assets*, the
      Company is required to evaluate the carrying value of its goodwill and certain
      indefinite-lived intangible assets at least annually for impairment, or more
      frequently if facts and circumstances indicate that impairment has
      occurred.  Management formally evaluates the carrying value of its
      goodwill and other indefinite-lived intangible assets for impairment on the
      anniversary date of each of the acquisitions that gave rise to the recording
      of
      such assets. During fiscal year 2007, we completed our annual review of the
      carrying value of goodwill acquired with the acquisitions of CoinFacts, Inc.
      (“CFI”), Certified Coin Exchange (“CCE”), Gem Certification & Appraisal Lab,
      LLC (“GCAL”), and Gemprint Corporation (“Gemprint”), which were consummated
      during fiscal year 2006 and, on the basis of those reviews, determined that
      no
      impairments had occurred. Intangible assets acquired through acquisition, which
      have definite lives such as customer lists, are subject to amortization over
      their remaining useful lives.




79


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




During
      fiscal year 2007, the Company acquired two businesses, AGL and Expos, and
      purchased an asset, Diamond I.D., which resulted in the acquisition of goodwill
      and intangible assets with indefinite lives in the aggregate amounts of
      approximately $3,085,000 and $2,654,000, respectively, net of a $16,000 loss
      on
      the AGL colored gemstone reference set that occurred following the acquisition
      date of August 18, 2006.  The Company also acquired through the same
      business acquisitions during fiscal year 2007, approximately $2,502,000 of
      intangible assets with definite lives. Separately, the Company capitalized
      $1,483,000 of the cost of certain internally-developed software during fiscal
      year 2007. Both the acquired intangible assets and the internally-developed
      software are subject to amortization over their remaining useful
      lives.





The
      following table sets forth, by “reporting unit” as defined by SFAS No. 142, the
      amounts classified as goodwill and intangible assets, net, on the balance sheets
      as of June 30, 2006 and 2007 in thousands of dollars:





**Coins**
            
            
            **GCAL**
              **&**
              **Gemprint**
            
            
            **AGL**
            
            
            **Expos**
            
            
            **CCE**
              **and
                Other**
            
            
            **Total**Goodwill:Balance
                at June 30, 2006
            
            $
            515
            
            
            $
            8,167
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,117
            
            
            $
            9,799Acquired
                during FY2007:AGL
            
            
            -
            
            
            
            -
            
            
            
            2,083
            
            
            
            -
            
            
            
            -
            
            
            
            2,083Expos
                Unlimited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,001
            
            
            
            -
            
            
            
            1,001Gemprint
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1Balance
                at June 30, 2007
            
            $
            515
            
            
            $
            8,168
            
            
            $
            2,083
            
            
            $
            1,001
            
            
            $
            1,117
            
            
            $
            12,884Intangible
                Assets, Net:Balance
                at June 30, 2006
            
            $
            29
            
            
            $
            3,365
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,280
            
            
            $
            4,674Acquired
                during FY2007 with indefinite lives:AGL,
                net of $16
                loss
            
            
            -
            
            
            
            -
            
            
            
            1,914
            
            
            
            -
            
            
            
            -
            
            
            
            1,914Expos
                Unlimited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            740
            
            
            
            -
            
            
            
            740Acquired
                during FY2007 with definite lives:AGL
            
            
            -
            
            
            
            -
            
            
            
            1,100
            
            
            
            -
            
            
            
            -
            
            
            
            1,100Expos
                Unlimited
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,070
            
            
            
            -
            
            
            
            1,070Diamond
                I.D.
            
            
            -
            
            
            
            332
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            332CCE
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2
            
            
            
            2Capitalized
                software costs during FY2007
            
            
            523
            
            
            
            658
            
            
            
            -
            
            
            
            -
            
            
            
            302
            
            
            
            1,483Less:
                amortization for FY2007
            
            
            (140
            )
            
            
            (342
            )
            
            
            (98
            )
            
            
            (110
            )
            
            
            (260
            )
            
            
            (950
            )Balance
                at June 30, 2007
            
            $
            412
            
            
            $
            4,013
            
            
            $
            2,916
            
            
            $
            1,700
            
            
            $
            1,324
            
            
            $
            10,365





80


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




Amortization
      expense for each of the five succeeding years relating to intangible assets
      with
      definite lives currently recorded in the Consolidated Balance Sheets is
      estimated to be as follows at June 30:





2008
            
            $
            1,162,0002009
            
            $
            1,188,0002010
            
            $
            1,021,0002011
            
            $
            600,0002012
            
            $
            559,000





Approximately
      $9.6 million of the $12.9 million classified as goodwill on the Consolidated
      Balance Sheets at June 30, 2007 is amortizable and deductible for tax purposes
      over a period of 15 years.




***Recent
      Accounting Pronouncements***




In
      July
      2006, the FASB issued FASB Interpretation 48, *Accounting for Uncertainty in
      Income Taxes: an Interpretation of FASB Statement No. 109
      (FIN48).*  Interpretation 48 clarifies Statement 109,
*Accounting for Income Taxes*, to indicate a criterion that an individual
      tax position would have to meet for some or all of the benefit of that position
      to be recognized in an entity’s financial statements.  Interpretation
      48 is effective for fiscal years beginning after December 15,
      2006.  Management is currently completing the process of evaluating
      the effect of FIN48 on its Consolidated Financial Statements, as of the
      beginning of the period of adoption, July 1, 2007.  The Company
      currently believes that the adoption of FIN48 will not have a material effect
      on
      the Company’s financial position and results of operation.





In
      September 2006, the FASB issued SFAS No. 157, *Fair Value
      Measurements.*SFAS No. 157 defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      and expands disclosure about fair value measurements.  The statement
      emphasizes that fair value is a market-based measurement, not an entity-specific
      measurement.  SFAS No. 157 is effective for financial statements
      issued for fiscal years beginning after November 15, 2007, and interim periods
      within those fiscal years.  We do not expect the adoption of SFAS No.
      157 to have a material impact on our financial position or results of
      operation.




In
      September 2006, the FASB issued SFAS No. 158, *Employers’ Accounting for
      Defined Benefit Pension and Other Post Retirement Plans*(an amendment of
      FASB Statement No. 87, 88, 106 and 132R).  SFAS No. 158 requires an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income.  As the Company currently does not sponsor one or more
      single-employer defined benefit plans, we do not expect the adoption of SFAS
      No.
      158 to have a material impact on our financial position or results of
      operation.





In
      September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No. 108,
*Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.*  SAB 108 was
      issued to provide consistency in the manner in which registrants quantify
      financial statement misstatements.   Historically, there have
      been two widely-used methods for quantifying the effects of financial statement
      misstatements.  These methods are referred to as the “roll-over”
method and the “iron curtain” method, respectively.  The roll-over
      method quantifies the amount by which the current year income statement is
      misstated.  Exclusive reliance on this income statement approach can
      result in the accumulation of errors on the balance sheet that may not have
      been
      material to any individual income statement, but which may misstate one or
      more
      balance sheet accounts.  The iron curtain method quantifies the error
      as the cumulative amount by which the current year balance sheet is
      misstated.  Exclusive reliance on this balance sheet approach can
      result in disregarding the effects of errors in the current year income
      statement that result from the correction of an error existing in previously
      issued financial statements.  SAB 108 established an approach that
      requires quantification of financial statement misstatements based on the
      effects of the misstatement on each of the Company’s financial statements and
      the related financial statement disclosures.  This approach is
      commonly referred to as the “dual approach” because it requires quantification
      of errors under both the roll-over and iron curtain methods.  SAB 108
      allows registrants to initially apply the dual approach either by (1)
      retroactively adjusting prior financial statements as if the dual approach
      had
      always been used or by (2) recording the cumulative effect of initially applying
      the dual approach as adjustments to


81


SUMMARY
      OF****SIGNIFICANT ACCOUNTING POLICIES (CONT’D)




the
      carrying values of assets and liabilities as of July 1, 2006 with an offsetting
      adjustment recorded to the opening balance of retained earnings (accumulated
      deficit).  Use of this “cumulative effect” transition method requires
      detailed disclosure of the nature and amount of each individual error being
      corrected through the cumulative adjustment and how and when it arose. The
      application of SAB 108 did not have a material impact on the Company’s financial
      position or results of operation.





In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115,* which**permits entities to choose to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. This Statement is expected to expand the use of fair
      value measurement, which is consistent with the FASB’s long-term measurement
      objectives for accounting for financial instruments. This Statement is effective
      as of the beginning of an entity’s first fiscal year that begins after November
      15, 2007. Early adoption is permitted as of the beginning of a fiscal year
      that
      begins on or before November 15, 2007, provided the entity also elects to apply
      the provisions of FASB Statement No. 157, *Fair Value Measurements*. As
      described above, we do not expect that the adoption of SFAS No. 157 or No.
      159
      will have a material impact on our financial position or results of
      operations.





**3.**  **Business
      Acquisitions**





On
      July
      14, 2005, the Company acquired substantially all the assets of CoinFacts.com
      for
      $500,000 in cash and $15,000 in directly-related costs.  CoinFacts.com
      operates an Internet website on which it publishes detailed proprietary
      historical information on U.S. coins.  The amount of $515,000 was
      classified as goodwill at June 30, 2006 and 2007.




On
      September 2, 2005, the Company acquired all of the common stock of Certified
      Coin Exchange and all of the common stock of an affiliated business,
      computertradingpost.com, Inc. (“CTP”), for an aggregate purchase price of
      $2,217,000 in cash and directly-related costs of $160,000.  At June
      30, 2006 and 2007, $1,117,000 was classified as goodwill based upon the purchase
      price of $2,377,000 allocated over net tangible assets acquired of $313,000
      and
      intangible assets acquired of $947,000.  CCE is a subscription-based
      dealer-to-dealer Internet bid-ask market for third-party certified
      coins.




The
      Company was required to purchase CTP as a condition to its acquisition of
      CCE.  At the time it consummated the CCE acquisition, the Company
      intended to dispose of CTP, and effective November 30, 2005, disposed of
      CTP.  In accordance with SFAS No. 144, *Accounting for the
      Impairment or Disposal of Long-Lived Assets*, the results of operations of
      CTP from the date of its acquisition through November 30, 2005, which included
      revenue of approximately $120,000 and operating income of $38,000, were
      consolidated as part of income from discontinued operations in the Consolidated
      Statement of Operations for the twelve months ended June 30, 2006, and a loss
      on
      the sale of CTP was included in the gain on the sale of discontinued operations
      for the fiscal year ended June 30, 2006.




On
      November 8, 2005, the Company acquired Gem Certification & Appraisal Lab,
      LLC, a gemological certification and grading laboratory.  As part of
      that transaction, the Company also acquired all of the common stock of Diamond
      Profile Laboratory, Inc. (“DPL”), a scientific diamond light performance
      analysis laboratory and all publishing and other rights to *Palmieri’s Market
      Monitor*, an educational and informative industry publication currently
      published by the Gemological Appraisal Association, Inc. (“GAA”).  The
      Company paid an aggregate acquisition price of $3,000,000 in cash for GCAL,
      DPL
      and the publishing and other rights to *Palmieri’s Market Monitor,* the
      assumption of $50,000 of certain transaction-related costs and directly-related
      costs of $218,000 for an aggregate purchase price of $3,268,000.  At
      June 30, 2006 and 2007, $3,068,000 was classified as goodwill based upon the
      purchase price of $3,268,000 allocated over net tangible assets acquired of
      $147,000 and intangible assets acquired of $53,000.




82


BUSINESS
      ACQUISITIONS (CONT’D)




On
      December 22, 2005, the Company acquired the business and substantially all
      of
      the assets of Gemprint Corporation.  These assets consisted primarily
      of a patented technology for non-invasive diamond identification which Gemprint
      used to digitally capture the unique refractive light pattern (or “Gemprint”) of
      each diamond that is processed with that technology.  The Company paid
      a purchase price for that business and those assets, consisting of $7,500,000
      in
      cash, assumed certain pre-acquisition liabilities and a lease commitment at
      closing in the aggregate amount of $213,000, incurred directly-related costs
      of
      $870,000 and agreed to pay $1 for each diamond that the Company registers using
      the Gemprint process in excess of 100,000 registrations during any year in
      the
      five-year period ending December 22, 2010.  At June 30, 2006 and 2007,
      $5,099,000 and $5,100,000 were classified as goodwill, respectively, based
      upon
      the aggregate purchase price of $8,583,000 allocated over net tangible assets
      acquired of $40,000 and intangible assets acquired of $3,444,000.




