UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q





(Mark
      One)ý
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarter ended March 31, 2009ORq
            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 0-27887COLLECTORS
      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 and zip code)Registrant's
      telephone number, including area code: (949)
  567-1234





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. YesýNoo





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





Large
      accelerated filer o
            Accelerated
      filer ý
            Non-accelerated
      filer o
            Smaller
      reporting company o





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


YES  o   NO  x


Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.


Class
            Outstanding at  April 28,
      2009Common
      Stock $.001 Par Value
            9,158,343








COLLECTORS
UNIVERSE, INC.


QUARTERLY
REPORT ON FORM 10-Q


FOR
THE QUARTER ENDED MARCH 31, 2009





TABLE
OF CONTENTS





PART
      I
                Financial
      Information
                PageItem 1.
                Financial Statements:Condensed Consolidated Balance Sheets as of March 31, 2009
      and June 30, 2008 (unaudited)
                1Condensed
      Consolidated Statements of Operationsfor
      the Three and Nine Months Ended March 31, 2009 and 2008
      (unaudited)
                2Condensed
      Consolidated Statements of Cash Flowsfor
      the Nine Months Ended March 31, 2009 and 2008
    (unaudited)
                3Notes to Condensed Consolidated Financial Statements
      (unaudited)
                4Item 2.
                Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                19Forward Looking Information
                19Our Business
                19Overview of Results of Operations for the Three and Nine
      Months Ended March 31, 2009 and 2008
                20Factors That Can Affect Our Financial Position and
      Operating Results
                21Trends and Challenges in our Businesses
                22Critical Accounting Policies and
      Estimates
                23Results of Operations–For the Three and Nine Months
      Ended March 31, 2009 and 2008
                25Liquidity and Capital Resources
                31Risks and Uncertainties That Could Affect Our
      Future Financial Performance
                33Item 2A.
                Quantitative and Qualitative Disclosures About Market
      Risk
                36Item 3
                Controls and Procedures
                36PART II
                Other InformationItem 1A.
                Risk Factors
                36Item 5.
                Other Information
                37Item 6.
                Exhibits
                37SIGNATURES
                
                S-1INDEX TO EXHIBITS
                E-1EXHIBITSExhibit 31.1
                Certifications of Chief Executive Officer Under
      Section 302 of the Sarbanes-Oxley ActExhibit 31.2
                Certifications of Chief Financial Officer Under
      Section 302 of the Sarbanes-Oxley ActExhibit 32.1
                Chief Executive Officer Certification Under Section
      906 of the Sarbanes-Oxley ActExhibit 32.2
                Chief Financial Officer Certification Under Section
      906 of the Sarbanes-Oxley ActExhibit 10.99
                Separation Agreement and Mutual Release dated as
      of March 16, 2009 between the Company and Michael R.
      Haynes





i


PART
1 – FINANCIAL INFORMATION


ITEM
1.                                                               FINANCIAL
STATEMENTS


COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS


(in
thousands, except per share data)


(unaudited)


March
      31,
                    
                    
                    June
      30,2009
                    
                    
                    2008ASSETSCurrent
      assets:Cash and cash
      equivalents
                    
                    $
                    20,771
                    
                    
                    $
                    23,345Accounts receivable, net of
      allowance of$24 at
      March 31, 2009and
      $29 at June 30,
      2008
                    
                    
                    1,325
                    
                    
                    
                    1,214Refundable income
      taxes
                    
                    
                    142
                    
                    
                    
                    575Inventories, net
                    
                    
                    533
                    
                    
                    
                    961Prepaid expenses and other current
      assets
                    
                    
                    1,054
                    
                    
                    
                    803Customer notes receivable, net of allowance of $31 at
      March 31, 2009 and at June 30, 2008
                    
                    
                    3,015
                    
                    
                    
                    2,062Net deferred income tax
      asset
                    
                    
                    63
                    
                    
                    
                    486Customer notes receivables held
      for sale
                    
                    
                    -
                    
                    
                    
                    3,579Receivables from sale of net
      assets of discontinued operations
                    
                    
                    142
                    
                    
                    
                    92Current assets from discontinued
      operations held for sale
                    
                    
                    800
                    
                    
                    
                    448Total current
    assets
                    
                    
                    27,845
                    
                    
                    
                    33,565Property and equipment,
      net
                    
                    
                    1,224
                    
                    
                    
                    1,628Goodwill
                    
                    
                    2,626
                    
                    
                    
                    2,626Intangible assets,
    net
                    
                    
                    3,676
                    
                    
                    
                    5,732Net deferred income tax
      assets
                    
                    
                    -
                    
                    
                    
                    909Customer note receivable, net of
      current portion
                    
                    
                    175
                    
                    
                    
                    -Note receivable from sale of
      discontinued operations
                    
                    
                    323
                    
                    
                    
                    138Other assets
                    
                    
                    65
                    
                    
                    
                    126Non-current assets of discontinued
      operations held for sale
                    
                    
                    152
                    
                    
                    
                    7,294$
                    36,086
                    
                    
                    $
                    52,018LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts payable
                    
                    $
                    1,147
                    
                    
                    $
                    1,349Accrued
liabilities
                    
                    
                    1,431
                    
                    
                    
                    1,546Accrued compensation and
      benefits
                    
                    
                    1,297
                    
                    
                    
                    1,269Income taxes
    payable
                    
                    
                    347
                    
                    
                    
                    368Deferred revenue
                    
                    
                    2,195
                    
                    
                    
                    2,002Current liabilities of
      discontinued operations held for sale
                    
                    
                    1,923
                    
                    
                    
                    1,034Total current
      liabilities
                    
                    
                    8,340
                    
                    
                    
                    7,568Deferred
      rent
                    
                    
                    193
                    
                    
                    
                    195Net
      deferred income tax liability
                    
                    
                    305
                    
                    
                    
                    -Long-term
      liabilities of discontinued operations held for sale
                    
                    
                    2,632
                    
                    
                    
                    425Commitments
      and contingenciesPreferred
      stock, $.001 par value; 3,000 shares authorized at March 31, 2009;5,000
      at June 30, 2008; no shares issued or outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.001 par value; 20,000 shares authorized at March 31, 2009 and
      45,000at
      June 30, 2008; outstanding 9,158
                      at March 31, 2009 and 8,361 at June 30, 2008
                    
                    
                    9
                    
                    
                    
                    8Additional
      paid-in capital
                    
                    
                    75,881
                    
                    
                    
                    75,996Accumulated
      deficit
                    
                    
                    (51,274
                    )
                    
                    
                    (32,174
                    )Total stockholders'
      equity
                    
                    
                    24,616
                    
                    
                    
                    43,830$
                    36,086
                    
                    
                    $
                    52,018





See
accompanying notes to condensed consolidated financial
statements.


1


COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(in
thousands, except per share data)


(unaudited)





Three
      Months Ended
                    
                    
                    Nine
      Months EndedMarch
      31,
                    
                    
                    March
      31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Net
      Revenues:Grading, authentication and
      related services
                    
                    $
                    9,119
                    
                    
                    $
                    10,326
                    
                    
                    $
                    25,875
                    
                    
                    $
                    28,958Product sales
                    
                    
                    196
                    
                    
                    
                    21
                    
                    
                    
                    299
                    
                    
                    
                    9139,315
                    
                    
                    
                    10,347
                    
                    
                    
                    26,174
                    
                    
                    
                    29,871Cost
      of Revenues:Grading, authentication and
      related services
                    
                    
                    3,910
                    
                    
                    
                    4,908
                    
                    
                    
                    11,770
                    
                    
                    
                    14,218Product sales
                    
                    
                    200
                    
                    
                    
                    20
                    
                    
                    
                    506
                    
                    
                    
                    8274,110
                    
                    
                    
                    4,928
                    
                    
                    
                    12,276
                    
                    
                    
                    15,045Gross profit
                    
                    
                    5,205
                    
                    
                    
                    5,419
                    
                    
                    
                    13,898
                    
                    
                    
                    14,826Operating
      expenses:Selling and marketing
      expenses
                    
                    
                    1,058
                    
                    
                    
                    1,514
                    
                    
                    
                    3,304
                    
                    
                    
                    3,980General and administrative
      expenses
                    
                    
                    3,086
                    
                    
                    
                    3,287
                    
                    
                    
                    9,552
                    
                    
                    
                    9,900Impairment
loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,516
                    
                    
                    
                    -Amortization of intangible
      assets
                    
                    
                    253
                    
                    
                    
                    202
                    
                    
                    
                    717
                    
                    
                    
                    543Total operating
      expenses
                    
                    
                    4,397
                    
                    
                    
                    5,003
                    
                    
                    
                    15,089
                    
                    
                    
                    14,423Operating
      income (loss)
                    
                    
                    808
                    
                    
                    
                    416
                    
                    
                    
                    (1,191
                    )
                    
                    
                    403Interest
      income, net
                    
                    
                    53
                    
                    
                    
                    238
                    
                    
                    
                    252
                    
                    
                    
                    978Other
      income
                    
                    
                    2
                    
                    
                    
                    1
                    
                    
                    
                    14
                    
                    
                    
                    4Income
      (loss) before income taxes
                    
                    
                    863
                    
                    
                    
                    655
                    
                    
                    
                    (925
                    )
                    
                    
                    1,385Provision
      for income taxes
                    
                    
                    109
                    
                    
                    
                    384
                    
                    
                    
                    1,319
                    
                    
                    
                    662Income
      (loss) from continuing operations
                    
                    
                    754
                    
                    
                    
                    271
                    
                    
                    
                    (2,244
                    )
                    
                    
                    723Loss
      from discontinued operations, net of loss on sales ofdiscontinued
      businesses
                      (net
      of income taxes)
                    
                    
                    (5,542
                    )
                    
                    
                    (1,237
                    )
                    
                    
                    (14,765
                    )
                    
                    
                    (3,242
                    )Net
      loss
                    
                    $
                    (4,788
                    )
                    
                    $
                    (966
                    )
                    
                    $
                    (17,009
                    )
                    
                    $
                    (2,519
                    )Net
      income (loss) per basic share:Income (loss) from continuing
      operations
                    
                    $
                    0.08
                    
                    
                    $
                    0.03
                    
                    
                    $
                    (0.25
                    )
                    
                    $
                    0.08Loss from discontinued operations, net of loss onsales
      of discontinued businesses
                      (net of income taxes)
                    
                    
                    (0.61
                    )
                    
                    
                    (0.13
                    )
                    
                    
                    (1.62
                    )
                    
                    
                    (0.35
                    )Net loss
                    
                    $
                    (0.53
                    )
                    
                    $
                    (0.10
                    )
                    
                    $
                    (1.87
                    )
                    
                    $
                    (0.27
                    )Net
      income (loss) per diluted share:Income (loss) from continuing
      operations
                    
                    $
                    0.08
                    
                    
                    $
                    0.03
                    
                    
                    $
                    (0.25
                    )
                    
                    $
                    0.08Loss from discontinued
      operations, net of loss on sales ofdiscontinued
                      businesses (net of income taxes)
                    
                    
                    (0.61
                    )
                    
                    
                    (0.13
                    )
                    
                    
                    (1.62
                    )
                    
                    
                    (0.35
                    )Net
      loss
                    
                    $
                    (0.53
                    )
                    
                    $
                    (0.10
                    )
                    
                    $
                    (1.87
                    )
                    
                    $
                    (0.27
                    )Weighted
      average shares outstanding:Basic
                    
                    
                    9,083
                    
                    
                    
                    9,317
                    
                    
                    
                    9,103
                    
                    
                    
                    9,322Diluted
                    
                    
                    9,110
                    
                    
                    
                    9,406
                    
                    
                    
                    9,103
                    
                    
                    
                    9,468Dividends
      declared per common share
                    
                    $
                    -
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.25
                    
                    
                    $
                    0.75








See
accompanying notes to condensed consolidated financial
statements.


2


COLLECTORS
UNIVERSE, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)


Nine
      Months Ended
                          March
      31,2009
                        
                        
                        2008OPERATING
      ACTIVITIES:Net loss
                        
                        $
                        (17,009
                        )
                        
                        $
                        (2,519
                        )Adjustments to reconcile net
      loss to net cash provided by (used in) operating
    activities:Depreciation and
      amortization
                        
                        
                        1,136
                        
                        
                        
                        999Interest on note
      receivable
                        
                        
                        (1
                        )
                        
                        
                        (7
                        )Impairment loss
                        
                        
                        1,516
                        
                        
                        
                        -Stock-based compensation
      expense
                        
                        
                        632
                        
                        
                        
                        802Gain on sale of note
      receivable
                        
                        
                        (9
                        )
                        
                        
                        -Provision (recovery) for bad
      debts and credits
                        
                        
                        (1
                        )
                        
                        
                        4Provision for inventory write
      down
                        
                        
                        172
                        
                        
                        
                        10Discontinued
      operations
                        
                        
                        14,765
                        
                        
                        
                        3,242Deferred income
      taxes
                        
                        
                        1,205
                        
                        
                        
                        (1,434
                        )Changes
      in operating assets and liabilities:Accounts
    receivable
                        
                        
                        (110
                        )
                        
                        
                        (405
                        )Inventories
                        
                        
                        255
                        
                        
                        
                        (665
                        )Prepaid expenses and other
      current assets
                        
                        
                        (205
                        )
                        
                        
                        (126
                        )Refundable income
      taxes
                        
                        
                        434
                        
                        
                        
                        120Income taxes
      payable
                        
                        
                        (21
                        )
                        
                        
                        2Other assets
                        
                        
                        51
                        
                        
                        
                        13Accounts
payable
                        
                        
                        (202
                        )
                        
                        
                        (220
                        )Accrued
    liabilities
                        
                        
                        (90
                        )
                        
                        
                        (49
                        )Deferred rent and other
      long-term liabilities
                        
                        
                        (3
                        )
                        
                        
                        (72
                        )Accrued compensation and
      benefits
                        
                        
                        28
                        
                        
                        
                        (604
                        )Deferred
revenue
                        
                        
                        193
                        
                        
                        
                        283Net cash provided by (used in)
      operating activities
                        
                        
                        2,736
                        
                        
                        
                        (626
                        )Net
      cash used in operating activities of discontinued
    businesses
                        
                        
                        (5,523
                        )
                        
                        
                        (3,035
                        )CASH
      FLOWS FROM INVESTING ACTIVITIES:Capital
      expenditures
                        
                        
                        (50
                        )
                        
                        
                        (809
                        )Proceeds
      from sale of property and equipment
                        
                        
                        -
                        
                        
                        
                        63Advances
      on customer notes receivable
                        
                        
                        (2,446
                        )
                        
                        
                        (5,343
                        )Proceeds
      from collection of customer notes receivable
                        
                        
                        4,882
                        
                        
                        
                        3,896Capitalized
      software
                        
                        
                        (249
                        )
                        
                        
                        (943
                        )Cash
      received on sales of discontinued businesses
                        
                        
                        489
                        
                        
                        
                        69Net cash provided by (used in)
      investing activities
                        
                        
                        2,626
                        
                        
                        
                        (3,067
                        )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock
      options
                        
                        
                        1
                        
                        
                        
                        242Proceeds from sale of common
      stock
                        
                        
                        161
                        
                        
                        
                        -Repurchase of common
      stock
                        
                        
                        (484
                        )
                        
                        
                        (1,329
                        )Dividends paid to common
      stockholders
                        
                        
                        (2,091
                        )
                        
                        
                        (6,404
                        )Net cash used in financing
      activities
                        
                        
                        (2,413
                        )
                        
                        
                        (7,491
                        )Net
      decrease in cash and cash equivalents
                        
                        
                        (2,574
                        )
                        
                        
                        (14,219
                        )Cash
      and cash equivalents at beginning of period
                        
                        
                        23,345
                        
                        
                        
                        42,386Cash
      and cash equivalents at end of period
                        
                        $
                        20,771
                        
                        
                        $
                        28,167SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest paid
                        
                        
                        10
                        
                        
                        $
                        15Income taxes paid
      (refund)
                        
                        
                        (331
                        )
                        
                        $
                        18


See
accompanying notes to condensed consolidated financial
statements.