GCAL
      has
      incorporated the Gemprint process into its GCAL business process, so that each
      GCAL authenticated and graded diamond can also carry a Gemprint image stored
      in
      GCAL’s registered database.  The Gemprint process enables GCAL to
      provide an additional measure of protection by enabling it to detect
      misrepresentations of diamond quality that can occur by, for example, switching
      a diamond grading certificate issued for a higher quality diamond to a lower
      quality diamond.




Effective
      July 1, 2006, the Company acquired the assets and business of Expos Unlimited
      LLC (“Expos”), a trade show management company that operates the Long Beach and
      the Santa Clara, California coin, stamp and collectibles expositions. The
      purchase price for this business was $2,400,000 in cash.  Based on the
      future revenues of Expos, the Company may be obligated to make contingent
      payments up to an aggregate of $750,000 after five years, or July
      2011.  The Company completed a purchase price allocation based upon an
      acquisition price of $2,400,000 and other direct costs of approximately
      $75,000.  A fair value of $1,810,000 has been assigned to identifiable
      intangible assets, and $193,000 and $529,000 was allocated to net assets
      acquired and assumed liabilities, respectively.




Under
      the
      purchase method of accounting for business combinations, the excess of the
      purchase price that we paid for Expos over the fair values of net assets
      acquired and liabilities assumed, which totaled $1,001,000,was recorded as
      goodwill during the fiscal year ended June 30, 2007.  During the
      fourth quarter of fiscal year 2007, the Company finalized the purchase price
      allocation for this acquisition, which resulted in a cumulative increase to
      amortization expense of identifiable intangible assets with definite lives
      of
      approximately $21,000, a decrease in the carrying value of goodwill of $906,000,
      an increase in the fair value of identifiable intangible assets of $822,000,
      and
      an $84,000 increase in the values assigned to net assets
      acquired.  The Company, which authenticates and grades collectibles at
      trade shows as part of its collectibles authentication and grading business,
      believes that there exists synergistic benefits between the Company’s core
      collectibles authentication and grading businesses and the Expos collectibles
      trade show businesses.




On
      August
      18, 2006, the Company acquired all the common stock of American Gemological
      Laboratories (“AGL”), an international colored gemstone certification and
      grading laboratory. AGL is a third party authentication and grading services
      for
      colored gemstones, including colored gemstones that are sold at auctions and
      by
      jewelry retailers. The Company paid an acquisition price of $3,500,000 in cash
      for AGL, and, depending on AGL’s future revenues, may become obligated to make
      contingent payments of up to an aggregate of $3,500,000 over the next five
      years.  The Company is in the process of completing a purchase price
      allocation based on the AGL acquisition price of $3,500,000, plus approximately
      $233,000 of other directly-related costs and $214,000 representing a payment
      to
      settle a loan obligation of AGL to the seller of AGL. During the fourth quarter
      of fiscal year 2007, the Company revised its previously reported allocation
      of
      the purchase price for AGL over the net assets acquired, including intangible
      assets, such that goodwill was revised from $3,397,000 at March 31, 2007 to
      $2,083,000 at June 30, 2007.  Similarly, during the fourth quarter of
      2007, the allocation of the purchase price to intangible assets with indefinite
      and definite lives was revised from $522,000 and $124,000, respectively, at
      March 31, 2007 to $1,930,000 and $1,100,000, respectively, at June 30, 2007.
      The
      fair value of net liabilities assumed was also increased by $1,068,000 from
      $98,000 at March 31, 2007 to $1,166,000 at June 30, 2007 due to an increase
      in a
      deferred tax liability in the amount of $1,068,000 in the fourth quarter of
      2007. Due to the increased allocation of the purchase price to intangible assets
      with definite lives and revisions to the remaining useful lives of these assets,
      the


83


BUSINESS
      ACQUISITIONS (CONT’D)




cumulative
      amount of amortization expense was increased by $78,000 in the fourth quarter
      of
      2007. The purchase price allocation was incomplete at June 30, 2007 due to
      the
      preliminary nature of the estimated fair value of $500,000 assigned to AGL’s
      colored gemstone reference set. We expect to finalize the fair value assigned
      to
      the reference set and the purchase price allocation for AGL during the first
      quarter of fiscal year 2008.





The amount recognized as goodwill for AGL at June 30, 2007 of $2,083,000 is
      based on the Company’s expectations that future growth and profit opportunities
      exist in this undeveloped market segment.





The
      operating results of each of these acquired businesses were consolidated into
      the Company's financial statements from the respective dates of their
      acquisition.




On
      September 21, 2006, the Company acquired an existing patent and other intangible
      assets from Diamond I.D., Inc. (“DID”) for $332,000, which includes other direct
      costs of approximately $37,000, and presented these assets as part of intangible
      assets, net, on the Consolidated Balance Sheet at June 30, 2007.  The
      acquisition of those assets did not constitute a business
      combination.  During the fiscal year 2007, approximately $33,000 was
      recorded as amortization expense with respect to these assets.




The
      following table sets forth the fiscal year 2007 purchase price allocations
      with
      respect to the Expos and  AGL business acquisitions, and the Diamond
      I.D. asset acquisition and the goodwill acquired in fiscal year 2006 in the
      CCE,
      GCAL, CoinFacts, and Gemprint business acquisitions:




**(in
                thousands)****Gemprint**
            
            
            **Expos**
            
            
            **AGL**
            
            
            **DID**
            
            
            **Total**Cost
                of Investment:Purchase
                Price
            
            $
            -
            
            
            $
            2,400
            
            
            $
            3,500
            
            
            $
            295
            
            
            $
            6,195Other
                direct
                costs
            
            
            1
            
            
            
            75
            
            
            
            183
            
            
            
            37
            
            
            
            296Investment
                banking
                fees
            
            
            -
            
            
            
            -
            
            
            
            50
            
            
            
            -
            
            
            
            50Liability
                assumed
            
            
            -
            
            
            
            -
            
            
            
            214
            
            
            
            -
            
            
            
            2141
            
            
            
            2,475
            
            
            
            3,947
            
            
            
            332
            
            
            
            6,755Value
                Assigned to Assets and Liabilities:Cash
            
            
            -
            
            
            
            49
            
            
            
            81
            
            
            
            -
            
            
            
            130Current
                assets
            
            
            -
            
            
            
            86
            
            
            
            27
            
            
            
            -
            
            
            
            113Current
                liabilities
            
            
            -
            
            
            
            (59
            )
            
            
            (69
            )
            
            
            -
            
            
            
            (128
            )Customer
                deposits
            
            
            -
            
            
            
            (470
            )
            
            
            -
            
            
            
            -
            
            
            
            (470
            )Property,
                plant and
                equipment
            
            
            -
            
            
            
            57
            
            
            
            -
            
            
            
            -
            
            
            
            57Other
                assets
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            1Deferred
                tax
                liabilities
            
            
            -
            
            
            
            -
            
            
            
            (1,205
            )
            
            
            -
            
            
            
            (1,205
            )Intangible
                Assets with Finite Lives:Exhibitor
                relationships
            
            
            -
            
            
            
            790
            
            
            
            -
            
            
            
            -
            
            
            
            790Customer
                relationships
            
            
            -
            
            
            
            -
            
            
            
            460
            
            
            
            -
            
            
            
            460Acquired
                technology
            
            
            -
            
            
            
            -
            
            
            
            440
            
            
            
            -
            
            
            
            440Auctioneer
                relationships
            
            
            -
            
            
            
            150
            
            
            
            -
            
            
            
            -
            
            
            
            150Covenant
                not to
                compete
            
            
            -
            
            
            
            130
            
            
            
            200
            
            
            
            32
            
            
            
            362Patent
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            300
            
            
            
            300Intangible
                Assets with Indefinite Lives:Reference
                set
            
            
            -
            
            
            
            -
            
            
            
            500
            
            
            
            -
            
            
            
            500Trade
                name
            
            
            -
            
            
            
            740
            
            
            
            1,430
            
            
            
            -
            
            
            
            2,170Excess
                for the acquisitions completed in fiscal 2007
            
            $
            1
            
            
            $
            1,001
            
            
            $
            2,083
            
            
            $
            -
            
            
            $
            3,085Goodwill
                acquired in fiscal year 2006 for:CCE
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,117CoinFacts
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            515GCAL
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,068Gemprint
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,0999,799$
            12,884





84




BUSINESS
        ACQUISITIONS (CONT’D)
  Intangible
        assets with finite lives for the acquisitions completed in fiscal years 2006
        and
        2007 are being amortized on a straight-line basis over their estimated useful
        lives, as follows:








**CCE**
            
            **Gemprint**
            **Expos**
            
            **AGL**
            
            **DID**Customer
                relationships
            
            15
                years
            
            -
            -
            
            10
                years
            
            -Software/Acquired
                technology
            
            2
                years
            
            7
                years
            -
            
            10
                years
            
            -Covenant
                not to compete
            
            5
                years
            
            -
            8
                years
            
            8.5
                years
            
            2
                yearsPatents
            
            -
            
            20
                years
            -
            
            -
            
            11
                yearsAuctioneer
                relationships
            
            -
            
            -
            10
                years
            
            -
            
            -Exhibitor
                relationships
            
            -
            
            -
            10
                years
            
            -
            
            -




The
      following pro forma financial data presents the unaudited pro-forma consolidated
      statements of operations for the Company for the fiscal years ended June 30,
      2007, 2006 and 2005 based on the assumption that the Coinfacts, CCE, GCAL and
      Gemprint acquisitions had been consummated on July 1, 2004, and that AGL and
      Expos acquisitions had been completed as of July 1, 2005, rather than on the
      actual dates of their acquisition.  These pro forma unaudited
      statements of operations do not purport to represent what the Company’s actual
      results of operations would have been had these acquisitions been consummated
      on
      July 1, 2004 or 2005 and are not necessarily indicative of the Company’s results
      of operations for any subsequent fiscal year.





**Unaudited****Fiscal
                Year Ended June 30,**
              (In
                Thousands, except per share data)**2007**
            
            
            **2006**
            
            
            **2005**Revenue
            
            $
            40,529
            
            
            $
            39,693
            
            
            $
            35,358Operating
                income
                (loss)
            
            
            (2,948
            )
            
            
            3,712
            
            
            
            6,995Interest
                income,
                net
            
            
            2,123
            
            
            
            1,958
            
            
            
            906Other
                income
            
            
            6
            
            
            
            24
            
            
            
            26Income
                (loss) before provision for income taxes
            
            
            (819
            )
            
            
            5,694
            
            
            
            7,927Provision
                (benefit) for income
                taxes
            
            
            (53
            )
            
            
            2,547
            
            
            
            3,152Income
                (loss) from continuing operations
            
            
            (766
            )
            
            
            3,147
            
            
            
            4,775Income
                from discontinued
                operations
            
            
            228
            
            
            
            309
            
            
            
            116Net
                income
                (loss)
            
            $
            (538
            )
            
            $
            3,456
            
            
            $
            4,891Net
                income (loss) per diluted share:Income
                (loss) from continuing
                operations
            
            $
            (0.09
            )
            
            $
            0.36
            
            
            $
            0.64Income
                from discontinued
                operations
            
            $
            0.03
            
            
            $
            0.03
            
            
            $
            0.02Net
                income
                (loss)
            
            $
            (0.06
            )
            
            $
            0.39
            
            
            $
            0.66





**4.**  **Discontinued
      Operations**




On
      December 4, 2003, the Company’s Board of Directors authorized management to
      implement a plan to focus the Company’s financial and management resources, and
      collectibles expertise, on the operations and growth of its grading and
      authentication businesses, and to divest the Company’s collectibles auctions and
      direct sales businesses.




Accordingly,
      in accordance with SFAS No. 144, the assets and related liabilities of the
      collectibles sales businesses, which included the Bowers and Merena Auction,
      Superior Sports Auctions, Kingswood Coin Auctions, Odyssey Publications, Lyn
      Knight Currency Auctions, DHRC and computertradingpost.com, Inc.(“CTP”), have
      been classified as held for sale in the accompanying Consolidated Balance Sheet
      at June 30, 2006, and the related operating results have been classified as
      discontinued operations in the accompanying Consolidated Statements of
      Operations for the fiscal years ended June 30, 2007, 2006 and 2005.




85


DISCONTINUED
      OPERATIONS (CONT’D)




On
      February 19, 2004 we sold the businesses and certain assets of our Bowers &
Merena Auction, Kingswood Coin Auction and Superior Sports Auction divisions
      (collectively the “BK&S Divisions”) to Spectrum Numismatics International,
      Inc. (“Spectrum”), a subsidiary of Greg Manning Auctions, Inc.  We
      retained ownership of the collectibles inventories and the then outstanding
      accounts receivables of the BK&S Divisions and Spectrum assumed certain
      outstanding contractual obligations of those businesses.




The
      consideration for the sale of those businesses was $2,500,000 in
      cash.  We also were entitled to receive additional consideration in an
      amount to be determined on the basis of the sales revenues of the BK&S
      Divisions over the two-year period following February 19, 2004.  We
      recorded a pre-tax gain of $1,872,000 on the sale of the BK&S Divisions in
      the year ended June 30, 2004.  We were entitled to recognize any
      additional consideration in future periods as and to the extent the amounts
      became determinable.  However, no additional amounts were
      earned.




In
      furtherance of our strategy to focus our business on the provision of value
      added collectibles services and to dispose of the collectibles sales businesses,
      in March 2003 we discontinued the business of selling coins, at retail, under
      the name “David Hall Rare Coins” (or “DHRC”).   In connection
      with the operation of that business, we had utilized certain intangible assets
      and trade secrets obtained under a license agreement from an affiliate of David
      Hall and Van Simmons, two of the Company’s largest stockholders and also two of
      its directors.  In connection with the discontinuance of the DHRC
      business, and with the approval of the disinterested members of our Board of
      Directors, we terminated that license agreement.  We retained the
      operating inventory, receivables and liabilities of DHRC at the time of the
      termination of the license and discontinuance of that business.  By
      June 30, 2005, we had disposed of the remaining net assets and liabilities
      of
      this business.





In
      the
      fourth quarter of 2004, we disposed of our Odyssey related auction and
      publications businesses for $190,000 cash, of which $130,000 was paid at the
      time of sale and the remaining $60,000 was payable in eight (8) equal quarterly
      installments, all of which had been received by June 30, 2006.  In
      addition, we retained certain assets and liabilities of these businesses, and
      we
      are in the process of liquidating the remaining inventories, which are fully
      reserved on the consolidated balance sheets at June 30, 2007.




On
      September 17, 2003, we sold certain assets of our currency auction business,
      operated by a wholly-owned subsidiary, Lyn Knight Currency Auctions, Inc.,
      to
      Collectible Properties, Inc., a private company owned by Lyn F. Knight who,
      until that sale, had been president of that subsidiary and had managed that
      business for the Company.  We retained ownership of the inventory of
      collectible currencies and the then outstanding accounts receivable, and
      Collectible Properties, Inc. assumed certain outstanding contractual
      obligations, of this business.  The consideration received from that
      sale was equal to the net book value of the assets sold plus an additional
      amount which will be determined on the basis of the future sales revenue of
      Collectible Properties, Inc.  Through June 30, 2007, we recognized
      approximately $246,000 in fiscal 2007, $424,000 in fiscal 2006, and $248,000
      in
      fiscal 2005, respectively, of additional consideration based on the revenues
      of
      Collectible Properties, Inc.




In
      connection with and as a condition of our acquisition of CCE in September 2005,
      we were required to purchase the common stock of CTP, an entity affiliated
      with
      the owner of CCE.  Our intent at the date of acquisition was to
      dispose of CTP, and we disposed of CTP in November 2005.  The
      operating results of CTP are classified as part of discontinued operations
      from
      the date of its acquisition through the date of its disposal, and we recognized
      a loss of $16,000 on the disposal of CTP.  As part of the
      consideration for the sale of CTP, we recorded a note receivable of $458,000,
      bearing interest at 10% per annum and payable over five years.  We
      have a security interest in the assets of CTP and certain personal assets of
      the
      purchaser.  At June 30, 2007, the carrying value of the note was
      $321,000, of which the current portion was approximately $92,000, is included
      as
      part of the current portion of receivables from sale of net assets of
      discontinued operations.




86


DISCONTINUED
      OPERATIONS (CONT’D)




The
      operating results of the discontinued collectible sales businesses and CTP
      are
      included in the accompanying Consolidated Statements of Operations, are as
      follows (in thousands):




**Years
                Ended June 30,****2007**
            
            
            **2006**
            
            
            **2005**Net
                revenues
            
            $
            84
            
            
            $
            480
            
            
            $
            472Income
                (loss) from
                operations
            
            
            140
            
            
            
            161
            
            
            
            (277
            )Gain
                on sale of discontinued businesses
            
            
            259
            
            
            
            408
            
            
            
            202399
            
            
            
            569
            
            
            
            (75
            )Income
                tax expense
                (benefit)
            
            
            171
            
            
            
            273
            
            
            
            (135
            )Income
                from discontinued operations
            
            $
            228
            
            
            $
            296
            
            
            $
            60




The
      following table contains summary balance sheet information (in thousands) with
      respect to the net assets and liabilities of the collectible sales businesses
      held for sale that are included in the accompanying Consolidated Balance
      Sheets:




**June
                30,****2007**
            
            
            **2006**Current
                assets:Accounts
                receivable
            
            $
            -
            
            
            $
            10Inventories
            
            
            -
            
            
            
            37Consignment
                advances
            
            
            -
            
            
            
            -Notes
                receivable
            
            
            -
            
            
            
            36$
            -
            
            
            $
            83Non-current
                assets:Notes
                receivable, net of
                current portion
            
            
            -
            
            
            
            -$
            -
            
            
            $
            -Current
                liabilities:Consignors
                payable
            
            $
            -
            
            
            $
            1Other
                current
                liabilities
            
            
            -
            
            
            
            7$
            -
            
            
            $
            8




**5.**
            **Inventories**




Inventories
      consist of the following at June 30:


(in
                thousands)**2007**
            
            
            **2006**Coins
            
            $
            253
            
            
            $
            346Other
                collectibles
            
            
            33
            
            
            
            37Grading
                raw materials consumable inventory
            
            
            247
            
            
            
            160533
            
            
            
            543Less
                inventory
                reserve
            
            
            (91
            )
            
            
            (106
            )$
            442
            
            
            $
            437




The
      inventory reserve represents a valuation allowance on certain items of our
      coins
      and other collectibles inventories based upon our review of the current market
      value of such coins and collectibles.




87




**6.**
            **Customer Notes Receivable**




During
      the fourth quarter of 2005, our wholly-owned subsidiary, Collectors Finance
      Corporation (CFC), implemented a Dealer Financing Program, pursuant to which
      it
      offers short term loans to collectibles dealers and customers with established
      credit histories that are willing to collateralize the loans with coins or
      other
      collectibles that have been or will be authenticated and graded by
      us.  A customer is required to repay the loan at maturity or, if
      sooner, on return to the customer of the coins or other collectibles that
      collateralize the loan.  In the event that we return only a portion of
      the coins or other collectibles being held as collateral for the loan, then
      the
      customer is required to make a principal reduction payment at that time to
      maintain adequate collateral coverage for the loan.  These short term
      loans bear interest at a rate based on the prevailing Prime Rate at the time
      the
      loan is made.  The total principal amount of advances and short term
      loans made to customers under the Dealer Financing Program in 2005 was
      $6,078,000, of which $4,518,000 had been repaid by June 30, 2005, which left
      a
      remaining unpaid balance as of that date of $1,560,000, all of which was repaid
      in fiscal year 2006.  During fiscal year 2006, the total principal
      amount of such advances and short-term loans made to customers was $4,283,000,
      of which $470,000 was repaid by June 30, 2006, which left an unpaid balance
      remaining as of that date of $3,813,000, of which $3,790,000 was repaid during
      fiscal year 2007. During fiscal year 2007, the total principal amount of
      advances and short-term loans made to customers was $5,038,000, of which
      $2,626,000 was repaid by June 30, 2007, which left an unpaid balance remaining
      as of that date of $2,435,000.




In
      addition to the principal amounts advanced by CFC, the Company recorded a note
      receivable from a customer in September 2006 that matures in December 2007
      in
      the principal amount of $132,000.  Because the stated interest rate on
      the note is 0%; we discounted the note to a carrying value of approximately
      $114,000 at September 30, 2006 using an imputed interest rate, per annum, of
      11.25%, which was the interest rate applied to similar notes receivables held
      by
      CFC.  At June 30, 2007, the carrying value of the note was
      approximately $124,000, and, accordingly, $10,000 was recorded as interest
      income.




The
      Company routinely performs an analysis of the expected collectibility of
      customer notes receivable based on several factors, including the age and extent
      of significant past due amounts, economic conditions or trends that may
      adversely affect the ability of customers to pay those notes and the value
      of
      the collateral securing the repayment of the outstanding balances and may
      establish an allowance for possible losses on those notes based on those
      analyses.   At June 30, 2007 and 2006, we had allowances for
      uncollectible amounts of $23,000 and $16,000, respectively, to cover a
      deficiency in collateral value securing the notes of one customer for advances
      made under the Dealer Financing Program.




**7.**
            **Property and Equipment**






Property
      and equipment consist of the following at June 30:




(in
                thousands)**2007**
            
            
            **2006**Coins
                and stamp grading reference sets
            
            $
            222
            
            
            $
            62Computer
                hardware and
                equipment
            
            
            1,664
            
            
            
            1,271Computer
                software
            
            
            1,027
            
            
            
            972Equipment
            
            
            3,366
            
            
            
            2,020Furniture
                and office
                equipment
            
            
            1,064
            
            
            
            793Leasehold
                improvements
            
            
            1,452
            
            
            
            607Trading
                card reference
                library
            
            
            52
            
            
            
            528,847
            
            
            
            5,777Less
                accumulated depreciation and amortization
            
            
            (4,766
            )
            
            
            (3,880
            )Property
                and equipment,
                net
            
            $
            4,081
            
            
            $
            1,897




Depreciation
      and amortization expense relating to property and equipment for fiscal 2007,
      2006 and 2005 was $891,000, $486,000 and $443,000, respectively.




88


**8.**
            **Accrued Liabilities**




Accrued
      liabilities consisted of the following at June 30:




(in
                thousands)**2007**
            
            
            **2006**Warranty
                reserve
            
            $
            735
            
            
            $
            710Professional
                fees
            
            
            183
            
            
            
            189Other
            
            
            1,236
            
            
            
            1,144$
            2,154
            
            
            $
            2,043




Warranty
      reserve activity and balances related to fiscal years 2007, 2006 and 2005,
      were
      as follows (in
      thousands):




Warranty
                reserve, June 30, 2004
            
            $
            492Charged
                to cost of revenues
            
            
            530Payments
            
            
            (413
            )Warranty
                reserve June 30, 2005
            
            
            609Charged
                to cost of revenues
            
            
            492Payments
            
            
            (391
            )Warranty
                reserve at June 30, 2006
            
            
            710Charged
                to cost of revenues
            
            
            389Payments
            
            
            (364
            )Warranty
                reserve at June 30, 2007
            
            $
            735




**9.**
            **Income Taxes**




Set
      forth
      below are the provision (benefit) for income taxes for the years ended June
      30:




(in
                thousands)**2007**
            
            
            **2006**
            
            
            **2005**Current:Federal
            
            $
            (613
            )
            
            $
            2,360
            
            
            $
            2,738State
            
            
            29
            
            
            
            9
            
            
            
            63(584
            )
            
            
            2,369
            
            
            
            2,801Deferred:Federal
            
            
            705
            
            
            
            (172
            )
            
            
            (117
            )State
            
            
            (160
            )
            
            
            536
            
            
            
            457545
            
            
            
            364
            
            
            
            340Total
                provision (benefit) for income taxes
            
            $
            (39
            )
            
            $
            2,733
            
            
            $
            3,141




The
      reconciliation of the provision (benefit) for income taxes computed at federal
      statutory rates to the provision (benefit) for income taxes for the years ended
      June 30, was as follows:




(in
                thousands)**2007**
            
            
            **2006**
            
            
            **2005**Provision
                at federal statutory rates
            
            $
            (266
            )
            
            $
            2,087
            
            
            $
            2,685State
                income taxes,
                net
            
            
            (99
            )
            
            
            356
            
            
            
            340Meals  and
                entertainment
            
            
            94
            
            
            
            76
            
            
            
            59Stock-based
                compensation
            
            
            227
            
            
            
            214
            
            
            
            -Other
            
            
            5
            
            
            
            -
            
            
            
            57$
            (39
            )
            
            $
            2,733
            
            
            $
            3,141









89


INCOME
      TAXES (CONT’D)






Deferred
      income taxes reflect the net tax effect of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes.  Significant components of
      deferred taxes as of June 30, 2007 and 2006, were as follows:




(in
                thousands)**2007**
            
            
            **2006**Deferred
                tax assets:Supplier
                compensation
                costs
            
            $
            496
            
            
            $
            510Reserves
            
            
            1,037
            
            
            
            1,077Net
                operating loss
                carryforward
            
            
            159
            
            
            
            -State
                credits
            
            
            802
            
            
            
            661Other
            
            
            74
            
            
            
            21Less:
                valuation
                allowance
            
            
            (22
            )
            
            
            -Total
                deferred tax
                assets
            
            
            2,546
            
            
            
            2,269Deferred
                tax liabilities:Goodwill
                and
                intangibles
            
            
            (2,298
            )
            
            
            (408
            )Property
                and
                equipment
            
            
            (31
            )
            
            
            (32
            )Other
            
            
            (66
            )
            
            
            (73
            )Total
                deferred tax
                liabilities
            
            
            (2,395
            )
            
            
            (513
            )Net
                deferred tax
                assets
            
            
            151
            
            
            
            1,756Less:
                Current
                portion
            
            
            (1,020
            )
            
            
            (1,414
            )$
            (869
            )
            
            $
            342




At
      June
      30, 2007, the Company had $1,215,000 related to California Enterprise Zone
      Credits.  These credits have no expiration dates, and can only be
      utilized to offset taxable income generated in the Enterprise
      Zone.  The Company also has state net operating losses of $2,181,000,
      which will primarily begin to expire in 2017.