3


COLLECTORS UNIVERSE, INC. AND
SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)





1.           SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation





The
accompanying unaudited interim condensed consolidated financial statements
include the accounts of Collectors Universe, Inc. and its subsidiaries (the
“Company” “we”, “us”, “our”).  At March 31, 2009, such subsidiaries
were Collectors Finance Corporation (“CFC”), Certified Asset Exchange, Inc.
(“CAE”), Expos Unlimited, Inc. (“Expos”), and American Gemological Laboratories,
Inc. (“AGL”), all of which are 100% owned by Collectors Universe,
Inc.  All intercompany transactions and accounts have been
eliminated.  On March 27, we sold certain assets including the trade
name of Gem Certification and Assurance Lab, Inc. (“GCAL”), which was 100% owned
by us (see note 7).





Unaudited
Interim Financial Information





The
accompanying interim condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”) for interim financial
reporting.   These interim condensed consolidated financial
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments and accruals) necessary
to present fairly the Condensed Consolidated Balance Sheets, Condensed
Consolidated Statements of Operations, and Condensed Consolidated Statements of
Cash Flows for the periods presented in accordance with accounting principles
generally accepted in the United States of America
(“GAAP”).  Operating results for the three and nine months ended March
31, 2009 are not necessarily indicative of the results that may be expected for
the year ending June 30, 2009 or for any other interim period during such
year.  Certain information and footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been omitted in
accordance with the rules and regulations of the SEC.  These interim
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, as
filed with the SEC.  Amounts related to disclosure of June 30, 2008
balances within these interim condensed consolidated financial statements were
derived from the aforementioned audited consolidated financial statements and
notes thereto included in that Annual Report on Form 10-K.





Reclassifications





Certain
prior period amounts have been reclassified to conform to the current period
presentation.  At March 31, 2009, we classified our paper currency,
diamond and colored gemstone grading businesses as discontinued operations held
for sale, and, accordingly, all periods presented in the Condensed Consolidated
Financial Statements have been restated to reflect the results of operations,
loss per share, cash flows and financial position of these businesses as
discontinued operations (see notes 7 and 10). During the second fiscal quarter
of 2009, we distributed a 10% stock dividend to our common stockholders, and, as
such, we restated the number of shares outstanding and the loss per share for
continuing and discontinued operations to give retroactive effect of the stock
dividend for those shares shown in the Consolidated Statements of Operations
prior to the stock dividend date of November 3, 2008.





Revenue
Recognition





Net
revenues consist primarily of fees generated from the authentication and grading
of coins, trading cards, autographs, and stamps.  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.  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.






4





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 EITF00-21, 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.





We
recognize product sales when items are shipped and the requirements of Staff
Accounting Bulletin No. 104, Revenue Recognition,issued
by the Securities and Exchange Commission (“SEC”), have been
satisfied.  Product sales consist primarily of collectible coins that
we purchased pursuant to our coin authentication and grading warranty program
and are not considered an integral part of the Company’s on-going revenue
generating activities.





Use
of Estimates





The
preparation of financial statements in conformity with GAAP 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 Condensed Consolidated
Financial Statements.  Examples of such estimates that could be
material to the Condensed Consolidated Financial Statements include capitalized
software, the valuation of stock-based compensation awards, the amount of
goodwill and the existence or non-existence of goodwill and other long-lived
assets impairments, warranty reserves, accrual for remaining lease obligations
of discontinued operations and income tax provisions.  Each of these
estimates, and the material impairment adjustments we made to our goodwill and
certain long-lived assets of our jewelry reporting units as of June 30, 2008 is
discussed in more detail in the Annual Report on Form 10-K for the fiscal year
ended June 30, 2008 included herein in this Interim Report on Form 10-Q for the
three and nine months ended March 31, 2009, respectively.





Goodwill and Other
Long-Lived 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 indefinite-lived intangible assets at least annually, or more
frequently if facts and circumstances indicate that impairment has occurred.
Under SFAS No. 144, Accounting
For the Impairment and Disposal of Long-Lived Assets, we are required to
evaluate the carrying values of all other tangible and intangible assets for
impairment as circumstances arise in which the carrying values of these assets
may not be recoverable on the basis of future undiscounted cash flows. During
the three and six months ended December 31, 2008, we recorded an impairment loss
of approximately $1,516,000 in connection with our Gemprint business on the
basis that the Gemprint technology and patents, trade name, capitalized software
and property and equipment were fully impaired.  The $1,516,000 was
recorded as impairment loss as part of the loss from continuing operations on
the Condensed Consolidated Statements of Operations for the nine months ended
March 31, 2009, since the Gemprint technology and related operations will be
retained by the Company, while the diamond grading operations of GCAL have been
sold. The amounts that were impaired by asset class were approximately
$1,307,000 for the Gemprint technology and patents, $131,000 for trade name,
$65,000 for software applications previously accounted for under SOP 98-1 (see
Capitalized Software
section in this note), $11,000 for a patent application and $2,000 in property
and equipment.  See also note 7 for information on impairments of
goodwill and other long-term assets associated with our discontinued operations
during the three and nine months ended March 31, 2009.





5


Stock-Based
Compensation Expense





In
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
Share-Based Payment,stock-based compensation cost is measured at the grant date of an award,
based on its fair value, and is recognized as expense over the employee’s
requisite service period, which is generally the vesting period.  The
following table shows total stock-based compensation expense included as part of
continuing operations in the Condensed Consolidated Statements of Operations for
the three and nine months ended March 31, 2009 and 2008:





Three
      Months Ended
                          March
      31,
                          (in
      thousands)
                        
                        
                        Nine
      Months Ended
                          March
      31,
                          (in
      thousands)Included in:
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Cost
      of revenues
                        
                        $
                        78
                        
                        
                        $
                        91
                        
                        
                        $
                        230
                        
                        
                        $
                        195Selling
      and marketing expenses
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (7
                        )General
      and administrative expenses(1)
                        
                        
                        29
                        
                        
                        
                        217
                        
                        
                        
                        402
                        
                        
                        
                        614Pre-tax
      stock-based compensation expense
                        
                        $
                        107
                        
                        
                        $
                        308
                        
                        
                        $
                        632
                        
                        
                        $
                        802





(1)
            Includes
      $15,000 and $199,000 in the three and nine months ended March 31, 2009,
      respectively, and $88,000 and $255,000 in the three and nine months ended
      March 31, 2008, respectively, for amortization of compensation expense
      related to issuances of restricted
stock.





For the
nine months ended March 31, 2009 and 2008, the Company estimated the rates of
forfeiture of outstanding non-vested stock-based compensation awards to be 5%
and 9%, respectively.





No
options were granted during the three and nine months ended March 31,
2009.  The following table presents information relative to the stock
options outstanding under all equity incentive plans as of March 31, 2009 and
stock option activity during the nine months ended March 31, 2009, as adjusted
to give retroactive effect to the 10% stock dividend that was declared on
September 26, 2008 and distributed on November 3, 2008 to all stockholders of
record as of October 21, 2008.  The closing per share prices of our
common stock as of June 30, 2008 and March 31, 2009 were $8.11 and $3.89,
respectively.





Shares
                      
                      
                      Weighted
      Average Exercise Price
                      
                      Weighted
      Average Remaining Contractual Term
                      
                      Aggregate
      Intrinsic
                        ValueOptions:Outstanding
      at June 30, 2008
                      
                      
                      927,200
                      
                      
                      $
                      12.54
                      
                      5.5
      yrs.
                      
                      $
                      314,000Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      (100
                      )
                      
                      
                      2.80Expired
                      
                      
                      (14,000
                      )
                      
                      
                      9.49Forfeited or
      cancelled
                      
                      
                      (246,500
                      )
                      
                      
                      13.47Outstanding at March 31,
      2009
                      
                      
                      666,600
                      
                      
                      $
                      12.25
                      
                      4.4
      yrs.
                      
                      $
                      49,600Exercisable at March 31,
      2009
                      
                      
                      554,500
                      
                      
                      $
                      12.20
                      
                      4.1
      yrs.
                      
                      $
                      49,600Unvested at March 31,
      2009
                      
                      
                      112,100
                      
                      
                      $
                      12.51
                      
                      5.9
      yrs.
                      
                      $
                      -Expect to vest at March 31,
      2009
                      
                      
                      107,900
                      
                      
                      $
                      12.51
                      
                      5.9
      yrs.
                      
                      $
                      -





The
aggregate intrinsic values of the options exercised during the nine months ended
March 31, 2009 and 2008 were $465 and $649,000, respectively.





The 107,900 options that were expected
to vest at March 31, 2009 are based on the current forfeiture rate of 5% and the
remaining vesting terms of the 112,100 unvested options at March 31,
2009.





During
the nine months ended March 31, 2009, approximately 52,300 options were vested
with an aggregate fair value of approximately $394,000.  During the
nine months ended March 31, 2008, approximately 53,900 options were vested with
an aggregate fair value of $401,000.






6





The
following table presents information regarding the numbers of non-vested
restricted shares that were granted or became vested during the nine months
ended March 31, 2009 and their weighted average grant-date fair
values.





Non-Vested Shares:
                  
                  Shares
                  
                  
                  Weighted
                    Average
                    Grant-Date
                    Fair
      ValueNon-vested
      at June 30, 2008
                  
                  
                  50,359
                  
                  
                  $
                  12.60Granted
                  
                  
                  77,778
                  
                  
                  
                  2.70Vested
                  
                  
                  (36,419
                  )
                  
                  
                  7.94Forfeited or
      Cancelled
                  
                  
                  (28,847
                  )
                  
                  
                  11.72Non-vested
      at March 31, 2009
                  
                  
                  62,871
                  
                  
                  $
                  3.46





The
following table sets forth total unrecognized compensation cost in the amount of
$288,000 related to non-vested stock-based awards expected to be recognized
through fiscal year 2012.  That amount and time periods do not include
the cost or effect of the possible grant of any additional stock-based
compensation awards in the future or any change that may occur in the Company’s
forfeiture percentage.





Fiscal
      Year Ending June 30,
                        
                        Amount2009
                        
                        $
                        100,0002010
                        
                        
                        149,0002011
                        
                        
                        29,0002012
                        
                        
                        10,000$
                        288,000





Concentrations





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





Financial Instruments and
Cash Balances.  At March 31, 2009, we had cash and cash
equivalents, totaling approximately $20,771,000, of which approximately
$19,312,000 were invested in U.S. government-secured money market
funds.  At March 31, 2009, the Company had approximately $1,459,000 in
non-interest bearing bank accounts for general day-to-day
operations.





Accounts
Receivable.  A substantial portion of accounts receivable are
due from collectibles dealers.  At March 31, 2009, one customer
accounted for approximately 12% of the total net accounts receivable balances of
$1,325,000; whereas, at June 30, 2008, three customers accounted for
approximately 36% of total net accounts receivable balances of $1,214,000
outstanding on that date.  The Company performs an analysis of the
expected collectability of accounts receivable based on several factors,
including the age and extent of significant past due accounts and economic
conditions or trends that may adversely affect the ability of account debtors to
pay their account receivable balances.  Based on that review, the
Company establishes an allowance for doubtful accounts, when
necessary.  The allowance for doubtful accounts receivable was $24,000
at March 31, 2009 and $29,000 at June 30, 2008.





Customer Notes
Receivables.  At March 31, 2009, the outstanding principal
amount of customer notes receivable, which evidenced advances made to customers,
totaled $3,190,000, net of a $31,000 allowance for uncollectible amounts, of
which $175,000 was classified as non-current customer notes receivable and
$3,015,000 was classified as current customer notes receivable.  At
March 31, 2009, the unpaid principal balance of one of those notes
receivable was greater than 10% of the aggregate of the unpaid principal
balances of all of the notes receivable that were outstanding at March 31, 2009
and represented 92% of the total principal amounts outstanding.  At
June 30, 2008, three customers’ loan balances, each greater than 10% of the
total notes receivable balances, represented 49% of the total principal balances
outstanding.






7




During
the nine months ended March 31, 2009, the Company sold, without recourse,
$3,554,000 of the aggregate principal amount of $3,579,000 classified as loans
held for sale at June 30, 2008 for an amount that was about 0.7% over the
aggregate principal amount of the loans. The proceeds from the sales are
included in the Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2009 as part of proceeds from collection of customer
notes receivable. As of March 31, 2009, approximately $25,000 of the $3,579,000
held for sale at June 30, 2008 was no longer held for sale.




Sources of
Revenues.  The authentication, grading and sales of collectible
coins accounted for approximately 61% and 58% of our net revenues for the three
and nine months ended March 31, 2009.  For the three and nine months
ended March 31, 2008, collectible coin revenues accounted for approximately 59%
and 59% of our net revenues, respectively.





Capitalized
Software





Through March 31, 2009, the Company had capitalized, in connection with
continuing operations, an aggregate of approximately $1,605,000 of software
development costs, net of accumulated amortization and impairment loss of
approximately $992,000 and $65,000, respectively, in accordance with Statement
of Position (“SOP”) 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use,and EITF 00-02,
Accounting for Website
Development Costs.In the three and nine months ended March 31, 2009, $0
and $249,000 of such costs were capitalized, and approximately $213,000 and
$504,000 were recognized as amortization expense,
respectively.  During the three and nine months ended March 31, 2008,
approximately $328,000 and $943,000 of such costs were capitalized, and $95,000
and $230,000 were recorded as amortization expense,
respectively.  Planning, training, support and maintenance costs
incurred either prior to or following the implementation phase of a software
project are recognized as expense in the period in which they are
incurred.  The Company evaluates the carrying values of capitalized
software to determine if those values are impaired, and, if necessary, an
impairment loss is recorded in the period in which an impairment
occurs.





Warranty
Costs





We offer a limited warranty covering the coins, trading cards, 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 at any time and either (i) receives a lower
grade upon that re-submittal or (ii) is determined not to have been
authentic, we will offer to purchase the collectible or, 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
re-submittal to us, is not in the same tamper resistant holder in which it was
placed at the time we last graded it.  To the extent that we purchase
an item under a warranty claim, we recognize as a reduction in our warranty
reserve the difference in value of the item at its original grade and its
re-graded estimated value.  We include in our inventory the re-graded
estimated value of the item.  We accrue for estimated warranty costs
based on historical trends and related experience.  Increased future
claims experience under our warranty program could increase to levels higher
than in the past which could result in additional warranty accruals in
anticipation of these claims, and our ongoing warranty accrual rate could
increase to cover potential higher claims in the future, both of which could
have a material adverse impact on our future results of operations.





Dividends





On September 26, 2008, the Board of Directors determined that, due to market and
economic conditions, including the liquidity crisis in the United States, the
prudent course of action would be to suspend the payment of cash dividends in
order to preserve the Company's cash resources.  At the same time, the
Board of Directors declared a 10% stock dividend on the Company's outstanding
shares distributed on November 3, 2008 to all stockholders of record as of
October 20, 2008.  The 10% stock dividend was recorded in the
accompanying Condensed Consolidated Balance Sheet as of the declaration date of
September 26, 2008 and all shares outstanding, stock option grants outstanding
and the weighted average number of shares used in the computation of the income
or loss per share for the three and nine months ended March 31, 2009 and 2008
were retroactively adjusted for the stock dividend as of the record date of
October 20, 2008.






8





Stock
Buyback Program





On October 8, 2008, the Company acquired from its CEO approximately 120,000
shares of the Company’s common stock, and the Company paid approximately
$484,000 in cash for these shares, or approximately $4.03 per
share.  The selling price of $4.03 was determined based on a 10%
discount from the volume weighted average price of the Company’s common stock on
October 8, 2008 of $4.48.  On October 9, 2008, two directors purchased
an aggregate of 40,000 shares from the Company for a selling price of $4.03, or
approximately $161,000.





Stockholder
Rights Plan





On January 9, 2009, the Company’s Board of Directors unanimously adopted a
limited duration stockholder rights plan. In accordance with ISS guidelines, the
Plan has an initial term of one year ending in January 2010, but may be extended
for two additional years if the Plan is approved by our stockholders on or prior
to the end of that initial one year term.