**10.**
            **Line of Credit**




To
      provide a source of funds for its Dealer Financing Program, in June 2005 CFC
      entered into a two-year revolving bank line of credit agreement, that permits
      CFC to borrow, at any one time, up to the lesser of (i) $7,000,000 or (ii)
      an
      amount equal to 85% of the aggregate principal amount of customer receivables
      that meet the bank’s eligibility criteria. As of June 30, 2007 and 2006, no
      borrowings had been made by CFC under this bank line.  Borrowings
      under this credit line bear interest at rates based on the bank’s Prime Rate or
      LIBOR, as applicable, and are secured by substantially all the assets of CFC
      (including customer receivables and CFC’s security interests in customer owned
      loan collateral).




Costs
      of
      approximately $340,000 (comprised of a loan agreement fee, bank fees and legal
      fees) were incurred in connection with this line of credit.  At June
      30, 2005, these costs were capitalized and the unamortized balance of
      approximately $0 and $170,000 were included in prepaid expenses and other
      current assets in the accompanying Consolidated Balance Sheets at June 30,
      2007
      and 2006, respectively.  These debt issuance costs were amortized to
      interest expense using the effective interest method over the term of the
      revolving bank line of credit agreement, which was the two years ended June
      30,
      2007.  On a quarterly basis, CFC incurs an unused line fee at a rate
      of 0.25% per annum, based on the average daily unused portion of the total
      facility during the quarter.  On June 28, 2007, the maturity date for
      this revolving bank line of credit was extended to September 30, 2007 by mutual
      agreement between the bank and CFC.




CFC’s
      obligations under this line of credit have been guaranteed by the Company
      pursuant to a Continuing Guaranty Agreement with the bank lender.  The
      terms of that Agreement require the Company to be in compliance with certain
      financial and other restrictive covenants, and require the consent of the lender
      (i) for the Company to pay cash dividends or repurchase shares of its
      common stock in amounts exceeding its annual net income in any year, and
      (ii) to consummate more than $5,000,000 of business acquisitions in any
      year.  The Company was in compliance with all covenants at June 30,
      2007 and 2006 and received the required consents and waivers from the lender
      for
      the purchase of the Gemprint business, repurchases of the Company’s stock under
      the stock buyback program, and the payment of cash dividends during fiscal
      2007
      and 2006.




90


**11.           Employee
      Benefit Plans**




We
      established an employee benefit plan, effective July 1992, that features a
      401(k) salary reduction provision covering all employees who meet the
      eligibility requirements of the plan.  Eligible employees are able to
      defer up to the lesser of 15% of their base compensation or the statutorily
      prescribed annual limit.




On
      July
      5, 2000, the Company implemented the 2000 Employee Stock Purchase Plan (the
      “Plan”) covering all employees who met certain eligibility
      requirements.  The Plan, which was approved by our stockholders,
      permitted employees to elect, at the beginning of each six-month period (each,
      a
“purchase period”), to authorize withholdings from payroll of up to 15% of their
      compensation that would be used to purchase shares of the Company’s common stock
      at the end of the six-month period.  The Plan provided that the
      purchase price would be 85% of the closing price of the Company’s shares on
      NASDAQ on (i) the first day of the six-month period, or (ii) the last
      day of the six-month period, whichever price was lower.  Participating
      employees were entitled to revoke their elections to participate in the purchase
      of shares at any time prior to the end of a purchase period, in which event
      the
      amounts withheld to the date of such revocation were paid to the employee,
      without interest.  This Plan was terminated effective as of July 1,
      2005.




During
      fiscal 2005, we issued 5,000 shares of common stock under this Plan at an
      average purchase price of $12.80 per share.




**12.           Stockholders’
      Equity**




***Equity
      Offering***




In
      March
      2005, the Company completed a public offering of a total of 3,450,000 shares
      of
      its common stock, of which a total of 2,195,856 shares were sold by the Company,
      and the remaining shares were sold by David G. Hall and Van D. Simmons, at
      a
      public offering price of $17.50 per share.  Messrs. Hall and Simmons,
      who founded the Company in 1986, are directors of the Company, and Mr. Hall
      also
      is the Company’s President.  The proceeds to the Company, net of the
      underwriting discount and offering expenses of approximately $650,000, were
      approximately $35,657,000.  The Company did not receive any of the
      proceeds from the sale of shares by Messrs. Hall and Simmons.




***Dividends***




On
      May
      31, 2006, the Company announced that its Board of Directors had adopted a
      dividend policy that called for the payment of quarterly cash dividends, each
      in
      the amount of $0.08 per share for an expected total annual cash dividend of
      $0.32 per common share.  At the same time, the Board of Directors
      declared the first of the quarterly cash dividends under this policy of $0.08
      per share, which was paid on June 28, 2006 in the aggregate amount of $674,000
      to stockholders of record on June 14, 2006.  Similarly, pursuant to
      that dividend policy, dividend payments of $0.08 per share were paid on
      September 12, 2006 in the aggregate amount of approximately $668,000, and on
      December 13, 2006, in the aggregate amount of approximately
      $665,000.





On
      December 5, 2006, the Board of Directors modified the dividend policy by
      increasing the quarterly dividend from $0.08 per share of common stock to $0.12
      per share and declared and paid dividends in the amounts of $999,000 and
      $1,018,000 for the third and fourth quarter of fiscal year
      2007.  Pursuant to that modified policy, in June 2007, the Board of
      Directors authorized an additional increase in the quarterly dividend rate
      from
      $0.12 per share to $0.25 per share, effective for the quarterly dividend
      expected to be paid in the first quarter of fiscal 2008. That quarterly dividend
      was paid, in the aggregate amount of $2,129,000, on September 7, 2007 to all
      stockholders of record as of August 24, 2007 (see note 17).




The
      declaration of cash dividends in the future, pursuant to the Company’s new
      dividend policy, 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.  For these reasons, as well as others, there can be no
      assurance that the amount of the quarterly cash dividends will not be reduced
      or
      that the Board of Directors will not decide to suspend or discontinue the
      payment of cash dividends in the future.




91


STOCKHOLDERS’
      EQUITY (CONT’D)




***Stock
      Buyback Program***




On
      December 6, 2005, the Company announced that its Board of Directors had approved
      a stock buyback program authorizing the Company to make up to $10,000,000 of
      stock purchases in the open market or private transactions, in accordance with
      applicable SEC rules.  During the years ended June 30, 2007 and 2006,
      the Company repurchased and retired 72,000 and 182,000 shares, respectively,
      of
      its common stock, pursuant to this program for aggregate purchase prices
      totaling approximately $949,000 and $2,628,000 (including transaction costs),
      respectively.  Common stock at par value and additional paid-in
      capital were reduced by the $2,628,000 and $949,000, respectively. The Company
      is under no obligation to repurchase any additional shares under this program,
      and the timing, actual number and value of any additional shares that may be
      repurchased under this program will depend on a number of factors, including
      the
      Company’s future financial performance, the Company’s available cash resources
      and competing uses for the cash, prevailing market prices of the Company’s
      common stock and the number of shares that become available for sale at prices
      that the Company believes are attractive.




***Treasury
      Stock***




Pursuant
      to a program approved by the Board of Directors in 2000, the Company had
      purchased 125,000 of its shares at an average price of $8.16 per share during
      the period from September 25, 2000 to December 28, 2000 at an aggregate cost
      of
      $1,021,000.   During the second quarter of 2007, the Company
      retired all of these shares and recorded a decrease to additional paid-in
      capital on the balance sheet during the second quarter of 2007.  Prior
      to that time, the repurchased shares were recorded as treasury shares on the
      Company’s Consolidated Balance Sheets.





***Consulting
      Agreement***




In
      July
      1997, we granted options to an individual to purchase 133,000 shares of our
      common stock at an exercise price of $1.31 per share as consideration for a
      five-year consulting agreement that commenced on July 1, 1997.  The
      options vested in five annual installments of 20% of the shares beginning on
      December 31, 1997 and continuing through December 31, 2001.  In
      January 2007, these options were fully exercised, and the related estimated
      tax
      benefit of $623,000 was recorded as part of $633,000 credited to stockholders’
equity in fiscal 2007, as a result of that option exercise.




***Supplier
      Compensation Cost***




During
      fiscal 1999, the Company granted warrants to purchase up to an aggregate of
      150,000 shares of common stock, at an exercise price of $20.00 per share, to
      collectible experts providing content for our websites.  These
      warrants vested immediately and are exercisable over a ten-year
      term.  The fair value of these warrants was expensed in fiscal 1999,
      and all of these warrants were outstanding at June 30, 2007.




**13.**
            **Stock Option Plans**




In
      January 1999, we adopted the PCGS 1999 Stock Incentive Plan (the “PCGS
      Plan”).  The PCGS Plan, which was assumed by the Company at the time
      of its acquisition of PCGS, covered an aggregate of 269,250 shares of our common
      stock.  In February 1999, we adopted the 1999 Stock Incentive Plan
      (the “1999 Plan”), which provides for grants of incentive stock options,
      nonstatutory stock options, and restricted stock grants to directors, officers,
      employees and consultants of Collectors Universe who provide valuable services
      to Collectors Universe, or its subsidiaries, entitling them to purchase up
      to
      437,250 shares of our common stock.  On December 5, 2000, the
      stockholders, at the Company’s Annual Meeting, approved an amendment to the 1999
      Plan to increase the authorized number of shares of our common stock that are
      issuable under this Plan from 437,250 to 749,750 shares.




The
      Company’s stockholders also approved a 2003 Incentive Plan (the “2003 Plan”) and
      a 2005 Incentive Plan (the “2005” Plan), which authorized the grant of options,
      and the issuance of restricted rights, to purchase up to an aggregate of 500,000
      shares and 230,000 shares, respectively, of the Company’s common stock to
      officers and other employees, non-employee directors and service providers
      of
      the Company and its subsidiaries.




The
      PCGS
      Plan and the 1999 Plan provided that the option exercise price per share may
      not
      be less than 100% of the fair market value of a share of common stock on the
      grant date, as determined by the Board of






92
 STOCK
        OPTION PLANS (CONT’D)




Directors,
      for incentive stock options and 85% of fair market value for nonstatutory stock
      options.  The 2003 and 2005 Plan provided that the exercise price of
      all options (whether incentive or non-statutory), and the purchase price of
      shares issued pursuant to restricted stock purchase rights, may not be less
      than
      100% of the fair market value of the shares subject to such options or rights
      (as the case may be) on the date of grant.  However, the exercise
      price of incentive stock options granted under any of the Plans to any
      individual possessing 10% or more of the voting power of all classes of our
      stock may not be granted at less than 110% of the fair market value of a share
      of common stock on the grant date.  The timing of exercise for
      individual option grants is at the discretion of the Board of Directors, and
      the
      options expire no later than ten years after the grant date (five years in
      the
      case of incentive stock options granted to individuals possessing 10% or more
      of
      the voting power of all classes of our stock).  In the event of a
      change in control of the Company, an option or award of shares under these
      Plans
      will become fully exercisable if an agreement is not reached that provides
      for
      the surviving corporation to assume such options or awards or to substitute
      comparable options or awards for the options and awards granted under these
      Plans.




During
      the second quarter of fiscal year 2007, the Board of Directors adopted and
      our
      stockholders approved the 2006 Equity Incentive Plan (“2006 Plan”), which
      provides for the grant of stock options, stock appreciation rights (commonly
      referred to as “SARs”), restricted stock purchase rights and restricted stock
      units (collectively, “stock awards”), to officers and other employees and
      non-employee directors of and consultants to the Company or its
      subsidiaries.  At the time of the adoption of the 2006 Plan, a total
      of 444,000 shares of common stock were still available for the future grant
      of
      stock options and restricted stock purchase awards under the other Plans (the
      “Existing Plans”).  Pursuant to the provisions of the 2006 Plan, those
      444,000 shares were “rolled over” into and became available for grants of stock
      awards only under the 2006 Plan and the right to grant additional stock awards
      under the Existing Plans terminated.  In addition, while the stock
      options and restricted shares that were outstanding under the Existing Plans,
      which covered a total of 911,000 shares at the time the 2006 Plan was approved,
      were unaffected by the adoption of the 2006 Plan, in the event any of those
      stock awards were to terminate or any shares that were subject to outstanding
      restricted stock grants under the Existing Plans were to be reacquired by the
      Company, those shares will become available for future grants of stock awards
      under the 2006 Plan, rather than under the Existing Plans.  As a
      result, the adoption of the 2006 Plan did not increase the number of shares
      authorized for issuance under the Company’s stock incentive
      plans.  Instead, the 2006 Plan was adopted to provide greater
      flexibility to the Company in terms of the types of stock incentives that could
      be granted to eligible participants.




The
      following is a summary of stock option activity for fiscal 2007, 2006 and 2005
      under the 2006 Plan, PCGS Plan, the 1999 Plan, the 2003 Plan and the 2005
      Plan.




(In
                thousands, except per share data)**Number
                of Shares**
            
            
            **Exercise**
              **Price
                Per Share**
            
            
            **Weighted
                Average Exercise Price Per Share**Options
                outstanding at June 30, 2004
            
            
            822
            
            
            $
            2.55
            
            
            
            -
            
            
            $
            30.52
            
            
            $
            10.56Granted
            
            
            295
            
            
            
            11.58
            
            
            
            -
            
            
            
            20.10
            
            
            
            17.09Cancelled
            
            
            (70
            )
            
            
            3.08
            
            
            
            -
            
            
            
            30.52
            
            
            
            17.70Exercised
            
            
            (71
            )
            
            
            2.55
            
            
            
            -
            
            
            
            12.00
            
            
            
            3.99Options
                outstanding as June 30, 2005
            
            
            976
            
            
            
            2.55
            
            
            
            -
            
            
            
            24.00
            
            
            
            12.49Granted
            
            
            42
            
            
            
            12.90
            
            
            
            -
            
            
            
            14.00
            
            
            
            13.73Cancelled
            
            
            (82
            )
            
            
            3.08
            
            
            
            -
            
            
            
            20.00
            
            
            
            15.52Exercised
            
            
            (47
            )
            
            
            2.55
            
            
            
            -
            
            
            
            13.73
            
            
            
            5.20Options
                outstanding at June 30, 2006
            
            
            889
            
            
            
            3.08
            
            
            
            -
            
            
            
            24.00
            
            
            
            12.65Granted
            
            
            65
            
            
            
            13.70
            
            
            
            -
            
            
            
            14.09
            
            
            
            13.67Cancelled
            
            
            (13
            )
            
            
            3.08
            
            
            
            -
            
            
            
            20.00
            
            
            
            15.11Exercised
            
            
            (29
            )
            
            
            3.08
            
            
            
            -
            
            
            
            11.58
            
            
            
            3.56Options
                outstanding at June 30, 2007
            
            
            912
            
            
            $
            3.08
            
            
            
            -
            
            
            $
            24.00
            
            
            $
            12.98





The
      total pre-tax intrinsic value of
      options exercised during fiscal years 2007, 2006 and 2005 were $285,000,
      $462,000 and $956,000, respectively.  Total fair value of options
      vested during 2007, 2006 and 2005 were $656,000, $671,000 and $1,372,000,
      respectively.


93


The
      following table summarizes information about stock options outstanding at June
      30, 2007:





Outstanding
                Options
            
            
            Exercisable
                OptionsRange
                of Exercise Price
            
            
            Number
                of Shares Outstanding
            
            
            Weighted
              Average
              Remaining
              Contractual
              Life
                (Years)
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            ($000’s)
              Aggregate
              Intrinsic
              Value
            
            
            Number
                of Shares Exercisable
            
            
            Weighted
                Average Exercise Price
            
            
            ($000’s)
              Aggregate
                Intrinsic Value$
            3.08
            
            
            $
            3.80
            
            
            
            128
            
            
            
            5.5
            
            
            $
            3.38
            
            
            $
            1,521
            
            
            
            128
            
            
            $
            3.38
            
            
            $
            1,521$
            5.28
            
            
            $
            7.60
            
            
            
            62
            
            
            
            6.4
            
            
            $
            7.54
            
            
            
            478
            
            
            
            62
            
            
            $
            7.54
            
            
            
            478$
            8.00
            
            
            $
            12.00
            
            
            
            181
            
            
            
            6.0
            
            
            $
            10.40
            
            
            
            887
            
            
            
            136
            
            
            $
            10.19
            
            
            
            697$
            13.24
            
            
            $
            19.60
            
            
            
            442
            
            
            
            7.7
            
            
            $
            15.73
            
            
            
            394
            
            
            
            215
            
            
            $
            17.09
            
            
            
            79$
            20.00
            
            
            $
            20.00
            
            
            
            60
            
            
            
            1.8
            
            
            $
            20.00
            
            
            
            -
            
            
            
            60
            
            
            $
            20.00
            
            
            
            -$
            20.10
            
            
            $
            24.00
            
            
            
            39
            
            
            
            3.7
            
            
            $
            22.99
            
            
            
            -
            
            
            
            34
            
            
            $
            23.42
            
            
            
            -912
            
            
            
            6.4
            
            
            $
            12.98
            
            
            $
            3,280
            
            
            
            635
            
            
            $
            12.53
            
            
            $
            2,775





At
      June
      30, 2007, unvested stock options to purchase up to a total of approximately
      277,000 shares were outstanding with a weighted average contractual remaining
      life of 7.8 years and at a weighted average exercise price of
      $14.00.  As of the same date, the aggregate intrinsic value of the
      unvested options (based on a closing price of our shares, as reported by Nasdaq,
      of $15.29) was approximately $505,000.  At June 30, 2007, and based
      upon the estimated forfeiture rate of 9% per annum and the remaining vesting
      terms of these options, the number of options expected to vest over their
      remaining vesting terms was approximately 241,000 options.  At June
      30, 2006, unvested stock options to purchase up to a total of approximately
      320,000 shares of our common stock were outstanding with a weighted average
      contractual remaining life of 8.2 years and at a weighted average exercise
      price
      of $13.21.  As of the same date, the aggregate intrinsic value of the
      unvested options (based on a closing price of our shares, as reported by Nasdaq,
      of $13.98) was approximately $542,000.




The
      weighted-average fair values of stock options granted during fiscal 2007, 2006
      and 2005 were $5.56, $6.57 and $8.55 per option share,
      respectively.




The
      following table presents the non-vested status of the restricted shares for
      the
      fiscal year ended June 30, 2007 and their respective weighted average grant
      date
      fair values.  There were no restricted shares granted prior to fiscal
      2007.





**Non-Vested
                Shares:**
            
            **Shares**
            
            
            **Weighted**
              **Average**
              **Grant-Date**
              **Fair
                Value**Non-vested
                at June 30, 2006
            
            
            -
            
            
            $
            -Granted
            
            
            56,760
            
            
            
            13.65Vested
            
            
            (6,530
            )
            
            
            13.40Forfeited
                or
                Cancelled
            
            
            -
            
            
            
            -Non-vested
                at June 30, 2007
            
            
            50,230
            
            
            $
            13.68





**14.**
            **Related-Party Transactions**




A
      former
      member of the Board of Directors is also a partner in a professional services
      firm providing service to the Company.  For each of the years ended
      June 30, 2007, 2006 and 2005, the member was paid $23,750, $37,500 and $31,250,
      respectively, as Board fees; and the professional services firm was paid
      $211,000, $189,000, and $588,000, respectively, for services
      rendered.  At June 30, 2007 and 2006, amounts payable to this firm
      were approximately $53,000 and $41,000, respectively, and are included on the
      Consolidated Balance Sheet in accounts payable and accrued liabilities,
      respectively.




DHRCC,
      which is wholly owned by David Hall, the President and a director and a
      stockholder of the Company, and Van Simmons, who is a director and a stockholder
      of the Company, has subleased from the Company, through November 6, 2009,
      approximately 2,200 square feet of office space, located at the Company’s
      offices in Santa Ana, California, at a rent equal to between $1.50 and $1.75
      per
      square foot per month.  That rent,




94


RELATED
      PARTY TRANSACTIONS (CONT’D)




per
      square foot, is equal to the rent that was being paid to the Company by a prior
      unaffiliated subtenant for comparable space in the same building under a
      sublease entered into by the Company in March 2004.  Rent received
      under the DHRCC sublease, which commenced on March 1, 2004, totaled $42,370
      in
      fiscal 2007, $41,059 in fiscal 2006 and $40,000 in fiscal 2005.




In
      connection with its discontinuance of its retail coin sales business, effective
      March 1, 2004 the Company engaged DHRCC to sell the Company’s remaining
      inventory of collectible coins that had been held for sale at retail by the
      Company’s DHRC division.  Sales of collectible coins by DHRCC pursuant
      to this engagement totaled $0, $0 and $11,000, respectively, for the periods
      ended June 30, 2007, 2006 and 2005, and the Company paid DHRCC commissions
      of
      $0, $0 and $1,000, respectively, in connection with those sales.




All
      of
      the above-described transactions with DHRCC were approved by the disinterested
      members of the Company’s Board of Directors.




During
      fiscal years 2007, 2006 and 2005, the Company charged and DHRCC paid
      approximately $35,000, $29,000 and $29,000 and for advertising fees,
      approximately $1,000, $3,000 and $26,000 for grading and authentication fees
      and
      approximately $52,000, $53,000 and $11,000 for warranty claims, respectively.
      During fiscal year 2007, DHRCC attended the Expos Long Beach shows and paid
      approximately $5,200 in fees to Expos and also paid CCE $3,500 in monthly
      subscriber fees during fiscal year 2007.  In addition, in 2005, the
      Company paid DHRCC $9,000 for the purchase of certain coin
      inventory.





During
      fiscal year 2007, David Hall  paid $17,600 in grading and
      authentication fees for personal sportscards submitted.  Also, a
      member of the immediate family of David Hall won a prize of $11,000 in the
      PCGS
      2006 World Series of Grading Contest.  Separately, this individual
      paid $13,600 in grading and authentication fees to PCGS.  The grading
      fees charged by the Company to both individuals, were comparable to the fees
      charged by the Company in the ordinary course of business to unaffiliated
      customers for similar services.





As
      part of the acquisition of GCAL in November 2005, the Company acquired certain
      assets from Gemological Appraisal Association (“GAA”), a business owned and
      managed by the current President of GCAL. As part of the acquisition agreement,
      GAA entered into a sublease agreement with GCAL, which expires in May 2008,
      to
      sublease 50% of the leased premises of GCAL and also reimburse GCAL for 50%
      of
      other occupancy costs. From the date of acquisition to June 30, 2006, GAA paid
      approximately $25,000 under the sub-lease agreement, and approximately $6,000
      for reimbursable occupancy expenses.  During fiscal year 2007, GAA
      paid approximately $45,000 under the sub-lease agreement and approximately
      $12,000 for reimbursable occupancy expenses.  In the normal course of
      business, GAA was charged and paid $2,500 in grading and consultation fees
      by
      GCAL during fiscal year 2007.