In connection with the adoption of the stockholder rights plan, the Board of
Directors declared a non-taxable distribution of rights to purchase shares of a
new series of preferred stock to all stockholders of record as of
January 23, 2009. Under the Plan, if anyone becomes the beneficial owner of
20 percent or more of the Company’s outstanding shares, then, subject to limited
exceptions, each right (other than those held by that person) will become
exercisable and entitle its holder to purchase, at the exercise price of the
right, a number of the Company’s shares having a market value of twice the
right’s exercise price. If anyone announces or commences a tender offer or
exchange offer for the Company’s shares, then, subject to limited exceptions,
each right will entitle its holder (other than the offeror) to purchase, at the
exercise price of the right, a number of the acquiring party’s shares having a
market value at that time of twice the right’s exercise price. Unless and until
either of those events occurs, the rights will not be exercisable, will trade
with the Company’s common stock and no rights certificates will be
issued.





Recent
Accounting Pronouncements





In April 2009, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) Financial Accounting Standard (FAS) 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. Based on the
guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with Statement of Financial Accounting Standards (SFAS)
No. 157 Fair Value
Measurements. This FSP is to be applied prospectively and is effective
for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The company
will adopt this FSP for its fiscal year ending June 30, 2009. There is no
expected impact on the Consolidated Financial Statements.




In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of
Other-Than-Temporary Impairments. The guidance applies to investments in
debt securities for which other-than-temporary impairments may be recorded. If
an entity’s management asserts that it does not have the intent to sell a debt
security and it is more likely than not that it will not have to sell the
security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to
credit losses (recorded in earnings), and 2) all other amounts (recorded in
other comprehensive income). This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
company will adopt this FSP for its fiscal year ending June 30, 2009. There
is no expected impact on the Consolidated Financial Statements.




In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles
Board (APB) 28-1 Interim
Disclosures about Fair Value of Financial Instruments. The FSP amends
SFAS No. 107 Disclosures
about Fair Value of Financial Instruments to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information. This FSP is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The company will include
the required disclosures, if any, in its interim period reporting following June
30, 2009.






9




In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which
became effective January 1, 2009 via prospective application to business
combinations. This Statement requires that the acquisition method of accounting
be applied to a broader set of business combinations, amends the definition of a
business combination, provides a definition of a business, requires an acquirer
to recognize an acquired business at its fair value at the acquisition date and
requires the assets and liabilities assumed in a business combination to be
measured and recognized at their fair values as of the acquisition date (with
limited exceptions). The company will adopt this Statement on July 1, 2009.
The impact upon adoption and its effects on future periods will depend on the
nature and significance of business combinations subject to this
statement.




In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. This FSP requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. Iffair value cannot be reasonably estimated, the asset or
liability would generally be recognized in accordance with SFAS No. 5,
Accounting for
Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount
of a Loss. Further, the FASB removed the subsequent accounting guidance
for assets and liabilities arising from contingencies from SFAS No. 141(R).
The requirements of this FSP carry forward without significant revision the
guidance on contingencies of SFAS No. 141, Business Combinations, which
was superseded by SFAS No. 141(R) (see previous paragraph). The FSP
also eliminates the requirement to disclose an estimate of the range of possible
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB requires that entities include only the disclosures
required by SFAS No. 5. This FSP will be adopted effective July 1,
2009. The impact upon adoption and its effects on future periods will depend on
the nature and significance of business combinations subject to this
statement.





In April 2008, the FASB issued FSP FAS 142-3, “Determination of Useful Life of
Intangible Assets”. The FSP states that in developing assumptions about
renewal or extension options used to determine the useful life of an intangible
asset, an entity needs to consider its own historical experience adjusted for
entity-specific factors.  In the absence of that experience, an entity
shall consider the assumptions that market participants would use about renewal
or extension options. This FSP is to be applied to intangible assets acquired
after January 1, 2009. The adoption of this FSP did not have an impact on
the Consolidated Financial Statements.




2.          CASH
AND CASH EQUIVALENTS





At March 31, 2009 and June 30, 2008, cash and cash equivalents consisted of
approximately $20,771,000 and $23,345,000, respectively, which was invested
primarily in money-market funds, which comprised of investments in
government-guaranteed securities.





3.
            FAIR
      VALUE MEASUREMENTS





In September 2006, the Financial Accounting Standards Board (“FASB”)
      issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value
      Measurements.  SFAS 157 defines fair value, establishes a
      framework for measuring fair value in accordance with U.S. GAAP, and
      expands disclosures about fair value measurements, SFAS 157 is effective
      for financial statements issued for fiscal years beginning after November
      15, 2007, and interim periods within those fiscal years.  In
      February 2008, the FASB issued SFAS No. 157-2, Effective Date of FASB
      Statement No. 157, which delays the effective date of SFAS 157 to
      fiscal years beginning after November 15, 2008 for all nonfinancial assets
      and nonfinancial liabilities, except for those that are recognized or
      disclosed at fair value in the financial statements on a recurring
      basis.  The Company has adopted the provisions of SFAS 157 as of
      July 1, 2008 for financial assets, including cash and cash equivalents,
      and SFAS 157-2 will be adopted as of July 1, 2009 for nonfinancial assets
      and nonfinancial liabilities.





SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes
      the inputs used in measuring fair value.  These tiers
      include:






10





Level 1-defined as observable inputs such as quoted prices in active
markets;





Level 2-defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and




Level 3-defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.





As of March 31, 2009, the Company held certain assets and liabilities that
are required to be measured at fair value on a recurring basis.  The
fair value of operating lease obligations of $3,740,000 is in connection with
the exiting of our jewelry grading businesses during the third quarter of fiscal
year 2009 (see note 7) and was recognized initially in our Condensed
Consolidated Balance Sheets at March 31, 2009. The fair value of these financial
assets and liabilities were determined using the following inputs at March
31, 2009:





(in
      thousands)Total
                                                  As
      of
                                                  March
      31, 2009
                                                
                                                
                                                Quoted
                                                  Prices
      in
                                                  Active
                                                  Markets
                                                  or
      Identical
                                                  Assets
                                                  (Level
      1)
                                                
                                                
                                                Significant
                                                  Other
                                                  Observable
                                                  Inputs
                                                  (Level
      2)
                                                
                                                
                                                Significant
                                                  Unobservable
                                                  Inputs
                                                  (Level
      3)Assets:Cash
      and cash equivalents
                                                
                                                $
                                                20,771
                                                
                                                
                                                $
                                                20,771
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -Liabilities:Operating lease obligations
                                                
                                                $
                                                3,740
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                3,740





In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities.SFAS No. 159 permits companies to
choose to measure at fair value certain financial instruments and other items
that are not currently required to be measured at fair value.  SFAS
No. 159 is effective for fiscal years beginning after November 15,
2007.  The Company adopted SFAS No. 159 on July 1, 2008 and elected
not to measure any additional financial instruments or other items at fair
value.





4.
            INVENTORIES





Inventories
      consist of the following:(in
      thousands)March
      31,
                            
                            
                            June
      30,2009
                            
                            
                            2008Coins
                            
                            $
                            377
                            
                            
                            $
                            750Other
      collectibles
                            
                            
                            55
                            
                            
                            
                            28Grading
      raw materials consumable inventory
                            
                            
                            212
                            
                            
                            
                            274644
                            
                            
                            
                            1,052Less
      inventory
      reserve
                            
                            
                            (111
                            )
                            
                            
                            (91
                            )Inventories,
      net
                            
                            $
                            533
                            
                            
                            $
                            961





11




5.           PROPERTY
AND EQUIPMENT





Property
      and equipment consist of the following:(in
      thousands)March
      31,
                    
                    
                    June
      30,2009
                    
                    
                    2008Coins,
      and stamp grading reference sets
                    
                    $
                    513
                    
                    
                    $
                    506Computer
      hardware and
      equipment
                    
                    
                    1,338
                    
                    
                    
                    1,579Computer
      software
                    
                    
                    990
                    
                    
                    
                    990Equipment
                    
                    
                    1,769
                    
                    
                    
                    1,932Furniture
      and office
      equipment
                    
                    
                    894
                    
                    
                    
                    886Leasehold
      improvements
                    
                    
                    680
                    
                    
                    
                    670Trading
      card reference
      library
                    
                    
                    52
                    
                    
                    
                    526,236
                    
                    
                    
                    6,615Less
      accumulated depreciation and amortization
                    
                    
                    (5,012
                    )
                    
                    
                    (4,987
                    )Property
      and equipment, net
                    
                    $
                    1,224
                    
                    
                    $
                    1,628





6.           ACCRUED
LIABILITIES





Accrued
      liabilities consist of the following:
                  
                  (in
      thousands)March
      31,
                  
                  
                  June
      30,2009
                  
                  
                  2008Warranty
      costs
                  
                  $
                  665
                  
                  
                  $
                  665Professional
      fees
                  
                  
                  180
                  
                  
                  
                  132Other
                  
                  
                  586
                  
                  
                  
                  749$
                  1,431
                  
                  
                  $
                  1,546





The following table presents the changes in the Company’s warranty reserve
during the nine months ended March 31, 2009 and 2008:





(in
      thousands)Nine
      Months
                    Ended
                    March
      31,
                  
                  
                  Nine
      Months
                    Ended
                    March
      31,2009
                  
                  
                  2008Warranty
      reserve, beginning of
      period
                  
                  $
                  665
                  
                  
                  $
                  725Charged
      to cost of
      revenues
                  
                  
                  403
                  
                  
                  
                  1,184Payments
                  
                  
                  (403
                  )
                  
                  
                  (1,239
                  )Warranty
      reserve, end of
      period
                  
                  $
                  665
                  
                  
                  $
                  670





7.
            DISCONTINUED
      OPERATIONS





In December 2008 and February 2009, the Company’s Board of Directors authorized
the sale of the paper currency grading business and the exiting of the jewelry
grading businesses, respectively; therefore, the balance sheet amounts related
to these businesses have been classified as assets and liabilities of
discontinued operations held for sale in the Condensed Consolidated Balance
Sheets for all periods shown. The jewelry grading businesses consisted of the
brand names GCAL, which consisted of the diamond grading business, and AGL,
which consisted of the colored gemstone grading business. The patented Gemprint
technology, which the Company acquired from Gemprint Corporation in 2005, was
not reclassified as part of discontinued operations, and, accordingly, its
results of operations continue to be shown as part of continuing operations,
along with our collectibles grading and authentication business, our CCE
subscription business, our CFC dealer-financing business and our collectibles
convention business in the Condensed Consolidated Financial Statements for all
periods shown. The results of operations, losses per share, and the cash flows
for the discontinued businesses are classified as loss from discontinued
operations in the Condensed Consolidated Statements of Operations and segregated
from other cash flows in the Condensed Consolidated Statements of Cash
Flows.






12





Jewelry
Grading Businesses





As previously reported in our Annual Report on Form 10-K for fiscal year 2008
and in our Quarterly Report on Form 10-Q for the three and six months ended
December 31, 2008, we recorded impairment losses in the Consolidated Statements
of Operations during those periods of $11,233,000 and $7,695,000, respectively,
in connection with our jewelry businesses, which also comprised our jewelry
operating segment (see note 10).  Those impairment losses were the
result of management’s assessment that the fair values of goodwill, other
intangible assets and property and equipment were determined to be less than the
then carrying values of those assets based upon future discounted and
undiscounted cash flows and, as a result, the carrying values of the goodwill
and intangible assets were fully impaired and were written down to
zero.  Additionally, the impairment loss of $7,695,000 recorded during
the three and six months ended December 31, 2008 included $1,516,000 of
impairment of the Gemprint technology, which has been presented in the nine
months ended March 31, 2009 as part of continuing operations as described in
note 1. At December 31, 2008, on the basis of an outside appraisal, the carrying
value of property and equipment were written down to their fair values of
approximately $1,568,000 and were classified as held and used at December 31,
2008.





During March 2009, the Company ceased operations in GCAL and AGL and announced
the Company’s plan to sell the assets of those businesses in an orderly manner.
During March, the Company sold the GCAL diamond grading business to GCAL’s
current president and former owner and received $370,000 in cash as full payment
for certain GCAL tangible and intangible assets including the rights to use the
GCAL trade name.  We recognized a loss on the disposal of GCAL and AGL
property and equipment of approximately $701,000, and recorded at the lower of
cost or market value the remaining unsold property and equipment of
approximately $630,000 as part of current assets of discontinued operations held
for sale at March 31, 2009.





At March 31, 2009, in accordance with SFAS No.146, Accounting for Costs Associated with
Exit or Disposal Activities (“SFAS No.146”) the Company recognized the
aggregate cost of the remaining lease obligations of approximately $3,740,000
for the two leased laboratory facilities for GCAL and AGL that we continue to
rent through December 31, 2015 and 2017, respectively.  Of that
liability of $3,740,000, approximately $3,110,000 was recorded as an expense in
the three and nine months ended March 31, 2009 and the balance of $630,000 had
previously been accrued as rent expense in accordance with GAAP.  This
liability, of which approximately $1,144,000 is estimated to be payable monthly
during the next 12 months and therefore is classified as part of current
liabilities of discontinued operations held for sale in the Condensed
Consolidated Balance Sheets as of March 31, 2009, is based on discounted cash
flows arising from future cash payments reduced by anticipated sublease
payments. During March 2009 in accordance with SFAS No.146, we also accrued an
aggregate expense of approximately $339,000 in connection with severances of
terminated employees.  In the three months ended March 31, 2009, we
recorded aggregate losses of approximately $4,150,000 in connection with the
closure of GCAL and AGL.





Currency
Grading Business





As reported on Form 10-Q for the three and six months ended December 31, 2008,
we classified our currency grading business as a discontinued operation held for
sale. In February 2009, we sold the assets of this business to Lyn Knight
Associates for approximately $354,000 in consideration of an initial cash
payment of $50,000 and a promissory note (the “Note”) with a face value of
$304,000 with annual payments of $50,000 due on the annual anniversary dates in
each year between February 2010 to February 2012 and a $154,000 payment due in
February 2013. The amounts due under the Note are classified as part of notes
receivable from sale of discontinued operations on the Condensed Consolidated
Balance Sheets as of March 31, 2009.  The present value of the Note at
March 31, 2009, net of discount of $59,000 based on an imputed interest rate of
7.25%, was approximately $245,000 and was recorded along with the $50,000
initial cash payment as net proceeds on the sale of this business. The discount
of $59,000 was recorded as an interest receivable and was classified as part of
other assets on the Condensed Consolidated Balance Sheet at March 31, 2009. A
net loss of $31,000 was recognized during the third quarter of fiscal 2009 as a
loss on the disposal of the currency grading business.






13





Collectibles
Sales Businesses





The operating results of the discontinued collectibles businesses that we
disposed of in fiscal 2004 and which are included in the accompanying
Consolidated Financial Statements are deemed to be immaterial to warrant further
disclosure.





The following table summarizes the losses recognized during the nine months
ended March 31, 2009 in connection with these discontinued businesses, of which
approximately $4,181,000 of those losses were recorded in the three months ended
March 31, 2009.