In
      connection with the Company's acquisition of the business and assets of Expos,
      the Company assumed a lease for the offices at which Expos conducts its
      operations. The landlord under that lease is a trust of which the trustee is
      the
      former president of Expos, who has been retained to provide services to the
      Company under a five year consulting agreement for consulting fees of $250,000
      per year. The lease provides for lease payments by the Company of $3,000 per
      month for a term of three years with a one-time security deposit of
      $3,000.  The lease is renewable for successive periods of one year
      each, subject to the right of either party to terminate the lease prior to
      commencement of any such one year renewal period.  During fiscal year
      2007, the Company paid $36,000 in lease payments for the Expos office site
      and
      $3,000 as a security deposit for the lease.





**15.           Commitments
      and Contingencies**





***Leases***




The
      Company has various operating lease commitments for facilities and equipment
      that expire through December 2015.  On July 1, 2006, GCAL leased and
      occupied additional space in the same building in which its operations were
      located.  Under the terms of the new lease agreement, GCAL will lease
      the facility from July 1, 2006 to December 1, 2015.  Minimum lease
      payments for the new space, which are included in the commitments




95


COMMITMENTS
      AND CONTINGENCIES (CONT’D)




table
      for
      fiscal years 2008 to 2012, are expected to be $329,000, $339,000, $349,000,
      $360,000 and $371,000, respectively.  During fiscal 2007, the Company
      subleased office space that was in excess of its current requirements to two
      related parties (see note 14).  Such lease for office space contains
      escalations over the term of the lease.






In
      accordance with SFAS No. 13, the Company’s total rent expense is recognized on a
      straight-line basis over the lease period.  Total rent expense, net of
      sublease income, was approximately $2,226,000, $1,629,000 and $1,349,000,
      respectively, for the years ended June 30, 2007, 2006 and 2005.  At
      June 30, 2007 and 2006, deferred rent (representing the cumulative difference
      between rent paid and the rent expense recognized) was $477,000 and $402,000,
      respectively. Future minimum lease payments under these agreements are as
      follows:




(In
                thousands)Company’s
              Gross
              Payment
            
            
            Sublease
              Income
            
            
            Net2008
            
            $
            1,883
            
            
            $
            94
            
            
            $
            1,7892009
            
            
            1,848
            
            
            
            45
            
            
            
            1,8032010
            
            
            913
            
            
            
            15
            
            
            
            8982011
            
            
            433
            
            
            
            -
            
            
            
            4332012
            
            
            415
            
            
            
            -
            
            
            
            415Thereafter
            
            
            1,385
            
            
            
            -
            
            
            
            1,385$
            6,877
            
            
            $
            154
            
            
            $
            6,723




***Employment
      Agreements***




The
      Company has entered into employment agreements with certain executive officers
      and other key employees.  The employment agreements provide for
      minimum salary levels, incentive compensation and severance benefits, among
      other items.




***Guarantees***




As
      discussed in note 10, the Company has guaranteed the obligations of CFC under
      its line of credit.  However, since CFC is a wholly-owned,
      consolidated subsidiary of the Company, its line of credit borrowings, which
      the
      Company has guaranteed, are required to be set forth on our Consolidated Balance
      Sheet.  There were no such borrowings outstanding at June 30, 2007 or
      2006.




***Indemnification
      Obligations***




The
      Company from time to time enters into certain types of contracts that
      contingently require the Company to indemnify parties against third-party
      claims.  These contracts primarily relate to (i) agreements
      pursuant to which the Company has sold its discontinued collectibles sales
      businesses and which require the Company to indemnify the purchasers from
      certain contingent liabilities that might arise from the operation of those
      businesses prior to their sale by the Company, which is customary in business
      sale transactions such as these; (ii) certain real estate leases under
      which the Company may be required to indemnify property owners for environmental
      or other liabilities and other claims arising from the Company’s use of the
      applicable premises; and (iii) certain agreements with the Company’s
      officers and directors, under which the Company may be required to indemnify
      such persons for liabilities arising out of their relationships as officers
      or
      directors of the Company.  The terms of such indemnification
      obligations vary by contract and in most instances a specific or maximum dollar
      amount is not explicitly stated therein.  Historically, the Company
      has not been obligated to make significant payments under, and no liabilities
      have been recorded in the accompanying Consolidated Balance Sheets for, these
      indemnification obligations.




96


COMMITMENTS
      AND CONTINGENCIES (CONT’D)




***Legal
      Actions and Settlements***




As
      previously reported, the Company was named as a co-defendant in a lawsuit
      brought by Real Legends Inc, (“Plaintiff”), against When It Was a Game
      (“WIWAG”), a sports card dealer.  In the lawsuit, Plaintiff was
      seeking alleged damages to its business of $4 million, alleged to have arisen
      out of actions taken by WIWAG, together with punitive
      damages.  Plaintiff also alleged that the Company was liable for those
      damages, because a Company employee had introduced WIWAG to
      Plaintiff.




On
      January 26, 2005, the Company and Plaintiff settled that
      lawsuit.  Pursuant to the settlement, all claims against the Company
      were released by Plaintiff and the Company paid Plaintiff the sum of $600,000
      on
      or about February 23, 2005.  The cost of the settlement to the
      Company, net of $100,000 insurance reimbursement, was $500,000, which was
      recorded as part of operating expenses in the Company’s Consolidated Statements
      of Operations for the year ended June 30, 2005.




During
      fiscal 2007, two legal settlements in the aggregate amount of $73,000 were
      recognized in the Consolidated Statements of Operations.




Bill
      Miller v. Collectors Universe, Inc.  As previously reported, the
      Company was a defendant in this legal action, which was brought in the Superior
      Court of California, County of Orange, by Bill Miller, a former employee of
      the
      Company, who was president of one of the Company’s collectibles sales businesses
      that was sold in 2004 and an expert in the authentication of autographs and
      memorabilia.  Miller alleged that the Company had issued
      authentication certificates bearing his name without his consent, in violation
      of a California statute prohibiting unauthorized appropriation of a person’s
      name, signature or likeness.  The statute provides that a person whose
      name, signature or likeness has been misappropriated, in violation of the
      statute, is entitled to recover the greater of $750 or the actual damages
      suffered as a result of the unauthorized use, and any profits from that were
      attributable to that unauthorized use that are not taken into account in
      computing the actual damages.  The Company denied Miller’s allegations
      and asserted that he was not entitled to any recovery under the statute in
      excess of his actual damages and that he had not suffered any actual damages
      as
      a result of the issuance of the certificates.




Also,
      as
      previously reported, at the conclusion of the trial, which took place in October
      2005, (i) the jury found that the Company had used Miller’s name without
      his consent on 14,060 authentication certificates, but that Miller had sustained
      actual damages from that use totaling $14,060; and (ii) the parties entered
      into a stipulated judgment in the case, which, among other things, provides
      that
      Miller’s statutory damages arising from the actions of the Company were
      zero.  The court left unresolved and for future determination the
      issue of which party, if any, was the prevailing party in the lawsuit, which
      would determine which party, if any, is entitled to recover its attorney’s fees
      from the other party.




In
      December, 2005, Miller filed a Notice of Appeal seeking an appellate court
      review, a reversal of the judgment entered by the trial court and a finding,
      that as a matter of law, he was entitled to statutory damages that should be
      determined by multiplying $750 times the 14,060 authentication certificates
      on
      which his name appeared without his consent, or approximately $10.5 million
      in
      total.




Oral
      arguments took place at the Court of Appeals on June 26, 2007.  On
      August 30, 2007, the Appellate Court issued it decision in which it ruled that,
      contrary to his assertions, Miller was not entitled to statutory damages of
      $10.5 million.  In reaching that decision, the Appellate Court found
      that the use of Miller’s name by the Company constituted, at most, a single
      violation of the statute in question and, therefore, Miller is not entitled
      to
      multiply $750.00 by the number of times his name was used.  The Appellate
      Court also ruled that Miller has the right to file a new trial in an effort
      to
      recover damages for the use by the Company of his name; however, in that lawsuit
      he must prove that Collectors Universe violated the statute at issue or common
      law and, if he succeeds in proving such a violation, he must show how, if at
      all, and in what amount, if any, he was damaged as a result of that
      violation.  However, the Appellate Court ruled that in any new trial
      that Miller might file, he cannot seek, as a measure of damages, to multiply
      $750.00 by the number of times, if any, that Collectors Universe used his name
      without his consent.  We cannot predict whether Miller will file a new
      trial.


97


COMMITMENTS
      AND CONTINGENCIES (CONT’D)




The
      Appellate Court's decision becomes final 30 days from the date it was
      issued.  Prior to that date, Miller could petition the Appellate Court
      to reconsider its decision.  At the end of the 30-day period, Miller will
      have a period of 10 days within which to file a petition for review by the
      California Supreme Court.





The
      Company believes that, even if Miller does file a new trial, it will not incur
      any material liability to Miller.





Other
      Legal Actions





From
      time
      to time, the Company is named as a defendant in lawsuits that arise in the
      ordinary course of its business.  Management of the Company believes
      that none of those lawsuits currently pending against it is likely to have
      a
      material adverse effect on the Company.





**16.**
            **Business Segments**





Operating
      segments are defined as the components or “segments” of an enterprise for which
      separate financial information is available that is evaluated regularly by
      the
      Company’s chief operating decision maker, or decision-making group, in deciding
      how to allocate resources to and in assessing performance of those components
      or
“segments.”  The Company’s chief operating decision-maker is its Chief
      Executive Officer.  The operating segments of the Company are
      organized based on the respective services that they offer to customers of
      the
      Company.  Similar operating segments have been aggregated to
      reportable operating segments based on having similar services, types of
      customers, and other criteria that are set forth in SFAS No. 131,
*Disclosures About Segments of an Enterprise and Related
      Information.*





For
      our
      continuing operations, we operate principally in four reportable service
      segments: coins, sportscards, jewelry and other high-end
      collectibles.  Services provided by these segments include
      authentication, grading, publication advertising and subscription-based
      revenues.  The other collectibles segment includes autographs, stamps,
      currency, the CCE subscription business and our collectibles conventions
      business.





98


BUSINESS
      SEGMENT (CONT’D)




We
      allocate operating expenses to each service segment based upon activity
      levels.  The following tables set forth on a business segment basis,
      including a reconciliation with the  consolidated financial
      statements, (i) external revenues, (ii) amortization and depreciation, (iii)
      stock-based compensation expense as a significant other non-cash transaction,
      and (iv) operating income for the fiscal years ended June 30, 2007, 2006 and
      2005. Net identifiable assets and goodwill are provided by business segment
      as
      of June 30, 2007 and 2006.  All of our sales and identifiable assets
      are located in the United States.