(in
      thousands)Property
      and Equipment:
                            
                            Jewelry
                            
                            
                            Currency
                            
                            
                            TotalCash
      Proceeds from sale of assets of discontinued businesses
                            
                            $
                            370
                            
                            
                            $
                            50
                            
                            
                            $
                            420Note
      receivable issued, net of discount of
      $59
                            
                            
                            -
                            
                            
                            
                            245
                            
                            
                            
                            245Total
      cash received and note receivable
      issued
                            
                            
                            370
                            
                            
                            
                            295
                            
                            
                            
                            665Less:Net book value of property and
      equipment and all other assets disposed of
                            
                            
                            (381
                            )
                            
                            
                            (326
                            )
                            
                            
                            (707
                            )Adjustments of net book values of property and equipment to reflect
      estimated market values
                              at March 31,
      2009
                            
                            
                            (692
                            )
                            
                            
                            -
                            
                            
                            
                            (692
                            )Loss
      on disposal of property and equipment and all other assetsduring
      the nine months
                              ended March 31,
      2009
                            
                            $
                            (703
                            )
                            
                            $
                            (31
                            )
                            
                            $
                            (734
                            )Employee and Operating Lease Termination
      Costs:Employee
      termination
      costs
                            
                            
                            (339
                            )
                            
                            
                            -
                            
                            
                            
                            (339
                            )Operating
      leases termination costs for
      facilities
                            
                            
                            (3,110
                            )
                            
                            
                            -
                            
                            
                            
                            (3,110
                            )Loss
      on disposal of discontinued businesses during the nine monthsended
      March 31,
      2009
                            
                            $
                            (4,152
                            )
                            
                            $
                            (31
                            )
                            
                            $
                            (4,183
                            )





The
operating results of the discontinued businesses that are included in the
accompanying Condensed Consolidated Statements of Operations are as
follows:





Three
      Months Ended
                  March
      31,
                
                
                Nine
      Months Ended
                  March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Net
      revenues
                
                $
                192
                
                
                $
                551
                
                
                $
                1,433
                
                
                $
                1,836Loss
      from operations of discontinued businesses
                
                
                (1,361
                )
                
                
                (1,957
                )
                
                
                (4,403
                )
                
                
                (5,270
                )Impairment
      losses
                
                
                -
                
                
                
                -
                
                
                
                (6,179
                )
                
                
                -Loss
      on sale of discontinued businesses
                
                
                (4,181
                )
                
                
                -
                
                
                
                (4,183
                )
                
                
                -Loss
      before income tax
      benefit
                
                
                (5,542
                )
                
                
                (1,957
                )
                
                
                (14,765
                )
                
                
                (5,270
                )Income
      tax
      benefit
                
                
                -
                
                
                
                720
                
                
                
                -
                
                
                
                2,028Loss
      from discontinued operations
                
                $
                (5,542
                )
                
                $
                (1,237
                )
                
                $
                (14,765
                )
                
                $
                (3,242
                )





14


The following table contains summary balance sheet information (in thousands)
with respect to the net assets and liabilities of the discontinued operations
held for sale that is included in the accompanying Condensed Consolidated
Balance Sheets as of March 31, 2009 and June 30, 2008.





March
      31,
                      2009
                    
                    
                    June
                      30,
      2008Current
      Assets:Accounts receivable,
      net
                    
                    $
                    141
                    
                    
                    $
                    199Assets held for
      sale
                    
                    
                    630
                    
                    
                    
                    -Inventories
                    
                    
                    -
                    
                    
                    
                    21Prepaid
    expenses
                    
                    
                    29
                    
                    
                    
                    228$
                    800
                    
                    
                    $
                    448Non-Current
      Assets:Property and
      equipment
                    
                    $
                    -
                    
                    
                    $
                    2,854Goodwill
                    
                    
                    -
                    
                    
                    
                    1,348Intangible asset,
      net
                    
                    
                    -
                    
                    
                    
                    2,763Other assets
                    
                    
                    152
                    
                    
                    
                    329$
                    152
                    
                    
                    $
                    7,294Current
      Liabilities:Accounts
    payable
                    
                    $
                    169
                    
                    
                    $
                    522Other accrued
      expenses
                    
                    
                    1,754
                    
                    
                    
                    430Deferred
    revenue
                    
                    
                    -
                    
                    
                    
                    82$
                    1,923
                    
                    
                    $
                    1,034Non-Current
      Liabilities:Lease
    obligations
                    
                    $
                    2,596
                    
                    
                    $
                    -Deferred rent
                    
                    
                    -
                    
                    
                    
                    389Other
    liabilities
                    
                    
                    36
                    
                    
                    
                    36$
                    2,632
                    
                    
                    $
                    425





8.
            INCOME
      TAXES





The
effective tax rates were a tax provision of 143% and a 48% tax benefit in the
nine months ended March 31, 2009 and 2008, respectively. The tax provision of
$1,319,000 for the nine months ended March 31, 2009 is primarily the result of a
valuation allowance of $1,204,000 recorded in the second quarter of fiscal 2009
as a result of the Company recognizing in that same quarter impairment losses of
$7,695,000 for its jewelry businesses. Although all but $1,516,000 of the
impairment loss, which was related to Gemprint, is classified in the Condensed
Consolidated Statement of Operations for the three and nine months ended March
31, 2009 as part of loss from discontinued operations, the applicable accounting
rules require that tax provisions or benefits that follow the establishment of
or adjustments to a valuation allowance against net deferred tax assets be
recorded as part of continuing operations. The tax provision of $109,000
recorded in the third quarter of fiscal 2009 is related to certain changes in
estimates used to prepare our June 30, 2008 income tax provision that changed
when our income tax returns were prepared in the third quarter of fiscal year
2009.





During
the three months ended March 31, 2009, approximately $433,000 of the $496,000 in
current net deferred tax asset as of December 31, 2008 was written off to
additional paid in capital leaving $63,000 in current net deferred tax assets in
the Condensed Consolidated Balance Sheet at March 31, 2009. These assets were
established for compensation expense recognized for non-employee supplier stock
options in 1999, and these options are expected to expire in the three months
ended June 30, 2009. It is expected that these options will expire unexercised
due to the exercise price of the options relative to the Company’s current share
price, and in accordance with SFAS 123R and related interpretations, the $63,000
will be recognized as a reduction to additional-paid-in capital upon expiration.
Deferred income tax liabilities of $305,000 are associated with timing
differences related to indefinite-lived intangible assets including goodwill
that are amortizable for income tax purposes but not for financial reporting
purposes under GAAP.






15





9           NET INCOME (LOSS)
PER SHARE





The
number of shares used in the computation of net income (loss) per share gives
retroactive effect to a 10% stock dividend that was distributed on November 3,
2008 to stockholders of record as of October 20, 2008.





The
aggregate numbers of shares subject to options and warrants that were excluded
from the computation of diluted loss per share, because they would have been
anti-dilutive in the calculation of diluted earnings per share, totaled
approximately 1,001,000 and 994,000 for the three months ended March 31, 2009
and 2008, respectively.  The aggregate numbers of options, warrants
and restricted shares excluded for the nine month periods ended March 31, 2009
and 2008 were 1,117,000 and 816,000, respectively.





10.
            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, trading cards, Gemprint and other high-end
collectibles.  Services provided by these segments include
authentication, grading, publication advertising, technology that provides for
non-invasive identification of diamonds and subscription-based
revenues.  The other collectibles segment is comprised of autographs,
stamps, the CCE subscription business, our CFC dealer financing business and our
collectibles conventions business.  During the third quarter of fiscal
2009, we excluded the paper currency grading business and our jewelry grading
businesses as part of continuing operations for all periods presented and
classified the operating results of this business as discontinued operations in
the Condensed Consolidated Statements of Operations (see note 7).





During
the second quarter of fiscal 2009, we recorded impairment losses related to
Gemprint in the amount of $1,516,000 (see note 1).  Goodwill in the
Condensed Consolidated Balance Sheets at June 30, 2008 and March 31, 2009 of
$2,626,000 consists of $515,000 related to the coins operating segment and
$2,111,000 related to the other operating segment; namely, Expos, our
collectibles convention business, and CCE, our dealer-to-dealer exchange
business.





We
allocate operating expenses to each service segment based upon each segment’s
activity level.  The following tables set forth on a business segment
basis, including reconciliation with the Condensed Consolidated Financial
Statements, (i) external revenues, (ii) amortization and depreciation, (iii)
stock-based compensation expense and impairment losses as significant other
non-cash transactions, and (iv) operating income (loss) for the three and nine
months ended March 31, 2009 and 2008. Net identifiable assets are provided by
business segment as of March 31, 2009 and June 30, 2008. All of our sales and
identifiable assets are located in the United States.


16








Three
      Months Ended
                      March
      31,
                    
                    
                    Nine
      Months Ended
                      March
      31,Net
      revenues from external customers:
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Coins
                    
                    $
                    5,686
                    
                    
                    $
                    6,154
                    
                    
                    $
                    15,051
                    
                    
                    $
                    17,720Trading cards
                    
                    
                    1,863
                    
                    
                    
                    2,226
                    
                    
                    
                    6,059
                    
                    
                    
                    6,710Gemprint
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    13
                    
                    
                    
                    3Other
                    
                    
                    1,766
                    
                    
                    
                    1,966
                    
                    
                    
                    5,051
                    
                    
                    
                    5,438Total revenue
                    
                    $
                    9,315
                    
                    
                    $
                    10,347
                    
                    
                    $
                    26,174
                    
                    
                    $
                    29,871Amortization
      and depreciation:Coins
                    
                    $
                    77
                    
                    
                    $
                    62
                    
                    
                    $
                    229
                    
                    
                    $
                    182Trading cards
                    
                    
                    46
                    
                    
                    
                    37
                    
                    
                    
                    140
                    
                    
                    
                    84Gemprint
                    
                    
                    -
                    
                    
                    
                    73
                    
                    
                    
                    102
                    
                    
                    
                    212Other
                    
                    
                    179
                    
                    
                    
                    99
                    
                    
                    
                    415
                    
                    
                    
                    267Total
                    
                    
                    302
                    
                    
                    
                    271
                    
                    
                    
                    886
                    
                    
                    
                    745Unallocated amortization and
      depreciation
                    
                    
                    79
                    
                    
                    
                    87
                    
                    
                    
                    250
                    
                    
                    
                    254Consolidated amortization and
      depreciation
                    
                    $
                    381
                    
                    
                    $
                    358
                    
                    
                    $
                    1,136
                    
                    
                    $
                    999Impairment
      losses:Coins
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Trading cards
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Gemprint
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,516
                    
                    
                    
                    -Other
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,516
                    
                    
                    
                    -Unallocated
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Consolidated impairment
      losses
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,516
                    
                    
                    $
                    -Stock-based
      compensation:Coins
                    
                    $
                    57
                    
                    
                    $
                    63
                    
                    
                    $
                    153
                    
                    
                    $
                    131Trading cards
                    
                    
                    -
                    
                    
                    
                    9
                    
                    
                    
                    -
                    
                    
                    
                    18Gemprint
                    
                    
                    4
                    
                    
                    
                    -
                    
                    
                    
                    4
                    
                    
                    
                    -Other
                    
                    
                    21
                    
                    
                    
                    33
                    
                    
                    
                    84
                    
                    
                    
                    78Total
                    
                    
                    82
                    
                    
                    
                    105
                    
                    
                    
                    241
                    
                    
                    
                    227Unallocated stock-based
      compensation
                    
                    
                    25
                    
                    
                    
                    203
                    
                    
                    
                    391
                    
                    
                    
                    575Consolidated stock-based
      compensation
                    
                    $
                    107
                    
                    
                    $
                    308
                    
                    
                    $
                    632
                    
                    
                    $
                    802Operating
      income (loss) before unallocated expenses:Coins
                    
                    $
                    2,018
                    
                    
                    $
                    1,984
                    
                    
                    $
                    4,628
                    
                    
                    $
                    4,925Trading cards
                    
                    
                    187
                    
                    
                    
                    374
                    
                    
                    
                    790
                    
                    
                    
                    1,317Gemprint
                    
                    
                    (136
                    )
                    
                    
                    (139
                    )
                    
                    
                    (2,051
                    )
                    
                    
                    (406
                    )Other
                    
                    
                    171
                    
                    
                    
                    226
                    
                    
                    
                    303
                    
                    
                    
                    753Total
                    
                    
                    2,240
                    
                    
                    
                    2,445
                    
                    
                    
                    3,670
                    
                    
                    
                    6,589Unallocated operating
      expenses
                    
                    
                    (1,432
                    )
                    
                    
                    (2,029
                    )
                    
                    
                    (4,861
                    )
                    
                    
                    (6,186
                    )Consolidated operating income
      (loss)
                    
                    $
                    808
                    
                    
                    $
                    416
                    
                    
                    $
                    (1,191
                    )
                    
                    $
                    403





17





March
      31,
                  
                  
                  June
      30,Identifiable
      Assets:
                  
                  2009
                  
                  
                  2008Coins
                  
                  $
                  2,706
                  
                  
                  $
                  3,346Trading cards
                  
                  
                  907
                  
                  
                  
                  1,035Gemprint
                  
                  
                  8
                  
                  
                  
                  1,613Other
                  
                  
                  8,909
                  
                  
                  
                  11,055Total
                  
                  
                  12,530
                  
                  
                  
                  17,049Unallocated
    assets
                  
                  
                  22,604
                  
                  
                  
                  27,521Discontinued
      operations
                  
                  
                  952
                  
                  
                  
                  7,448Consolidated
    assets
                  
                  $
                  36,086
                  
                  
                  $
                  52,018





18


ITEM 2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS








Forward-Looking Statements





The
discussion in this Item 2 and in Item 3 of this Quarterly Report (“Report”) on
Form 10-Q includes “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “1934
Act”).  Those Sections of the 1933 Act and 1934 Act provide a “safe
harbor” for forward-looking statements to encourage companies to provide
prospective information about their financial performance so long as they
provide meaningful, cautionary statements identifying important factors that
could cause actual results to differ from projected or anticipated
results.  Other than statements of historical fact, all statements in
this Report and, in particular, any projections of or statements as to our
expectations or beliefs concerning our future financial performance or financial
condition or as to trends in our business or in our markets, are forward-looking
statements.  Forward-looking statements often 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."  Our actual financial
performance in future periods may differ significantly from the currently
expected financial performance set forth in the forward-looking statements
contained in this Report.  The sections below entitled “Factors That
Can Affect our Financial Position and Operating Results” and “Risks and
Uncertainties That Could Affect our Future Financial Performance” describe some,
but not all, of the factors and the risks and uncertainties that could cause
these differences, and readers of this Report are urged to read those sections
of this Report in their entirety and to review certain additional risk factors
that are described in Item 1A of our Annual Report on Form 10-K, as filed
by us with the Securities and Exchange Commission (the “SEC”), for the fiscal
year ended June 30, 2008.





Due to
these and other possible uncertainties and risks, readers are cautioned not to
place undue reliance on the forward-looking statements contained in this Report,
which speak only as of the date of this Report, or to make predictions about
future performance based solely on historical financial
performance.  We also disclaim any obligation to update
forward-looking statements contained in this Report or in our Annual Report on
Form 10-K or any other prior filings with the SEC.





Our Business





Collectors
Universe, Inc. (“we”, “us” or the “Company”) provides grading and authentication
services to dealers and collectors of high-value coins, trading cards, event
tickets, autographs, memorabilia and stamps.  We believe that our
authentication and grading services add value to these collectibles by enhancing
their marketability and thereby providing increased liquidity to the dealers,
collectors and consumers that own, 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
other related services consisting of:  (i) the sale of
advertising on our websites; (ii) the sale of printed publications and
collectibles price guides and advertising in such publications and on our
website; (iii) the sale of membership subscriptions; in our Collectors Club
which is designed to attract interest in high-value collectibles among new
collectors; (iv) the sale of subscriptions to our CCE dealer-to-dealer
Internet bid-ask market for certified coins; and (v) the collectibles trade
show conventions that we conduct. We also generate revenues from sales of our
collectibles inventory, which is comprised primarily of collectible coins that
we have purchased under our coin grading warranty program; however, these
activities are not the focus of or an integral part of our
business.





Recent
Developments:





Discontinued
Operations.  In the three months ended March 31, 2009, our
Board of Directors approved a plan to discontinue and dispose of the Company’s
diamond and colored gemstone (“jewelry”) authentication and grading businesses,
which we closed effective March 2, 2009.  We are in the process
of disposing of the assets of those businesses and have established certain
accruals, primarily related to real estate lease obligations at March 31,
2009.  We are evaluating our patented Gemprint identification
technology (“Gemprint”) for the use in a licensing business.  In
addition, in the three months ended December 31, 2008, our Board of Directors
approved a plan to dispose of our currency grading and authentication business,
which was sold in February 2009.






19




Accordingly,
the assets and liabilities of the jewelry and currency authentication and
grading businesses have been classified as held for sale at March 31 2009, and
the operations of these businesses have been reclassified as discontinued
operations for all periods presented.  Our “Gemprint” business
continues to be part of continuing operations.  In addition, we
continue to classify as discontinued operations the remaining activities,
consisting of the disposition of our remaining collectibles inventories, of our
collectibles auctions and sales businesses which we disposed of in fiscal
2004.





For the
three and nine months ended March 31, 2009, we recorded losses from
discontinued operations, before taxes, of $5.5 million and $14.8 million,
respectively, as compared to losses from discontinued operations, before taxes,
of $2.0 million, and $5.3 million in the same three and nine month period
of 2008.  The increased loss in the three months ended March 31,
2009 was primarily attributable to the cost and losses recognized as a result of
the closure of our jewelry authentication and grading businesses effective
March 2, 2009.  The loss in the nine months ended March 31,
2009 also includes an impairment loss of $6.2 million in the carrying value of
the remaining goodwill and intangible assets recognized in the second quarter of
2009.  However, we expect such losses to decline substantially during
fiscal 2010, which will begin on July 1, 2009.  See “Results of
Continuing Operations and Discontinued Operations—Three and Nine Months ended
March 31, 2009 and 2008—Discontinued
Operations”.





Departure of Chief Executive
Officer. On
March 16, 2009, the Company announced the departure of the Company’s Chief
Executive Officer, effective April 1, 2009 and the hiring of Michael McConnell,
a director of the Company, as its interim Chief Executive Officer.  As
a result of his service on the Board, Mr. McConnell is familiar with the
Company’s businesses and has worked with our executive officers and other key
management employees.





Overview of Results of Operations for the Three and Nine Months
Ended March 31, 2009 and 2008





The
following table sets forth certain financial data, expressed as a percentage of
net revenues, derived from our interim Condensed Consolidated Statements of
Operations (included earlier in this Report) for the respective periods
indicated below:





Three
      Months Ended
                      March
      31,
                    
                    
                    Nine
      Months Ended
                      March
      31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Net
      revenues
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of revenues
                    
                    
                    44.1
                    %
                    
                    
                    47.6
                    %
                    
                    
                    46.9
                    %
                    
                    
                    50.4
                    %Gross
      profit
                    
                    
                    55.9
                    %
                    
                    
                    52.4
                    %
                    
                    
                    53.1
                    %
                    
                    
                    49.6
                    %Operating
      expenses:Selling and marketing
      expenses
                    
                    
                    11.4
                    %
                    
                    
                    14.6
                    %
                    
                    
                    12.6
                    %
                    
                    
                    13.3
                    %General and administrative
      expenses
                    
                    
                    33.1
                    %
                    
                    
                    31.8
                    %
                    
                    
                    36.5
                    %
                    
                    
                    33.1
                    %Amortization of intangible
      assets
                    
                    
                    2.7
                    %
                    
                    
                    2.0
                    %
                    
                    
                    2.7
                    %
                    
                    
                    1.9
                    %Impairment loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5.8
                    %
                    
                    
                    -Total operating
      expenses
                    
                    
                    47.2
                    %
                    
                    
                    48.4
                    %
                    
                    
                    57.6
                    %
                    
                    
                    48.3
                    %Operating
      income (loss)
                    
                    
                    8.7
                    %
                    
                    
                    4.0
                    %
                    
                    
                    (4.5
                    )%
                    
                    
                    1.3
                    %Interest
      income, net
                    
                    
                    0.5
                    %
                    
                    
                    2.3
                    %
                    
                    
                    0.9
                    %
                    
                    
                    3.3
                    %Other
      income
                    
                    
                    0.1
                    %
                    
                    
                    -
                    
                    
                    
                    0.1
                    %
                    
                    
                    -Income
      (loss) before provision for income taxes
                    
                    
                    9.3
                    %
                    
                    
                    6.3
                    %
                    
                    
                    (3.5
                    )%
                    
                    
                    4.6
                    %Provision
      (benefit) for income taxes
                    
                    
                    1.2
                    %
                    
                    
                    3.7
                    %
                    
                    
                    5.1
                    %
                    
                    
                    2.2
                    %Income
      (loss) from continuing operations after income taxes
                    
                    
                    8.1
                    %
                    
                    
                    2.6
                    %
                    
                    
                    (8.6
                    )%
                    
                    
                    2.4
                    %Loss
      from discontinued operations, net of gain on sales
                      Of discontinued businesses (net
      of income taxes)
                    
                    
                    (59.5
                    )%
                    
                    
                    (11.9
                    )%
                    
                    
                    (56.4
                    )%
                    
                    
                    (10.8
                    )%Net
      income (loss)
                    
                    
                    (51.4
                    )%
                    
                    
                    (9.3
                    )%
                    
                    
                    (65.0
                    )%
                    
                    
                    (8.4
                    %)








These, as
well as other factors affecting our operating results in the third quarter and
nine months ended March 31, 2009, are described in more detail
below.





20


Factors That Can Affect our Financial Position and Operating
Results





Factors that Can Affect our
Revenues.  Our authentication and grading fees, which accounted
for approximately 80% of our total net revenues in the nine months ended March
31, 2009, are primarily affected by (i) the volume and mix, among coins,
trading cards and other collectibles of authentication and grading submissions,
because we typically charge higher fees for coin grading than we do for the
grading of other collectibles; (ii) in the case of coins and trading cards,
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 trading cards, on the
one hand, and modern coins and trading cards, on the other hand, because dealers
generally request faster turn-around times for vintage or classic coins and
trading 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 trading cards.





Our
revenues are also impacted by the level of grading submissions and revenue
earned from such coin grading submissions at collectibles trade shows where we
provide on-site grading and authentication services to show attendees who
typically request same-day turn-around.  The level of such revenues
can vary depending upon a number of factors, including the number and timing of
the shows held during each reporting period, the number of dealers attending and
the volume of their coin transactions at such shows, which affect the volume of
submissions to us for on-site grading and same-day turn-around at the
shows.  Dealer show attendance and the volume of coin transactions at
the shows are, in turn, affected by economic and market conditions, such as
those we are experiencing currently, and are sometimes also affected by
short-term changes in the price of gold that may occur around the time shows are
held.





Six of
our coin authentication and grading customers accounted for, in the aggregate,
approximately 13% of our total net revenues in the nine months ended March 31,
2009, as compared to 11% in the year ended June 30, 2008.  As a
result, the loss of one or more 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 the profitability of our grading
and authentication operations.





Factors Affecting our
Gross Profit Margins.  The gross profit margins on
authentication and grading submissions also are primarily affected by the same
factors, described above, that have the greatest effect on our net revenues,
because we generally realize higher margins on coin submissions than on
submissions of other collectibles and we charge higher fees for faster service
times.  In addition, our margins are affected, to a lesser extent, by
the stage of development and the seasonality of certain of our smaller
businesses.  Furthermore, because a significant proportion of our
direct costs are generally fixed in nature (at least in the short term), our
gross profit also can be affected by the overall volume of collectibles
authenticated and graded in any period.  We expect our consolidated
gross profit margin to increase in fiscal 2010, due to the discontinuance of the
jewelry grading businesses on March 2, 2009, because the costs of revenues of
those businesses exceeded their net revenues, resulting in a negative gross
margin.




Impact of Economic Conditions on
Financial Performance.  We generate all of our revenues from
the collectibles markets.  Moreover, the demand for our services and,
therefore, our revenues, depend to a great extent on the volume of purchases and
sales of the high-value collectibles that we authenticate, because dealers and
collectors most often submit collectibles to us for authenticating and grading
in anticipation of or in connection with their sales and purchases of those
collectibles.   The volume of collectibles purchase and sale
transactions is primarily affected by (i) the disposable income available
to collectibles dealers and collectors, because high-value collectibles are
generally viewed as luxury goods and the confidence that collectibles
dealers and collectors have in the economy, which affects their ability and
their willingness to use their funds to purchase collectibles and to use our
services; (ii) the availability and cost of borrowings because collectibles
dealers and consumers often fund their purchases of collectibles with
borrowings, (iii) prevailing and anticipated rates of inflation, because
the threat of and actual increases in inflation lead investors and consumers to
purchase gold and silver coins as a hedge against inflation, which results in an
increase in collectibles commerce and, as a result, in the demand for our
services, and (iv) the performance and volatility of the gold and other
precious metals markets and the stock markets, which affects the level of
purchases and sales of collectible coins and, therefore the need and demand for
our services.  Accordingly, factors such as improving economic
conditions which usually result in increases in disposable income and consumer
confidence, volatility in and declines in the prices of stocks, a weakening in
the value of the U.S. Dollar and concerns about inflation, often lead investors
to increase their purchases of precious metals, such as gold bullion and other
coins and collectibles, which often results in increases in submissions of
collectibles to us for authentication and grading.  By contrast, the
volume of collectibles sales and purchases and, therefore, the volume of
authentication and grading submissions to us, usually declines during periods
characterized by recessionary economic conditions, declines in disposable income
and consumer confidence, reductions in the availability or increases in the
costs of financing, or increasing stock prices and relative stability in the
stock markets, which sometimes leads investors to move their funds from the gold
and precious metals markets to the stock market.






21




The
severity of the current economic recession in the United States, continued
uncertainty and worries about the ultimate severity and duration of the
recession, and the significant decreases as a result of the credit crisis in the
availability of borrowings on which collectibles dealers and collectors often
rely on to help them to fund purchases and, in the case of dealers, the carrying
costs in maintaining an inventory of high-value collectibles, have combined to
reduce disposable income, erode the confidence of consumers and small
businesses, such as those operated by collectibles dealers, and hence their
willingness and ability to purchase and sell collectibles and other high-value
assets.  As a result, in the three and nine months ended
March 31, 2009, we experienced declines in the demand for our services in
all of our grading and authentication markets.




In
addition, these economic and market conditions created increased uncertainties
for us with respect to the future financial performance of our jewelry
authentication and grading businesses, significantly diminishing their prospects
for generating increases in their revenues and achieving
profitability.  During the second fiscal quarter ended December 31,
2008, the revenues of those businesses declined by approximately 25% and, in the
early part of the third fiscal quarter, revenues continued to
decline.  As a result, the Board of Directors decided that the Company
should discontinue the jewelry businesses and, on March 2, 2009, we ceased
operating those businesses and began the process of disposing their
assets.  As a result of this decision, the operating results of the
jewelry businesses for the three and nine months ended March 31, 2009 and 2008
are reflected in our loss from discontinued operations in the Condensed
Consolidated Statement of Operations included in this Report.




The
following tables provide information regarding the respective numbers of coins,
trading cards, autographs, and stamps that were graded or authenticated by us in
the three and nine months ended March 31, 2009 and 2008 and their estimated
values, which are the amounts at which those coins, trading cards and stamps
were insured by the dealers and collectors who submitted them to us for grading
and authentication.





Units
      Processed
                    Three
      Months Ended March 31,
                  
                  
                  Declared
      Value (000)
                    Three
      Months Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Coins
                  
                  
                  404,600
                  
                  
                  
                  55.8
                  %
                  
                  
                  484,100
                  
                  
                  
                  55.5
                  %
                  
                  $
                  286,943
                  
                  
                  
                  91.9
                  %
                  
                  $
                  336,683
                  
                  
                  
                  90.4
                  %Trading
      cards
                  
                  
                  273,000
                  
                  
                  
                  37.7
                  %
                  
                  
                  327,000
                  
                  
                  
                  37.5
                  %
                  
                  
                  16,100
                  
                  
                  
                  5.2
                  %
                  
                  
                  25,865
                  
                  
                  
                  7.0
                  %Autographs
                  
                  
                  40,600
                  
                  
                  
                  5.6
                  %
                  
                  
                  49,000
                  
                  
                  
                  5.6
                  %
                  
                  
                  3,616
                  
                  
                  
                  1.2
                  %
                  
                  
                  4,514
                  
                  
                  
                  1.2
                  %Stamps
                  
                  
                  6,200
                  
                  
                  
                  0.9
                  %
                  
                  
                  12,400
                  
                  
                  
                  1.4
                  %
                  
                  
                  5,427
                  
                  
                  
                  1.7
                  %
                  
                  
                  5,321
                  
                  
                  
                  1.4
                  %Total
                  
                  
                  724,400
                  
                  
                  
                  100.0
                  %
                  
                  
                  872,500
                  
                  
                  
                  100.0
                  %
                  
                  $
                  312,086
                  
                  
                  
                  100.0
                  %
                  
                  $
                  372,383
                  
                  
                  
                  100.0
                  %





Units
      Processed
                    Nine
      Months Ended March 31,
                  
                  
                  Declared
      Value (000)
                    Nine
      Months Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Coins
                  
                  
                  1,024,200
                  
                  
                  
                  50.2
                  %
                  
                  
                  1,144,000
                  
                  
                  
                  49.6
                  %
                  
                  $
                  839,717
                  
                  
                  
                  90.3
                  %
                  
                  $
                  1,048,444
                  
                  
                  
                  90.8
                  %Trading
      cards
                  
                  
                  866,900
                  
                  
                  
                  42.5
                  %
                  
                  
                  975,500
                  
                  
                  
                  42.3
                  %
                  
                  
                  60,209
                  
                  
                  
                  6.5
                  %
                  
                  
                  67,863
                  
                  
                  
                  5.9
                  %Autographs
                  
                  
                  129,900
                  
                  
                  
                  6.3
                  %
                  
                  
                  143,800
                  
                  
                  
                  6.2
                  %
                  
                  
                  12,155
                  
                  
                  
                  1.3
                  %
                  
                  
                  21,148
                  
                  
                  
                  1.8
                  %Stamps
                  
                  
                  20,100
                  
                  
                  
                  1.0
                  %
                  
                  
                  43,800
                  
                  
                  
                  1.9
                  %
                  
                  
                  17,627
                  
                  
                  
                  1.9
                  %
                  
                  
                  17,308
                  
                  
                  
                  1.5
                  %Total
                  
                  
                  2,041,100
                  
                  
                  
                  100.0
                  %
                  
                  
                  2,307,100
                  
                  
                  
                  100.0
                  %
                  
                  $
                  929,708
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,154,763
                  
                  
                  
                  100.0
                  %








Trends and Challenges in our Businesses




During
the past three years, our costs of revenue and selling, general and
administrative expenses increased significantly due in large part to the costs
we were incurring to grow our jewelry businesses.  Those costs and
expenses substantially exceeded their revenue contributions and was the
principal cause of the increased operating losses that we incurred in the first
nine months of the current fiscal year.




During
the first quarter of 2009, we began implementing a cost reduction program in
order to reduce our costs of revenue and our operating expenses and, thereby,
bring those costs and expenses more in line with our revenues and, increase our
gross profits and operating income.  During the three months ended
March 31, 2009, we realized reductions in both our costs of revenues and
operating expenses and increased our cash flows due, in part, to this
program.






22




The
discontinuance of the operations of our jewelry businesses provides us with the
opportunity to realize even greater costs savings, which we believe will be
reflected in improved results of operation in future periods.




Critical Accounting Policies and Estimates





During
the nine months ended March 31, 2009, except as discussed below, there were no
changes in the critical accounting policies or estimates that were described in
Item 7 of our Annual Report on Form 10-K, filed with the SEC, for the fiscal
year ended June 30, 2008.  Readers of this report are urged to read
that Section of that Annual Report for a more complete understanding of our
critical accounting policies and estimates.





AccrualforLosses on FacilityLeases.At March 31, 2009, the
Company established accruals for the facility leases associated with the
Company’s discontinued grading and authentication jewelry
businesses.  Those lease accruals were based on estimates on a
discounted basis, of (i) market rental rates; (ii) the time required to sublet
the facility; and (iii) other direct costs associated with the
leases.  Such estimates are uncertain due to the current market
conditions and will need to be reviewed on a quarterly basis.