**Fiscal
                Years Ended June 30,**Net
                revenues from external customers:
            
            **2007**
            
            
            **2006**
            
            
            **2005**Coins
            
            $
            23,317
            
            
            $
            23,829
            
            
            $
            23,203Sportscards
            
            
            8,797
            
            
            
            8,461
            
            
            
            8,143Jewelry
            
            
            1,235
            
            
            
            373
            
            
            
            -Other
            
            
            7,103
            
            
            
            4,251
            
            
            
            2,261Total
                revenue
            
            $
            40,452
            
            
            $
            36,914
            
            
            $
            33,607Amortization
                and depreciation:Coins
            
            $
            205
            
            
            $
            114
            
            
            $
            55Sportscards
            
            
            87
            
            
            
            70
            
            
            
            92Jewelry
            
            
            813
            
            
            
            185
            
            
            
            -Other
            
            
            591
            
            
            
            265
            
            
            
            3Total
            
            
            1,696
            
            
            
            634
            
            
            
            150Unallocated
                amortization and
                depreciation
            
            
            316
            
            
            
            285
            
            
            
            293Consolidated
                amortization and
                depreciation
            
            $
            2,012
            
            
            $
            919
            
            
            $
            443Stock-based
                compensation:Coins
            
            $
            80
            
            
            $
            192
            
            
            $
            2Sportscards
            
            
            34
            
            
            
            15
            
            
            
            -Jewelry
            
            
            8
            
            
            
            -
            
            
            
            -Other
            
            
            124
            
            
            
            129
            
            
            
            -Total
            
            
            246
            
            
            
            336
            
            
            
            2Unallocated
                stock-based
                compensation
            
            
            644
            
            
            
            334
            
            
            
            31Consolidated
                stock-based
                compensation
            
            $
            890
            
            
            $
            670
            
            
            $
            33Operating
                income (loss) before unallocated expenses:Coins
            
            $
            9,658
            
            
            $
            11,542
            
            
            $
            12,183Sportscards
            
            
            1,435
            
            
            
            1,153
            
            
            
            844Jewelry
            
            
            (5,557
            )
            
            
            (1,459
            )
            
            
            -Other
            
            
            417
            
            
            
            6
            
            
            
            (704
            )Total
            
            
            5,953
            
            
            
            11,242
            
            
            
            12,323Unallocated
                operating
                expenses
            
            
            (8,885
            )
            
            
            (7,473
            )
            
            
            (5,356
            )Consolidated
                operating income
                (loss)
            
            $
            (2,932
            )
            
            $
            3,769
            
            
            $
            6,967





99


BUSINESS
      SEGMENT (CONT’D)







**At
                June 30,**Identifiable
                Assets:
            
            **2007**
            
            
            **2006**Coins
            
            $
            2,139
            
            
            $
            2,647Sportscards
            
            
            632
            
            
            
            541Jewelry
            
            
            20,435
            
            
            
            12,611Other
            
            
            7,982
            
            
            
            6,284Total
            
            
            31,188
            
            
            
            22,083Unallocated
                assets
            
            
            46,913
            
            
            
            56,138Consolidated
                assets
            
            $
            78,101
            
            
            $
            78,221Goodwill:Coins
            
            $
            515
            
            
            $
            515Jewelry
            
            
            10,251
            
            
            
            8,168Other
            
            
            2,118
            
            
            
            1,116Consolidated
                goodwill
            
            $
            12,884
            
            
            $
            9,799








**17.           Subsequent
      Events**





On
      August
      10, 2007, the Company announced that the quarterly dividend of $0.25 per share
      of common stock will be paid on September 7, 2007 to shareholders of record
      as
      of August 24, 2007 (see note 12).  That quarterly dividend was paid,
      in the aggregate amount of $2,129,000, on September 7, 2007.





**Schedule
                II**
              **Valuation
                and Qualifying Accounts****Description**
            
            **Balance
                at Beginning**
              **of
                Period**
            
            
            **Charged
                to Operating Expenses**
            
            
            **Charged
                to Cost of Revenues**
            
            
            **Net**
              **Deductions**
            
            
            **Balance**
              **at
                End**
              **of
                Period**Allowance
                for doubtful accounts
            
            $
            30,000
            
            
            $
            17,000
            
            
            $
            -
            
            
            $
            (9,000
            )
            
            $
            38,000Inventory
                reserve
            
            
            53,000
            
            
            
            -
            
            
            
            26,000
            
            
            
            (45,000
            )
            
            
            34,000Total
                at June 30,
                2005
            
            $
            83,000
            
            
            $
            17,000
            
            
            $
            26,000
            
            
            $
            (54,000
            )
            
            $
            72,000Allowance
                for doubtful accounts
            
            $
            38,000
            
            
            $
            23,000
            
            
            $
            -
            
            
            $
            (24,000
            )
            
            $
            37,000Allowance
                for customer notes receivable
            
            
            -
            
            
            
            16,000
            
            
            
            -
            
            
            
            -
            
            
            
            16,000Inventory
                reserve
            
            
            34,000
            
            
            
            -
            
            
            
            72,000
            
            
            
            -
            
            
            
            106,000Total
                at June 30,
                2006
            
            $
            72,000
            
            
            $
            39,000
            
            
            $
            72,000
            
            
            $
            (24,000
            )
            
            $
            159,000Allowance
                for doubtful accounts
            
            $
            37,000
            
            
            $
            -
            
            
            $
            42,000
            
            
            $
            (19,000
            )
            
            $
            60,000Allowance
                for customer notes receivable
            
            
            16,000
            
            
            
            7,000
            
            
            
            -
            
            
            
            -
            
            
            
            23,000Inventory
                reserve
            
            
            106,000
            
            
            
            -
            
            
            
            -
            
            
            
            (15,000
            )
            
            
            91,000Total
                at June 30,
                2007
            
            $
            159,000
            
            
            $
            7,000
            
            
            $
            42,000
            
            
            $
            (34,000
            )
            
            $
            174,000








**ITEM
      9.       CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING****AND
      FINANCIAL DISCLOSURE**


NONE




**ITEM
      9A.    CONTROLS AND
      PROCEDURES**




*Disclosure
      Controls and Procedures*




Our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as amended) are designed to provide
      reasonable assurance that information required to be disclosed in our reports
      filed under that Act (the Exchange Act), such as this Annual Report on Form
      10-K, is




100


SUBSEQUENT
      EVENTS (CONT’D)




recorded,
      processed, summarized and reported within the time periods specified in the
      rules of the Securities and Exchange Commission.  Our disclosure
      controls and procedures also are designed to provide reasonable assurance that
      such information is accumulated and communicated to our management, including
      our Chief Executive Officer and Chief Financial Officer, to allow timely
      decisions regarding required disclosures.




Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and the Chief Financial Officer, evaluated the effectiveness
      of our disclosure controls and procedures in effect as of June 30,
      2007.  Based on that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that, as of June 30, 2007, our disclosure controls
      and procedures were effective to provide reasonable assurance that material
      information, relating to the Company and its consolidated subsidiaries, required
      to be included in our Exchange Act reports, including this Annual Report on
      Form
      10-K, is made known to management, including the Chief Executive Officer and
      Chief Financial Officer, on a timely basis.




*Changes
      in Internal Control Over Financial Reporting*




There
      have been no changes in our internal control over financial reporting that
      occurred during our fourth fiscal quarter ended June 30, 2007 that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.




*Management’s
      Report on Internal Control Over Financial Reporting*




Management
      of Collectors Universe, Inc. is responsible for establishing and maintaining
      adequate internal control over financial reporting as defined in Rules 13a-15(f)
      and 15d-15(f) under the Exchange Act. Our internal control over financial
      reporting is a process designed to provide reasonable assurance regarding the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with accounting principles generally
      accepted in the United States of America.  Internal control over
      financial reporting includes those written policies and procedures
      that:




•
            pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of our
                assets;




•
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with accounting
                principles generally accepted in the United States of
                America;




•
            provide
                reasonable assurance that our receipts and expenditures are being
                made
                only in accordance with authorization of our management and directors;
                and




•
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of assets that could
                have a
                material effect on our consolidated financial
                statements.




Internal
      control over financial reporting includes the controls themselves, monitoring
      and internal auditing practices and actions taken to correct deficiencies as
      identified.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  Also, projections of any evaluation
      of effectiveness to future periods are subject to the risks that controls may
      become inadequate because of changes in conditions or because the degree of
      compliance with the policies or procedures may deteriorate.




*Management’s
      Assessment and Determination*




Our
      management assessed the effectiveness of Collectors Universe’s internal control
      over financial reporting as of June 30, 2007, based on criteria for effective
      internal control over financial reporting described in “Internal Control –
Integrated Framework” issued by the Committee of Sponsoring Organizations of the
      Treadway Commission.  Management’s assessment included an evaluation
      of the design and the testing of the operational effectiveness of Collectors
      Universe’s internal control over financial reporting.  Management
      reviewed the results of its assessment with the Audit Committee of our Board
      of
      Directors.




101




SUBSEQUENT
      EVENTS (CONT’D)




Based
      on
      that assessment, management determined that, as of June 30, 2007, Collectors
      Universe, Inc. maintained effective internal control over financial
      reporting.




Grant
      Thornton LLP, independent registered public accounting firm, which audited
      and
      reported on our consolidated financial statements for the fiscal year ended
      June
      30, 2007 which are included in this Annual Report on Form 10-K, has issued
      an
      attestation report on management’s assessment of internal control over financial
      reporting, which is set forth below.




102


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**


**ON
      INTERNAL CONTROL OVER FINANCIAL REPORTING**




Board
      of
      Directors and Stockholders


Collectors
      Universe, Inc. and Subsidiaries:




We
      have
      audited management’s assessment, included in the accompanying Collectors
      Universe, Inc. and subsidiaries Management’s Report on Internal Control Over
      Financial Reporting, that Collectors Universe, Inc. and subsidiaries maintained
      effective internal control over financial reporting as of June 30, 2007, based
      on criteria established in Internal Control—Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission
      (COSO).  Collectors Universe, Inc. and subsidiaries’ management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting.  Our responsibility is to express an opinion on
      management’s assessment and an opinion on the effectiveness of the Company’s
      internal control over financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States).  Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      effective internal control over financial reporting was maintained in all
      material respects.  Our audit included obtaining an understanding of
      internal control over financial reporting, evaluating management’s assessment,
      testing and evaluating the design of the operating effectiveness of internal
      control, and performing such other procedures as we considered necessary in
      the
      circumstances.  We believe that our audit provides a reasonable basis
      for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company’s internal
      control over financial reporting includes those policies and procedures that
      (1)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  Also, projections of any evaluation
      of effectiveness to future periods are subject to the risk that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with the policies or procedures may deteriorate.




In
      our
      opinion, management’s assessment that Collectors Universe, Inc. and subsidiaries
      maintained effective internal control over financial reporting as of June 30,
      2007, is fairly stated, in all material respects, based on criteria established
      in Internal Control—Integrated Framework issued by COSO.  Also in our
      opinion, Collectors Universe, Inc. and subsidiaries maintained, in all material
      respects, effective internal control over financial reporting as of June 30,
      2007, based on criteria established in Internal Control—Integrated Framework
      issued by COSO.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Collectors
      Universe, Inc. and subsidiaries as of June 30, 2007 and 2006, and the related
      consolidated statements of operations, stockholders’ equity, and cash flows for
      each of the three years ended June 30, 2007 and our report dated September
      10,
      2007 expressed an unqualified opinion thereon.




/s/
      GRANT
      THORNTON LLP




Irvine,
      California


September
      10, 2007




103


**ITEM
      9B.      OTHER
      INFORMATION**





None








**PART
      III**








**ITEM
      10.       DIRECTORS AND
      EXECUTIVE OFFICERS**




Except
      for information concerning the Company's executive officers, which is included
      in Part I of this Annual Report, the information required by Item 10 is
      incorporated by reference from the Company's definitive proxy statement,
      expected to be filed with the Commission on or before October 29, 2007, for
      the
      Company’s 2007 annual stockholders' meeting.




**ITEM
      11.       EXECUTIVE
      COMPENSATION**




The
      information required by Item 11 is incorporated herein by reference from the
      Company's definitive proxy statement, expected to be filed with the Commission
      on or before October 29, 2007, for the Company’s 2007 annual stockholders'
      meeting.




**ITEM
      12.       SECURITY OWNERSHIP
      OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**




Except
      for the information below regarding our equity compensation plans, the
      information required by Item 12 is incorporated herein by reference from
      the Company's definitive proxy statement, expected to be filed with the
      Commission on or before October 29, 2007, for the Company’s 2007 annual
      stockholders' meeting.




The
      following table provides information relating to our equity compensation plans
      as of June 30, 2007.




**Column
                A**
            
            
            **Column
                B**
            
            
            **Column
                C**Number
                of Securities to be Issued Upon Exercise of Outstanding Options,
                Warrants
                and Restricted Shares
            
            
            Weighted-Average
                Exercise Price of Outstanding Options, Warrants and Restricted
                Shares
            
            
            Number
                of Securities Remaining Available for Future Issuance under Equity
                Compensation Plans(Excluding Securities Reflected in Column
                A)Equity
                compensation plansapproved
                by stockholders
            
            
            956,000
            
            
            $
            13.07
            
            
            
            390,000Equity
                compensation not approvedby
                stockholders (1)
            
            
            163,000
            
            
            
            19.26
            
            
            
            -Total
            
            
            1,119,000
            
            
            $
            13.97
            
            
            
            390,000







(1)
            Warrants
                to purchase common stock granted to non-employee service providers
                in the
                fiscal year ended June 30, 1997, which is prior to the time that
                the
                Company became a reporting company under the Securities Exchange
                Act of
                1934, as amended.




**ITEM
      13.    CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**




The
      information required by Item 13 is incorporated herein by reference from the
      Company's definitive proxy statement, expected to be filed with the Commission
      on or before October 29, 2007, for the Company’s 2007 annual stockholders’
meeting.