Grading Warranty
Costs.  We offer a limited warranty covering the coins, trading
cards, stamps and currency that we authenticate and grade.  Under the
warranty, if any such 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 resubmittal or (ii) is determined not to have been
authentic, we will offer to purchase the collectible or, 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 the item.  If we purchase an item
under a warranty claim, we recognize the difference in the value of the item at
its original grade and its re-graded estimated value as a reduction in our
warranty reserve.  We include the purchased item in our inventory at
the re-graded estimated value of the item.  We accrue for estimated
warranty costs based on historical trends and related
experience.  Certain warranty claims were received by us in the second
quarter and early in third quarter of fiscal 2008 that were significant in
relation to our historical claims experience and, as a result, we recognized, in
the second quarter of 2008, an additional expense of $822,000 for those
claims.  We also decided to increase our warranty accrual rate,
effective January 1, 2008, to reflect this higher warranty claims experience,
and we continue to monitor the adequacy of our warranty reserves on an on-going
basis. We include the collectibles we purchase pursuant to our warranty policy
in inventory at the re-graded estimated value (as discussed under Inventory Valuation Reserves
below).   There are a number of factors that can cause the
estimated values of such collectibles to change during the period from the
respective dates we purchase them and the respective dates on which we sell
them.  However, once we have classified such items as inventory and
they have been held in inventory beyond the end of a fiscal quarter in which we
purchased them, we classify any gains or losses on the disposal of such
inventory as part of the gain or loss on product sales and not as an adjustment
to our warranty reserves.




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 due to volatility in the price of precious metal, the
condition of the collectible and any specific features of the individual
collectible.  We review the market values of the collectible on a
quarterly basis.  Ultimately, we recognize a profit or loss on the
actual sale of the collectible relative to its most recent inventory carrying
value.





Long-Lived Assets Other Than
Goodwill.  We regularly conduct reviews of property and
equipment and other long-lived assets other than goodwill, including certain
identifiable intangibles, 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 definite-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 in order to determine if an
impairment loss has occurred.  If the projected undiscounted cash
flows are less than the carrying amount of the asset, an impairment loss is
recorded to write down the asset to its estimated fair value.  The
Company incurred significant operating losses in its jewelry reporting units
since the acquisitions of those businesses and the Company recognized initial
impairment losses for those businesses of $11.2 million in the three months and
year ended June 30, 2008 because those businesses had failed to meet
management’s revenue expectations for them.  In the three months ended
December 31, 2008, we recognized additional impairment losses of
$4.8 million in the jewelry grading and authentication businesses and
$1.5 million to the long-lived assets of our Gemprint business, due to
continued uncertainties as to the level of revenues we could expect those
businesses to generate in the future, worse than expected financial performance
during the first six months of fiscal 2009 and the increasing severity of the
economic recession and credit crisis which have adversely affected the future
prospects of those businesses.  In the three months ended March 31,
2009, we decided to exit the jewelry grading and authentication businesses other
than our Gemprint business.  As a result, the impairment losses that
were attributable to those jewelry businesses in the nine months ended March 31,
2009 have been classified as part of discontinued operations; whereas, the
impairment losses attributable to our Gemprint business in the nine months ended
March 31, 2009 have been classified as part of our continuing
operations.






23




Goodwill.  We test
the carrying value of goodwill and other indefinite-lived intangible assets on a
formal basis at least annually on their respective acquisition anniversary
dates, or more frequently if indicators of impairment are determined to
exist.  We apply a discounted cash flow model or an income approach in
determining a fair value that is used to estimate the fair value of the
reporting unit on a total basis, which is then compared to the carrying value of
the reporting unit.  If the fair value of the reporting unit exceeds
the carrying value of the reporting unit, no impairment of goodwill exists as of
the measurement date.  If the fair value is less than the carrying
value, then there is the possibility of goodwill impairment and further testing
and re-measurement of goodwill is required.  In accordance with GAAP,
we considered the diamond and colored gemstone grading businesses as separate
reporting units for the purpose of testing separately for the impairment of
goodwill.  The Company had incurred significant operating losses in
those jewelry reporting units since the respective dates of their acquisition
and the Company recognized impairment losses for these businesses in the three
months and year ended June 30, 2008 because these businesses had failed to meet
management’s revenue expectations for them.  In the three months ended
December 31, 2008, due to continued uncertainties as to the future revenues of
these businesses, worse than expected financial performance during the first
half of fiscal 2009 and the effects on those businesses of the increasing
severity of the economic recession and credit crisis, we recognized additional
goodwill impairment losses of $1.4 million for these businesses at December
31, 2008.  Those impairment losses have been classified as part of
discontinued operations for the nine months ended March 31, 2009, as a result of
our decision to exit these jewelry grading and authentication
businesses.




Income Taxes and Deferred Tax
Assets.  We account for income taxes in accordance with SFAS
No. 109, Accounting for
Income Taxes and FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes – An Interpretation of FASB Statement No. 109
(“FIN48”).SFAS No. 109 requires the recording 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 that we evaluate the
probability of realizing the future benefits comprising that asset and we review
the nature and expected timing of the realization of these assets and the
expiration dates for net operating losses or credits, when determining the
likelihood of realization.  In the fourth quarter of fiscal 2008, due
to the length of time and the extent of the taxable income required to fully
realize the deferred tax assets related to impairment losses recognized in the
fourth quarter of fiscal 2008, and certain California Enterprise Zone Credits,
the Company recorded a valuation allowance of approximately $4.6 million
against deferred tax assets of $6.0 million at June 30, 2008.  At
that time we determined that it was more likely than not that we would realize
the tax benefits comprising the remaining $1.4 million net deferred tax
asset at June 30, 2008.  At December 31, 2008, due to the Company
recognizing additional impairment losses for its jewelry businesses, and the
Company’s core profitable operations not meeting short-term expectations,
combined with uncertainty as to the performance of those businesses due to the
severe economic conditions currently prevailing, management did not recognize
any deferred tax assets for the impairment losses recognized in the three months
ended December 31, 2008 and, at March 31, 2009, had established valuation
allowances against $1,313,000 of the $1,504,000 of deferred tax
assets.





At
December 31, 2008, our current assets included a deferred tax asset of
$496,000 arising out of the tax deductions that were recognized by reason of the
compensation expense recorded in connection with the grant of non-employee
supplier stock options in 1999.  Certain of those options expired
unexercised during the three months ended March 31, 2009 and, as a result, the
amount of that deferred tax asset was written down by $433,000 to $63,000 at
March 31, 2009.  In accordance with SFAS 123R and related
interpretations, that write-down has been recognized as a reduction to
additional-paid-in capital at March 31, 2009.   It is
expected that the remainder of these options will expire unexercised because
their exercise prices are higher than the Company’s current share
price.  As a result, the remaining $63,000 deferred tax asset is
expected to be written off as a reduction in additional-paid-in capital in the
three months ending June 30, 2009.






24




The
deferred income tax liability of $305,000 recorded on our balance sheet at
March 31, 2009 results from timing differences related to goodwill and
other indefinite-lived intangible assets that are amortizable for income tax
purposes but not for financial reporting purposes under GAAP.




Results of Continuing Operations – Three and Nine Months
      Ended March 31, 2009 and 2008





Net
Revenues





Net
revenues consist primarily of fees that we generate from the authentication and
grading of high-value collectibles, including coins, trading cards, autographs
and stamps.  To a lesser extent, we generate collectibles related
service revenues (referred to as “other related revenues”) from sales of
collectibles club memberships and 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 coins
authenticated and graded by us; and fees earned from promoting, managing and
operating collectibles conventions.  Net revenues also include, to a
significantly lesser extent, revenues from the sales of products, consisting
primarily of coins that we purchase under our warranty policy and are not
considered to be an integral part of our on-going revenue generating
activities.





The
following tables breakout total net revenues for the three and nine months ended
March 31, 2009 and 2008 by product revenues, grading and authentication services
revenues, and other related services revenues:





Three
      Months Ended March 31,2009
                
                
                2008
                
                
                Increase
      (Decrease)Amount
                
                
                %
      of Net
                  Revenues
                
                
                Amount
                
                
                %
      of Net
                  Revenues
                
                
                Amount
                
                
                Percent(Dollars
      in thousands)Product
      revenues
                
                $
                196
                
                
                
                2.1
                %
                
                $
                21
                
                
                
                0.2
                %
                
                $
                175
                
                
                
                833.3
                %Grading
      and authentication fees
                
                
                7,284
                
                
                
                78.2
                %
                
                
                8,497
                
                
                
                82.1
                %
                
                
                (1,213
                )
                
                
                (14.3
                )%Other
      related services
                
                
                1,835
                
                
                
                19.7
                %
                
                
                1,829
                
                
                
                17.7
                %
                
                
                6
                
                
                
                0.3
                %Total
      services
                
                
                9,119
                
                
                
                97.9
                %
                
                
                10,326
                
                
                
                99.8
                %
                
                
                (1,207
                )
                
                
                (11.7
                )%Total
      net revenues
                
                $
                9,315
                
                
                
                100.0
                %
                
                $
                10,347
                
                
                
                100.0
                %
                
                $
                (1,032
                )
                
                
                (10.0
                )%





Nine
      Months Ended March 31,2009
                
                
                2008
                
                
                Increase
      (Decrease)Amount
                
                
                %
      of Net
                  Revenues
                
                
                Amount
                
                
                %
      of Net
                  Revenues
                
                
                Amount
                
                
                Percent(Dollars
      in thousands)Product
      revenues
                
                $
                299
                
                
                
                1.1
                %
                
                $
                913
                
                
                
                3.1
                %
                
                $
                (614
                )
                
                
                (67.2
                )%Grading
      and authentication fees
                
                
                21,015
                
                
                
                80.3
                %
                
                
                23,961
                
                
                
                80.2
                %
                
                
                (2,946
                )
                
                
                (12.3
                )%Other
      related services
                
                
                4,860
                
                
                
                18.6
                %
                
                
                4,997
                
                
                
                16.7
                %
                
                
                (137
                )
                
                
                (2.7
                )%Total
      services
                
                
                25,875
                
                
                
                98.9
                %
                
                
                28,958
                
                
                
                96.9
                %
                
                
                (3,083
                )
                
                
                (10.6
                )%Total
      net revenues
                
                $
                26,174
                
                
                
                100.0
                %
                
                $
                29,871
                
                
                
                100.0
                %
                
                $
                (3,697
                )
                
                
                (12.4
                )%





25


The
following tables set forth certain information regarding the increases
(decreases) in net revenues in our larger markets (which are inclusive of
revenues from our other related services) and in the number of units graded and
authenticated in the three and nine months ended March 31, 2009 and
2008.





Three
      Months Ended March 31,2009
                
                
                2008
                
                
                2009
      vs. 2008Increase
      (Decrease)%
      of Net
                
                
                
                
                
                %
      of Net
                
                
                Revenues
                
                
                Units
      ProcessedAmount
                
                
                Revenues
                
                
                Amount
                
                
                Revenues
                
                
                Amount
                
                
                Percent
                
                
                Number
                
                
                Percent(Dollars
      in thousands)Product
      revenues
                
                $
                196
                
                
                
                2.1
                %
                
                $
                21
                
                
                
                0.2
                %
                
                $
                175
                
                
                
                833.3
                %
                
                
                -
                
                
                
                -Coins
                
                
                5,489
                
                
                
                58.9
                %
                
                
                6,134
                
                
                
                59.3
                %
                
                
                (645
                )
                
                
                (10.5
                )%
                
                
                (79,500
                )
                
                
                (16.4
                )%Trading
      cards
                
                
                1,863
                
                
                
                20.0
                %
                
                
                2,226
                
                
                
                21.5
                %
                
                
                (363
                )
                
                
                (16.3
                )%
                
                
                (54,000
                )
                
                
                (16.5
                )%Other
      (1)
                
                
                1,767
                
                
                
                19.0
                %
                
                
                1,966
                
                
                
                19.0
                %
                
                
                (199
                )
                
                
                (10.1
                )%
                
                
                (14,600
                )
                
                
                (23.8
                )%Net
      Revenues
                
                $
                9,315
                
                
                
                100.0
                %
                
                $
                10,347
                
                
                
                100.0
                %
                
                $
                (1,032
                )
                
                
                (10.
      0
                )%
                
                
                (148,100
                )
                
                
                (17.0
                )%








Nine
      Months Ended March 31,2009
                
                
                2008
                
                
                2009
      vs. 2008Increase
      (Decrease)%
      of Net
                
                
                
                
                
                %
      of Net
                
                
                Revenues
                
                
                Units
      ProcessedAmount
                
                
                Revenues
                
                
                Amount
                
                
                Revenues
                
                
                Amount
                
                
                Percent
                
                
                Number
                
                Percent(Dollars
      in thousands)Product
      revenues
                
                $
                299
                
                
                
                1.1
                %
                
                $
                913
                
                
                
                3.0
                %
                
                $
                (614
                )
                
                
                (67.2
                )%
                
                
                -
                
                
                
                -Coins
                
                
                14,752
                
                
                
                56.4
                %
                
                
                16,811
                
                
                
                56.3
                %
                
                
                (2,059
                )
                
                
                (12.3
                )%
                
                
                (119,800
                )
                
                
                (10.5
                )%Trading
      cards
                
                
                6,059
                
                
                
                23.2
                %
                
                
                6,710
                
                
                
                22.5
                %
                
                
                (651
                )
                
                
                (9.7
                )%
                
                
                (111,600
                )
                
                
                (11.4
                )%Other
      (1)
                
                
                5,064
                
                
                
                19.3
                %
                
                
                5,437
                
                
                
                18.2
                %
                
                
                (373
                )
                
                
                (6.9
                )%
                
                
                (37,600
                )
                
                
                (20.0
                )%Net
      Revenues
                
                $
                26,174
                
                
                
                100.0
                %
                
                $
                29,871
                
                
                
                100.0
                %
                
                $
                (3,697
                )
                
                
                (12.4
                )%
                
                
                (269,000
                )
                
                
                (11.6
                )%





(1)
            Consists
      of autographs, stamps, CCE subscription business, CFC dealer financing
      business, and our collectibles convention
  business.





For the
three and nine  months ended March 31, 2009, our net revenues
decreased by $1,032,000, or 10.0%, and by $3,697,000, or 12.4%, respectively,
compared to the corresponding periods of the prior fiscal year.  The
decrease in net revenues in the three months ended March 31, 2009 was primarily
attributable to decreases of $1,213,000, or 14.3%, in grading and authentication
service fees partially offset by increases of $6,000, or 0.3%, in other service
related revenues, and $175,000 in revenues from product sales of collectible
coins.  The net revenue decrease in the nine months ended March 31,
2009 was primarily attributable to decreases of  $2,946,000, or 12.3%, in
authentication and grading service fees of $137,000, or 2.7%, in other service
related revenues, and  $614,000 in revenues from product sales of
collectible coins.  As discussed above, revenues from product sales
are not considered to be an integral part of the Company’s revenue generating
activities.  Therefore, excluding such product revenues, total service
revenues decreased by 11.7% and 10.6% in the three and nine months ended March
31, 2009, respectively, compared to the same respective periods of the prior
fiscal year.




Overall,
the decreases in authentication and grading revenues were primarily attributable
to decreases in grading submissions, which we believe were the result of the
continuing economic recession and credit crisis in the United States, which
caused declines in confidence among collectibles dealers and their
customers.




Our coin
grading and authentication business experienced decreased grading and
authentication fees of $615,000 or 10.9% and $1,815,000 or 11.8% in the three
and nine months ended March 31, 2009, respectively, compared to the same periods
of the prior year, and was attributable to the general economic conditions
currently prevailing and net decreases due to (i) lower coin trade show
grading revenues of $437,000 or 33% in the third quarter and $1,362,000 or 34%
for the nine months, which we believe was due to the continued high price and a
high level of volatility in the price of gold in the three and nine month
periods, and (ii) lower modern coin grading revenues, (which can be
impacted by specific customer programs in place in a given period) of $127,000
or 6% in the third quarter and $876,000 or 17% in the nine months, due primarily
to lower activity combined with higher average service fees earned in the third
quarter and lower average service fees earned in the nine months, due to the mix
of coins graded and customer programs in the periods; and (iii) a small decrease
of $51,000 or 2% in the third quarter and an increase of $423,000 or 4% in the
nine months in our vintage coin grading submissions.