**ITEM
      14.    PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**




The
      information required by Item 14 is incorporated herein by reference from the
      Company's definitive proxy statement, expected to be filed with the Commission
      on or before October 29, 2007, for the Company’s 2007 annual stockholders’
meeting.




104


**PART
      IV**







**ITEM
      15     EXHIBITS AND FINANCIAL
      STATEMENT SCHEDULES**




(a)(1)
            Financial
                Statements




The
      following financial statements are included in Item 8 of Form 10-K:




Report
                of Independent Registered Public Accounting FirmConsolidated
                Balance Sheets as of June 30, 2007 and 2006Consolidated
                Statements of Operations for the years ended June 30, 2007, 2006
                and
                2005Consolidated
                Statements of Stockholders’ Equity for the years ended June 30, 2007, 2006
                and 2005Consolidated
                Statements of Cash Flows for the years ended June 30, 2007, 2006
                and
                2005Notes
                to the Consolidated Financial
                Statements




(a)(2)
            Financial
                Statement Schedule




Schedule
                II Valuation and Qualifying AccountsOther
                schedules are omitted because the required information is either
                inapplicable or has been disclosed in the consolidated financial
                statements and notes thereto.







(a)(3)
            Exhibits




See
                Index to Exhibits immediately following the Signature Page of this
                Annual
                Report for a list of the Exhibits required, pursuant to Item 601
                of
                Regulation S-K, to be filed with this Annual Report.








105


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
      registrant has duly caused this Annual Report to be signed on its behalf by
      the
      undersigned thereunto duly authorized.











**COLLECTORS
                UNIVERSE, INC**Date:                     September
                13, 2007
            By:           /s/  JOSEPH
                J. WALLACEJoseph
                J. Wallace, Chief Financial Officer











**POWER
      OF ATTORNEY**





Each
      person whose signature to this Annual Report appears below hereby appoints
      Michael R. Haynes, Joseph J. Wallace and Michael J. Lewis, and any of them,
      individually, to act severally as attorneys-in-fact and agents, with power
      of
      substitution and resubstitution, for each of them, to sign on his or her behalf,
      individually and in the capacities stated below, and to file, any and all
      amendments to this Annual Report, which amendment or amendments may make changes
      and additions as such attorneys-in-fact may deem necessary or
      appropriate.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Annual Report
      has been signed by the following persons on behalf of the Registrant and in
      the
      capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                A. CLINTON ALLEN
              A.
                Clinton Allen
            
            Chairman
                of the Board and Director
            
            September
                13, 2007/s/
                MICHAEL R. HAYNES
              Michael
                R. Haynes
            
            Chief
                Executive Officer and Director
              (Principal
                Executive
                Officer)
            
            September
                13, 2007/s/
                DAVID
                HALL
              David
                G. Hall
            
            President
                and Director
            
            September
                13, 2007/s/
                JOSEPH J. WALLACE
              Joseph
                J. Wallace
            
            Chief
                Financial Officer
              (Principal
                Financial and
                Accounting Officer)
            
            September
                13, 2007/s/
                VAN D. SIMMONS
              Van
                D. Simmons
            
            Director
            
            September
                13, 2007/s/
                A. J. BERT MOYER
              A.
                J. Bert Moyer
            
            Director
            
            September
                13, 2007/s/
                DEBORAH A. FARRINGTON
              Deborah
                A. Farrington
            
            Director
            
            September
                13, 2007/s/
                MICHAEL J. MCCONNELL
              Michael
                J. McConnell
            
            Director
            
            September
                13, 2007/s/
                BRUCE A. STEVENS
              Bruce
                A. Stevens
            
            Director
            
            September
                13, 2007








S-1


**INDEX
      TO EXHIBITS**




**Exhibit
                No.**
            
            **Description**1.1
            
            Form
                of Underwriting Agreement.*1.2
            
            Form
                of Underwriting Agreement between Collectors Universe and Thomas
                Weisel
                Partners LLC, Needham & Company, Inc. and Roth Capital Partners
                LLC.  Incorporated by reference to Exhibit 1.1 to Amendment No.
                1 to the Company’s Registration Statement on Form S-3 (File No.
                333-122129), filed
              on
                February 14, 2005.3.2
            
            Amended
                and Restated Certificate of Incorporation of Collectors
                Universe.  Incorporated by reference to Exhibit 3.2 to the
                Company’s Registration Statement on Form S-3 (File No. 333-122129), filed
                on January 19, 2005.3.2.1
            
            Certificate
                of Amendment to Amended and Restated Certificate of Incorporation
                of
                Collectors Universe.  Incorporated by reference to Exhibit 3.2.1
                to the Company’s Registration Statement on Form S-3 (File No. 333-122129),
                filed on January 19, 2005.3.3
            
            Amended
                and Restated Bylaws of Collectors Universe, as adopted September
                1,
                1999.*4.1
            
            Registration
                Rights Agreement.*4.2
            
            Form
                of Registration Rights Agreement for Stockholders pursuant to private
                placement.*5.1
            
            Opinion
                of Stradling Yocca Carlson & Rauth, a Professional
                Corporation.*10.1
            
            Collectors
                Universe 1999 Stock Incentive Plan.*10.2
            
            Form
                of Stock Option Agreement for the Collectors Universe 1999
                Plan.*10.4
            
            PCGS
                1999 Stock Incentive Plan.*10.5
            
            Form
                of Stock Option Agreement for the PCGS 1999 Plan.*10.6
            
            Employee
                Stock Purchase Plan.*10.7
            
            Form
                of indemnification Agreement.*10.8
            
            Asset
                Acquisition Agreement dated January 25, 1999 between Professional
                Coin
                Grading Service, Inc.,Info
                Exchange, Inc. and Brent Gutenkunst.*10.9
            
            Collectors
                Universe/eBay Mutual Services Term Sheet dated February 10, 1999,
                between
                the Company and eBay, Inc.*10.10
            
            Net
                Lease between Orix Searls Santa Ana Venture and Collectors Universe,
                dated
                June, 1999.*10.11
            
            Agreement
                for the Sale of Goods and Services dated March 31,1999, between the
                Company and DNA Technologies, *10.12
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Company
                and
                Hugh Sconyers.*10.13
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Company
                and
                BJ Searls.*10.14
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Company
                and
                Greg Bussineau.*10.15
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Company
                and
                Lyn F. Knight Rare Coins*10.16
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Company,Kingswood
                Coin Auction, LLC and the Members of Kingswood.*10.17
            
            Contribution
                and Acquisition Agreement dated February 3, 1999, between the Companyand
                Professional Coin Grading Service, Inc.*10.18
            
            Employment
                Agreement dated March 1999, between Superior Sportscard Auctions,
                LLC and
                Greg Bussineau.*10.19
            
            Employment
                Agreement dated March 5, 1999, between Lyn F. Knight, Lyn Knight
                Currency
                Auctions, Inc.and
                Collectors Universe.*10.24
            
            Asset
                Purchase Agreements between Collectors Universe, Inc. and Auctions
                by
                Bowers and Merena, Inc., Bowers and Merena Galleries, Inc. and Bowers
                and
                Merena Research, Inc. (Incorporated by reference to Exhibit 10.1
                to
                Registrant’s Current Report on Form 8-K, dated March 21,
                2000).*10.25
            
            Asset
                Purchase Agreements dated February 19, 2004 between Collectors Universe,
                Inc. and Spectrum Numismatics, Inc. (Incorporated by reference to
                Exhibit
                10.1 to Registrant’s Current Report on Form 8-K, dated February 19,
                2004).







E-1


**INDEX
      TO EXHIBITS**




(Continued)




**Exhibit
                No.**
            
            **Description**10.26
            
            Non-Competition
                Agreement dated February 19, 2004 between Collectors Universe, Inc.
                and
                Spectrum Numismatics, Inc. (Incorporated by reference to Exhibit
                10.2 to
                Registrant’s Current Report on Form 8-K, dated February 19,
                2004).10.27
            
            Collectors
                Universe 2003 Stock Incentive Plan.  Incorporated by reference
                to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (File
                No. 333-121035), filed on December 6, 2004.10.28
            
            Form
                of Stock Option Agreement for 2003 Stock Incentive
                Plan.  Incorporated by reference to Exhibit 10.2 to the
                Company’s Registration Statement on Form S-8 (File No. 333-121035), filed
                on December 6, 2004.10.29
            
            Form
                of Restricted Stock Purchase Agreement for 2003 Stock Incentive
                Plan.  Incorporated by reference to Exhibit 10.3 to the
                Company’s Registration Statement on Form S-8 (File No. 333-121035), filed
                on December 6, 2004.10.30
            
            Employment
                Agreement, dated January 1, 2003, between the Company and Michael
                Haynes.  Incorporated by reference to Exhibit 10.30 to the
                Company’s Registration Statement on Form S-3 (File No. 333-122129), filed
                on January 19, 2005.10.30.1
            
            First
                Amendment to Employment Agreement, dated October 1, 2003, between
                the
                Company and Michael Haynes. Incorporated by reference to Exhibit
                10.30.1
                to the Company’s Registration Statement on Form S-3 (File No. 333-122129),
                filed on January 19, 2005.10.30.2
            
            Second
                Amendment to Employment Agreement, dated November 1, 2004, between
                the
                Company and Michael Haynes. Incorporated by reference to Exhibit
                10.30.2
                to the Company’s Registration Statement on Form S-3 (File No. 333-122129),
                filed on January 19, 2005.10.31
            
            2005
                Management Bonus Plan.  Incorporated by reference to Exhibit
                10.99 to the Company’s Quarterly Report onForm
                10-Q for the quarter
              ended
                December 31, 2004, filed with the Commission on February 14,
                200510.32
            
            Loan
                and Security Agreement between Collectors Finance Corporation and
                California Bank & Trustdated
                as of June 30, 2005.10.33
            
            Continuing
                Guaranty issued as of June 30, 2005 by Collectors Universe, Inc.
                to
                California Bank & Trust.10.34
            
            Asset
                Purchase Agreement among Collectors universe, inc., Gemprint Corporation,
                CVF Technologies Corporation, Heptagon Investments Ltd. and 1456733
                Ontario, Inc., dated November 25, 2005, providing for the Company’s
                acquisition of the assets of Gemprint Corporation.  Incorporated
                by reference to Exhibit 10.34 to the Company’s Quarterly Report on Form
                10-Q for the quarter ended December 31, 2005, filed with the Commission
                on
                February 9, 2006.10.35
            
            Employment
                Agreement Extension between Collectors Universe, Inc. and Michael
                R.
                Haynes.  Incorporated by reference to Exhibit 10.1 to the
                Company’s Current Report on Form 8-K dated March 17, 2006 and filed with
                the Commission on March 23, 2006.10.36
            
            2006
                Management Bonus Plans.  Incorporated by reference to Exhibit
                10.1 to the Company’s Current Report on Form 8-K dated March 17, 2006 and
                filed with the Commission on March 23, 2006.10.37
            
            Employment
                Agreement Extension between Collectors Universe, Inc. and Michael
                R.
                Haynes.  Incorporated by reference to Exhibit 10.1 to the
                Company’s Current Report on Form 8-K dated September 19,
                2006.10.38
            
            Description
                of 2007 Management Bonus Plan.  Incorporated by reference to
                Exhibit 99.1 to the Company’s Current Report on Form 8-K dated November
                17, 2006.10.39
            
            Letter
                Agreement dated July 23, 2007 with Michael J. McConnell, relating
                to his
                election to and service on the Collectors Universe, Inc. Board of
                Directors.  Incorporated by reference to Exhibit 99.1 to the
                Company’s Current Report on Form 8-K dated July 20,
                2007.21.1
            
            Subsidiaries
                of the Registrant.23.1
            
            Consent
                of Independent Registered Public Accounting Firm31.1
            
            Certifications
                of CEO Under Section 302 Of The Sarbanes-Oxley Act.31.2
            
            Certifications
                of CFO Under Section 302 Of The Sarbanes-Oxley Act.32.1
            
            CEO
                Certification of Periodic Report Under Section 906 of the Sarbanes-Oxley
                Act.32.2
            
            CFO
                Certification of Periodic Report Under Section 906 of the Sarbanes-Oxley
                Act.







*
            Incorporated
                by reference to the same numbered exhibit to the Company’s Registration
                Statement (No. 333-86449) on Form S-1 filed with the Commission on
                September 2, 1999.














E-2