26




The
volumes of our trading card grading and authentication submissions and
authentication and grading submissions to our other collectibles authentication
and grading units, which primarily authenticate and grade stamps and autographs,
also were adversely affected by the continuing economic recession and credit
crisis.  As a result, revenues generated from trading card submissions
declined by $329,000, or 17.4%, and by $569,000, or 10%, in the three and nine
months ended March 31, 2009, respectively, as compared to the same respective
periods of the prior fiscal year; while revenues generated by our other grading
and authentication businesses also declined by about 28% in the third quarter
and by about 19% in the nine months ended March 31, 2009,
respectively, as compared to corresponding periods of fiscal 2008.




The
decrease in revenues from other related services of $137,000 or 2.7% in the nine
months ended March 31, 2009, was primarily attributable to lower collector club
revenues as a result of lower club subscription renewals.





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, depreciation,
amortization and insurance costs that directly relate to providing
authentication and grading services.  Cost of revenues also includes
printing, other direct costs of the revenues generated by our other non-grading
related services and the costs of product revenues, which represent the carrying
value of the inventory of products (primarily collectible coins) that we sold
and any inventory related reserves, considered necessary.  In
addition, costs of revenues include stock-based compensation attributable to
employees whose compensation is classified as part of the costs of
authentication and grading revenues.





Set forth
below is information regarding our gross profits in the three and nine months
ended March 31, 2009 and 2008


.


Three
      Months Ended March 31,
                  
                  
                  Nine
      Months Ended March 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Gross
      Profit
                  
                  
                  
                  
                  
                  Gross
      Profit
                  
                  
                  
                  
                  
                  Gross
      Profit
                  
                  
                  
                  
                  
                  Gross
      ProfitAmount
                  
                  
                  Margin
                  
                  
                  Amount
                  
                  
                  Margin
                  
                  
                  Amounts
                  
                  
                  Margin
                  
                  
                  Amount
                  
                  
                  MarginGross
      profit-products
                  
                  $
                  (4
                  )
                  
                  
                  (2.0
                  )%
                  
                  $
                  1
                  
                  
                  
                  4.8
                  %
                  
                  $
                  (207
                  )
                  
                  
                  (69.2
                  )%
                  
                  $
                  86
                  
                  
                  
                  9.4
                  %Gross
      profit-services
                  
                  
                  5,209
                  
                  
                  
                  57.1
                  %
                  
                  
                  5,418
                  
                  
                  
                  52.5
                  %
                  
                  
                  14,105
                  
                  
                  
                  54.5
                  %
                  
                  
                  14,740
                  
                  
                  
                  50.9
                  %Gross
      profit-totals
                  
                  $
                  5,205
                  
                  
                  
                  55.9
                  %
                  
                  $
                  5,419
                  
                  
                  
                  52.4
                  %
                  
                  $
                  13,898
                  
                  
                  
                  53.1
                  %
                  
                  $
                  14,826
                  
                  
                  
                  49.6
                  %





As
indicated in the above table, our total gross profit margin increased from 52.4%
and 49.6% in the three months and nine months ended March 31, 2008,
respectively, to 55.9% and 53.1% in the three and nine months ended March 31,
2009, respectively.  Excluding the gross profit on product revenues
for all periods, which are not an integral part of our core revenues generating
activities, and increased warranty costs of $822,000 in the first nine months of
fiscal 2008 as a result of unexpected claims in significant dollar amounts that
arose during that period, the gross profit margin for grading and authentication
and other related services were 57.1% and 54.5% for the three and nine months
ended March 31, 2009, respectively, compared with 52.5% and 53.7% for the three
and nine months ended March 31, 2008, respectively.  Those
improvements in the gross profit margins of our collectibles service businesses
are the result primarily of cost reductions implemented in our coin grading
business, as a result of a cost reduction program that has been implemented in
the first nine months of 2009 in response to an anticipated decline in revenues
as a result of the economic recession and credit crisis, partially offset by a
lower gross margin on trading card authentication and grading revenues due
primarily to the decrease in such revenues in the three and nine months ended
March 31, 2009.





27


Selling
and Marketing Expenses





Selling
and marketing expenses include advertising and promotions costs, trade-show
related expenses, customer service personnel costs, depreciation and third-party
consulting costs.  Set forth below is information regarding our
selling and marketing expenses in the three and nine months ended March 31, 2009
and 2008.





Three
      Months Ended
                  March
      31,
                
                
                Nine
      Months Ended
                  March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Selling
      and marketing expenses
                
                $
                1,058,000
                
                
                $
                1,514,000
                
                
                $
                3,304,000
                
                
                $
                3,980,000Percent
      of net
      revenue
                
                
                11.4
                %
                
                
                14.6
                %
                
                
                12.6
                %
                
                
                13.3
                %





The
decreases of $456,000 and $676,000, respectively, in selling and marketing
expenses in the three and nine months ended March 31, 2009, as compared to the
same periods of fiscal 2008, were primarily attributable to personnel reductions
and reductions in the expenses we incurred in providing coin and trading card
grading services at trade shows in response to the decline in coin and trading
card grading submissions at those shows, as well as changes in the mix of trade
shows attended, particularly during the third quarter of 2009.  Costs
reductions in the first two quarters of the current year, as compared to the
same periods of the prior year related to personnel changes that occurred in
fiscal 2008, which had the effect of reducing selling and marketing expenses in
the fist half of fiscal 2009 relative to the same period of 2008.




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 and information technology personnel, and facilities
management costs, depreciation, amortization and other miscellaneous
expenses.





Three
      Months Ended
                  March
      31,
                
                
                Nine
      Months Ended
                  March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008General
      and administrative expenses
                
                $
                3,086,000
                
                
                $
                3,287,000
                
                
                $
                9,552,000
                
                
                $
                9,900,000Percent
      of net revenues
                
                
                33.1
                %
                
                
                31.8
                %
                
                
                36.5
                %
                
                
                33.1
                %





We were
able to reduce G&A expenses by $201,000 and $348,000 in the three and nine
months ended March 31, 2009, respectively, as compared to the same three and
nine months of fiscal 2008, due primarily to personnel reductions and other cost
savings measures implemented during those periods and decreases in stock-based
compensation expense of $188,000 and $212,000, respectively, in the third
quarter and first nine months of the current year.  Those reductions
in G&A expenses were partially offset by (i) severance costs of
approximately $400,000 recognized, in the third quarter of fiscal 2009, in
connection with the departure of the Company’s former chief executive officer
and (ii) an increase in technology related legal fees incurred by our
Gemprint business.  The decreases in stock based compensation expense
were due primarily to a reduction in the number of options granted, the vesting
of some outstanding stock options and an increase in option forfeitures, during
this year’s third quarter.





Amortization
of Intangible Assets





Amortization
of intangible assets is comprised of amortization of intangible assets that were
acquired through acquisitions and amortization of software development
costs.





Three
      Months Ended
                  March
      31,
                
                
                Nine
      Months Ended
                  March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Amortization
      expense
                
                $
                253,000
                
                
                $
                202,000
                
                
                $
                717,000
                
                
                $
                543,000Percent
      of net revenues
                
                
                2.7
                %
                
                
                2.0
                %
                
                
                2.7
                %
                
                
                1.9
                %







28




The
increase in the amortization expense was primarily related to the amortization
of capitalized software costs incurred in connection with the upgrading of
computer systems used in our grading businesses, including our autograph and
memorabilia grading businesses, for which amortization commenced as the
development projects were completed.  Although those development
projects are now substantially complete, such costs are amortized over a
three-year period commencing on the date upgraded software is placed in
service.  Therefore, we expect to continue recognizing such expenses
in subsequent years, but in lesser amounts, as such capitalized costs became
fully amortized.





Impairment
Losses


Three
      Months Ended
                
                
                Nine
      Months EndedMarch
      31,
                
                
                March
      31,2009
                
                
                2008
                
                
                2009
                
                
                2008Impairment
      losses
                
                $
                -
                
                
                $
                -
                
                
                $
                1,516,000
                
                
                $
                -Percent
      of net revenue
                
                
                -
                
                
                
                -
                
                
                
                5.8
                %
                
                
                -




The
impairment losses in the nine months ended March 31, 2009, are due to the
impairment of our Gemprint product.   The impairment was the
result of continued losses and the continued uncertainty of the timing and
magnitude of future revenues and related cash flows that are used in the
determination of fair value. Under circumstances in which the fair values of
long-lived assets are not recoverable on the basis of future cash flows, or
other more applicable fair value methods, we record impairment losses such that
the carrying values of these assets reflect their current estimate of fair
values.  Impairment losses for this product had already been recorded
in the fourth quarter of fiscal 2008 (see further discussion under Critical
Accounting Policies and Estimates: Long-Lived Assets Other Than
Goodwill andGoodwill).




Stock-Based
Compensation





As
discussed in Note 1 to the Company’s Condensed Consolidated Financial
Statements, in accordance with SFAS 123(R) the Company recognized the following
stock-based compensation expenses in the periods presented below:





Three
      Months Ended
                    March
      31,
                  
                  
                  Nine
      Months Ended
                    March
      31,Included in:
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Cost
      of revenues
                  
                  $
                  78,000
                  
                  
                  $
                  91,000
                  
                  
                  $
                  230,000
                  
                  
                  $
                  195,000Selling
      and marketing expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (7,000
                  )General
      and administrative expenses
                  
                  
                  29,000
                  
                  
                  
                  217,000
                  
                  
                  
                  402,000
                  
                  
                  
                  614,000$
                  107,000
                  
                  
                  $
                  308,000
                  
                  
                  $
                  632,000
                  
                  
                  $
                  802,000





Stock-based
compensation expense is recorded over the vesting period, or the service period,
of the stock-based award.  The decreases in stock-based compensation
expense in the three and nine months ended March 31, 2009, primarily related to
the stock options being fully vested and less option grants in recent periods,
as well as forfeitures due to the departure of the Company’s former Chief
Executive Officer.





Stock-based
compensation expense in the three and nine months ended March 31, 2009 also
reflects a forfeiture rate of 5%, compared to 9% for the three and nine months
ended March 31, 2008. Such change in the forfeiture rate on stock awards was
recognized in the fourth quarter of fiscal 2008.





29


The total
amount of compensation cost related to non-vested awards not yet recognized at
March 31, 2009 was $288,000, which is expected to be recognized as compensation
expense through fiscal 2012, as set forth in the following table, assuming the
employees to whom those awards were granted continue to be employed by
us.   However, such amounts do not include the effect on
compensation costs of any additional stock awards that may be granted in the
future or any changes that may occur in the applicable forfeiture
percentage.





Fiscal Year Ending June 30,
                        
                        Amount2009
                        
                        $
                        100,0002010
                        
                        
                        149,0002011
                        
                        
                        29,0002012
                        
                        
                        10,000$
                        288,000





Interest
Income, Net





Three
      Months Ended
                  
                  
                  Nine
      Months EndedMarch
      31,
                  
                  
                  March
      31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Interest
      Income,
      net
                  
                  $
                  53,000
                  
                  
                  $
                  238,000
                  
                  
                  $
                  252,000
                  
                  
                  $
                  978,000Percent
      of net
      revenue
                  
                  
                  0.5
                  %
                  
                  
                  2.3
                  %
                  
                  
                  0.9
                  %
                  
                  
                  3.3
                  %





Interest
income is generated on cash and cash equivalent balances that we invest
primarily in highly liquid money market accounts, and short-term tax-free
securities.  Interest income, net was $53,000 and $252,000 in the
three and nine months ended March 31, 2009, respectively, compared with $238,000
and $978,000, respectively, in the three and nine months ended March 31,
2008.  These decreases in interest income were primarily attributable
to (i) a shift of our cash and cash equivalent balances into lower yielding
government guaranteed money market funds; (ii) a decrease in our average
cash balances in the three and nine months ended March 31, 2009, compared to the
three and nine months ended March 31, 2008, due to our use of a portion of our
available cash to fund payments of quarterly dividends and capital expenditures;
and (iii) a decrease in interest rates earned on our cash and cash
equivalent balances in the nine months ended March 31, 2009, compared to the
nine months ended March 31, 2008, due to reductions in prevailing market rates
of interest as a result of actions taken by the Federal Reserve Board in
response to the increased severity of the economic recession and credit
crisis.





Income
Tax Expense





Three
      Months Ended
                    March
      31,
                  
                  
                  Nine
      Months Ended
                    March
      31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Provision
      for income taxes
                  
                  $
                  109,000
                  
                  
                  $
                  384,000
                  
                  
                  $
                  1,319,000
                  
                  
                  $
                  662,000





The
income tax expense recognized for the three and nine months ended March 31, 2008
reflected a tax expense at the effective tax rate for those
periods.  The income tax provision of $109,00 and $1,319,000 for the
three and nine months ended March 31, 2009 reflected valuation allowances
established against the Company’s deferred tax assets due to uncertainty as to
the realization of such deferred tax assets.  In accordance with SFAS
109, all such valuation allowances for the three and nine months ended March 31,
2009, are attributable to continuing operations.  See further
discussion under Critical Accounting Policies and Estimates: Income Tax and Deferred Tax
Assets.





Discontinued
Operations





Three
      Months Ended
                    March
      31,
                  
                  
                  Nine
      Months Ended
                    March
      31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Losses
      from discontinued operations, including losses on disposal of
      discontinuedbusinesses
                    (net of income taxes).
                  
                  $
                  5,542,000
                  
                  
                  $
                  1,237,000
                  
                  
                  $
                  14,765,000
                  
                  
                  $
                  3,242,000







30




The loss
from discontinued operations for the three and nine months ended March 31, 2009,
primarily reflects (i) losses recognized on the closure of our jewelry
grading businesses in the third quarter of fiscal 2009; (ii) impairment
losses recognized at December 31, 2008 to the carrying values of long lived
assets and goodwill of our jewelry businesses; (iii) losses incurred from
the on-going operations of our jewelry businesses through the date of closure,
which was March 2, 2009; and (iv) the discontinued operations of our
currency business through the date of sale, which was February 4,
2009.  No income tax benefits were recognized in the three and nine
months ended March 31, 2009, due to uncertainly as to the realization of
deferred tax assets in future periods.  See “Critical Accounting
Policies and Estimates--Long-Lived Assets Other Than
Goodwill—Goodwilland
Income Taxes and Deferred Tax Assets”above for a discussion
of the impairment losses to the carrying values of our jewelry businesses
recognized at December 31, 2008.





The loss
from discontinued operations for the three and nine months ended March 31, 2008,
reflects the losses from the operations of our discontinued businesses through
March 31, 2008, offset by income tax benefits recognized in those
periods.





The
losses from the on-going operations of our discontinued businesses were
approximately $1,361,000 and $4,403,000 in the three and nine months ended March
31, 2009, compared with approximately $1,957,000 and $5,270,000 before income
tax benefits in the three and nine months ended March 31, 2008.  The
decline in such losses in this year’s third quarter is primarily attributable to
the fact that we implemented cost reductions in those businesses, earlier in the
year, in an attempt to reduce the operating losses of those businesses; however,
due to declines in revenues, our cost reduction efforts were substantially
offset by the reduction in revenues.





Impairment
losses recognized in the nine months ended March 31, 2009 related to our jewelry
grading businesses (excluding the Gemprint business, which the Company will
continue to operate) were approximately $6,179,000.  As a result of
the recognition of those impairment losses, the remaining carrying values of the
goodwill and intangible assets of those businesses were written down to zero at
December 31, 2008.





Estimated
losses of approximately $4,183,000 on, primarily, the closure of our jewelry
businesses were recognized in the nine months ended March 31, 2009 and comprised
of operating lease accruals of approximately $3,110,000, estimated losses on the
disposal of the assets of our jewelry businesses of approximately $734,000 and
approximately $339,000 of severance costs incurred.  The estimated
lease loss accruals of $3,110,000 reflects the estimated loss associated with
exiting our facility leases for both our former diamond and colored gemstone
laboratories at March 31, 2009.  Such accrual, on a discounted basis,
reflects the estimated time to lease the spaces based on our estimate of current
market rates for rent for the remainder of the lease
periods.  Management is in the process of seeking prospective
subtenants for these spaces, and will re-evaluate its estimated loses and update
the lease accrual, as considered necessary for those lease commitments as new
information becomes available.  Approximately $4,181,000 of those
losses, which included $31,000 of losses in connection with the sale of our
currency grading business, were recorded in the three months ended March 31,
2009.





Liquidity and Capital Resources





At March
31, 2009, we had cash and cash equivalents of approximately $20,771,000, as
compared to cash and cash equivalents of $23,345,000 at June 30,
2008.





Historically,
we have relied on internally-generated funds, rather than borrowings, as our
primary source of funds to support our grading operations.





During
the nine months ended March 31, 2009, our operating activities from continuing
operations generated cash of $2,736,000, reflecting income from continuing
operations, as adjusted for non-cash expenses (including impairment losses), and
changes in current assets and current liabilities, due to the timing of
activities during the nine month period.





Discontinued
operations used cash of $5,523,000 in the nine months ended March 31, 2009,
which principally consisted of (i) losses arising from the discontinuance
of the jewelry grading businesses of $14,765,000, adjusted for non-cash items
that included $6,179,000 of impairment losses and the $3,110,000 lease accrual
discussed above; and (ii) the timing of the payment of costs incurred and
severance obligations in connection with the closure of the jewelry grading
businesses.  We expect that cash used by our discontinued operations
will decline significantly in future periods, primarily because a substantial
portion of the costs of closing the jewelry grading businesses were recognized
in this year’s third quarter, although there will continue to be cash
obligations associated with facility lease obligations (see Outstanding Finance
Obligation: Discontinued
Operations below).






31




Investing
activities generated net cash of $2,626,000 during the nine months ended March
31, 2009 and consisted primarily of $2,436,000 of net cash generated by CFC
notes receivable collections, and cash generated from collection of receivables
from discontinued operations of $489,000, of which $420,000 was related to the
sales of the jewelry and currency grading businesses, which were partially
offset by capitalized software costs of $249,000.




In the
nine months ended March 31, 2009, financing activities used net cash of
$2,413,000, related to the payment of cash dividends of $2,091,000 to
stockholders and the repurchase of $484,000 of common stock from the Company’s
former Chief Executive Officer, partially offset by proceeds of $161,000 from
the sale of common stock to two of our directors.




Outstanding
Financial Obligations





Continuing
Operations





In
December 2008, the Company obtained an extension, through March 2019, of its
operating lease for its corporate headquarters offices in Santa Ana,
California.  The amended lease, which became effective in February
2009, provides for (i) a reduction in the square footage leased by the
Company, (ii) a reduction in the base rental rate per square foot for the
first four years of the term of the amended lease and (iii) a contribution
by the landlord of up to $200,000 toward tenant improvements.  In
accordance with GAAP, the Company recognizes the rent expense on a straight-line
basis over the rental period.





We had
the following financial obligations under operating leases, net of sublease
income, at March 31, 2009:





Fiscal Year
                  
                  Net
                    Amount
                  
                  
                  Sublease
                    Income2009
      (remaining 3 months)
                  
                  $
                  333,000
                  
                  
                  $
                  9,0002010
                  
                  
                  966,000
                  
                  
                  
                  52,0002011
                  
                  
                  945,000
                  
                  
                  
                  46,0002012
                  
                  
                  960,000
                  
                  
                  
                  47,0002013
                  
                  
                  941,000
                  
                  
                  
                  49,000Thereafter
                  
                  
                  5,792,000
                  
                  
                  
                  269,000$
                  9,937,000
                  
                  
                  $
                  472,000





Discontinued
Operations





At March
31, 2009, the Company had the following financial obligations under operating
leases, for two facilities  leased in New York City, for its former
jewelry grading businesses through December 31, 2017.








Fiscal Year
                          
                          Amount2009
      (remaining 3 months)
                          
                          $
                          284,0002010
                          
                          
                          867,0002011
                          
                          
                          903,0002012
                          
                          
                          941,0002013
                          
                          
                          981,000Thereafter
                          
                          
                          4,086,000$
                          8,062,000Less:
      Accrual at March 31, 2009
                          
                          
                          (3,414,000
                          )$
                          4,648,000





At March
31, 2009, the Company recognized a non-cash loss of approximately $3,110,000
associated with these lease obligations and directly-related costs, which
together with the accrual for straight-line rent recognized in previous periods,
equaled a total accrual of $3,740,000 recognized at March 31, 2009.






32





The cash
payments required under the leases will be in accordance with the lease
obligations schedule above. As discussed in Note 7 (entitled “Discontinued
Operations”) to the Condensed Consolidated Financial Statements and Discontinued
Operations under Results of Operations, the amount of the rent under these two
leases accrued at March 31, 2009 was determined by estimating, on a discounted
basis, the time period to sublet the facilities and the rents at which those
facilities can be sublet, based on estimated current market rental rates set
forth in market analysis that we obtained from a third-party real estate
valuation firm.




The
Company has begun marketing these facilities to prospective subtenants and is in
the process of engaging a commercial real estate broker, familiar with the
rental market in New York City, for this purpose.  Due to current
economic conditions, there has been a substantial increase in available rental
space in commercial buildings and a decline in market rental rates, which
increases the difficulty of subletting these facilities.  As a result,
the estimates we made to establish the amount of the rent accrual will be
reviewed and updated if necessary to take account of any changes in our current
estimated loss.




With the
exception of those obligations, we do not have any material financial
obligations, such as long-term debt or capital lease or purchase
obligations.





Dividends.  The
Company’s dividend policy, through September 26, 2008, called for the payment of
quarterly cash dividends of $0.25 per common share and, in accordance with that
policy, dividends in an aggregate amount of $2,091,000 were paid to stockholders
in the nine months ended March 31, 2009.





On
September 26, 2008, the Board of Directors suspended the payment of future cash
dividends based on its determination that, due to market and economic
conditions, including the liquidity crisis in the United States, the prudent
course of action would be to preserve the Company's cash
resources.  At the same time, the Board of Directors declared a 10%
stock dividend on the Company's outstanding shares, which was distributed on
November 3, 2008 to all stockholders of record as of October 20,
2008.





Stock Buyback
Program.  At March 31, 2009, the Company continued to have
approximately $3.7 million remaining under its buyback program.  In
the three months ended December 31, 2008, the Company repurchased approximately
120,000 shares under this program due to an involuntary sale of shares by its
Chief Executive Officer, at a cost of approximately $484,000.  At the
same time two directors purchased an aggregate of 40,000 shares for an aggregate
amount of $161,000.





Future Uses and Sources of
Cash.  We plan to use our cash resources, consisting of
available cash and cash equivalent balances, together with internally generated
cash flows, to, (i) introduce new services for our customers;
(ii) fund working capital requirements; and (iii) fund obligations
associated with our discontinued businesses, and for other general corporate
purposes.  In addition, as the Company expects its continuing
operations to generate positive cash flow in future periods, the Company will
evaluate its total cash requirements to fund operations in future periods and
will evaluate all alternatives for the use of our cash
balances.  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 the
growth of our grading businesses.  However, due to the economic
recession and the credit crisis in the United States, there is no assurance that
we would be able to obtain such borrowings or generate additional capital on
terms acceptable to the Company, if at all.




Risks and Uncertainties That Could Affect Our Future
Financial Performance





There are
a number of risks and uncertainties to which our continuing and discontinued
business operations are subject that could affect our future operating results
and financial condition and which could cause our future operating results to
differ materially from those expected at the present time.  Those
risks and uncertainties include, but are not limited to:





·
            a
      worsening of the current banking and credit crisis in the United States,
      or worsening conditions in the collectibles markets in which we operate,
      including a possible decline in the popularity of some high-value
      collectibles, any of which could reduce the volume of authentication and
      grading submissions to us and, therefore, the grading fees we
      generate;






33





·
            a
      lack of diversity in our sources of revenues and, more particularly, our
      dependence on collectible coin authentication and grading for a
      significant percentage of our total revenues, which makes us more
      vulnerable to adverse changes in economic conditions affecting the
      collectible coin market, including volatility in the prices of gold and
      other precious metals or recessionary or other conditions that could lead
      to reduced coin and other collectibles submissions or trade show
      activities that would, in turn, result in reductions in our revenues and
      income;





·
            our
      dependence on certain key executives and collectibles experts, the loss of
      the services of any of which could adversely affect our ability to obtain
      authentication and grading submissions and, therefore, could harm our
      operating results;





·
            the
      risk that we will be unable to sublet the laboratory and office facilities
      that had been occupied by our jewelry grading businesses within the time
      period and at the rental rates that we used to determine our estimated
      lease loss accruals for those facilities, which would adversely affect our
      cash flows more significantly by reducing the amount of rent we could
      realize from the subletting of those facilities and, therefore, require us
      to increase the loss accrual for those facilities as arising from the
      discontinuance of our jewelry grading
  businesses;




·
            the
      fact that for the fiscal year ended June 30, 2008 and the nine months
      ended March 31, 2009, our six largest coin authentication and grading
      customers accounted, in the aggregate, for approximately 11% and 13% of
      our net revenues, respectively, which means that the loss of one or more
      of those customers, or a significant reduction in their grading
      submissions to us, could result in a decline in our revenues and adversely
      affecting our results of
operations;





·
            the
      risk that competition from other collectibles’ authentication and grading
      companies will increase, which would result in reductions in collectibles
      submissions to us or could require us to reduce the prices we charge for
      our services, either of which could result in reductions in our revenue
      and income;





·
            the
      risks that we will incur unanticipated liabilities under our
      authentication and grading warranties and that warranty claims will
      increase to a higher level than in the past such that we will have to
      increase our warranty accruals to cover potential higher claims in the
      future, either of which would increase our operating expenses and reduce
      our operating income;




·
            the
      risk that newer collectibles service offerings and business initiatives,
      such as autograph and stamps, will not gain market
    acceptance;




·
            the
      risks that we will encounter problems with or failures of our computer
      systems that would interrupt our services or result in loss of data that
      we need for our business;




·
            the
      potential of increased government regulation of our businesses that could
      cause operating costs to increase;
and





·
            the
      risks involved in acquiring existing or commencing new authentication and
      grading businesses, including the risks that we will be unable to
      successfully integrate new businesses into our operations; that new
      businesses may not gain market acceptance; that business expansion may
      result in a costly diversion of management time and resources from our
      existing businesses and increase our operating expenses; that we will not
      achieve adequate returns on the investments we may make in acquiring other
      or establishing any new businesses, which would reduce our profitability
      or cause us to incur losses.





Certain
of these risks and uncertainties, as well as other risks, are more fully
described above in this Section of this Report (entitled “Management's
Discussion and Analysis of Financial Condition and Results of Operations”), and
in Item 1A of Part 1, entitled “Risk Factors” in our Annual Report on Form 10-K
for our fiscal year ended June 30, 2008, as filed with the SEC under the
Securities Exchange Act of 1934 and investors are urged to read that section of
that Annual Report.





34


Due to
these and other possible uncertainties and risks, you are cautioned not to place
undue reliance on the forward-looking statements contained in this Report, which
speak only as of the date of this Report.  We also disclaim any
obligation to update forward-looking statements contained in this Report or in
our2008 Annual
Report on Form 10-K.





Recent
Accounting Pronouncements





In
April 2009, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position (FSP) Financial Accounting Standard (FAS) 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. Based on the
guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with Statement of Financial Accounting Standards (SFAS)
No. 157 Fair Value
Measurements. This FSP is to be applied prospectively and is effective
for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The company
will adopt this FSP for its quarter ending June 30, 2009. There is no
expected impact on the Consolidated Financial Statements.




In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 Recognition and Presentation of
Other-Than-Temporary Impairments. The guidance applies to investments in
debt securities for which other-than-temporary impairments may be recorded. If
an entity’s management asserts that it does not have the intent to sell a debt
security and it is more likely than not that it will not have to sell the
security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to
credit losses (recorded in earnings), and 2) all other amounts (recorded in
other comprehensive income). This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
company will adopt this FSP for its quarter ending June 30, 2009. There is
no expected impact on the Consolidated Financial Statements.





In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(APB) 28-1 Interim Disclosures
about Fair Value of Financial Instruments. The FSP amends SFAS
No. 107 Disclosures about
Fair Value of Financial Instruments to require an entity to provide
disclosures about fair value of financial instruments in interim financial
information. This FSP is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The company will include
the required disclosures, if any, in its quarter ending June 30,
2009.




In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which
became effective January 1, 2009 via prospective application to business
combinations. This Statement requires that the acquisition method of accounting
be applied to a broader set of business combinations, amends the definition of a
business combination, provides a definition of a business, requires an acquirer
to recognize an acquired business at its fair value at the acquisition date and
requires the assets and liabilities assumed in a business combination to be
measured and recognized at their fair values as of the acquisition date (with
limited exceptions). The company will adopt this Statement on July 1, 2009.
The impact upon adoption and its effects on future periods will depend on the
nature and significance of business combinations subject to this
statement.




In
April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies. This FSP requires that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value cannot be
reasonably estimated, the asset or liability would generally be recognized in
accordance with SFAS No. 5, Accounting for Contingencies
and FASB Interpretation No. 14, Reasonable Estimation of the Amount
of a Loss. Further, the FASB removed the subsequent accounting guidance
for assets and liabilities arising from contingencies from SFAS No. 141(R).
The requirements of this FSP carry forward without significant revision the
guidance on contingencies of SFAS No. 141, Business Combinations, which
was superseded by SFAS No. 141(R) (see previous paragraph). The FSP
also eliminates the requirement to disclose an estimate of the range of possible
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB requires that entities include only the disclosures
required by SFAS No. 5. This FSP will be adopted effective July 1,
2009. The impact upon adoption and its effects on future periods will depend on
the nature and significance of business combinations subject to this
statement.







35




In
April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets”. The FSP states that in developing assumptions about
renewal or extension options used to determine the useful life of an intangible
asset, an entity needs to consider its own historical experience adjusted for
entity-specific factors. In the absence of that experience, an entity shall
consider the assumptions that market participants would use about renewal or
extension options. This FSP is to be applied to intangible assets acquired after
January 1, 2009. The adoption of this FSP did not have an impact on the
Consolidated Financial Statements.





ITEM 2A.     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 March 31, 2009, we
had approximately $20,771,000 in cash and cash equivalents, primarily invested
in low-yield money-market funds that invest in government-guaranteed
securities.  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.





ITEM 3.        CONTROLS AND
PROCEDURES





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to management,
including our CEO and CFO, to allow timely decisions regarding required
disclosure.  In designing and evaluating our disclosure controls and
procedures, our management recognized that any system of controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, as ours are
designed to do, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.




In
connection with the preparation of this Quarterly Report on Form 10-Q, an
evaluation was performed under the supervision and with the participation of our
management, including our CEO and CFO, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act).  Based on that
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this Quarterly
Report on Form 10-Q to ensure that the information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and to ensure that the information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required
disclosures.




There
were no changes in our internal control over financial reporting that occurred
during the quarter ended March 31, 2009, that has materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





PART II – OTHER INFORMATION





ITEM 1A.     RISK FACTORS




There were no material changes in the risk factors that were disclosed under the
caption “Risk Factors” in Part IA of our Annual Report on Form 10-K for our
fiscal year ended June 30, 2008, except for the addition of the following risk
factor set forth above under the caption “Risks and Uncertainties That Could
Affect Our Future Financial Performance” in Item 2 of Part I of this
Report.


36





ITEM 5.     OTHER
INFORMATION




Estimated
losses of approximately $4,183,000 on primarily the closure of our jewelry
businesses were recognized in the three and nine months ended March 31, 2009 and
comprised lease accruals of approximately $3,110,000, estimated losses on the
disposal of the assets of our jewelry businesses of approximately $734,000 and
approximately $339,000 of severance costs incurred.  The estimated
lease accruals of $3,110,000 reflects the estimated loss associated with exiting
our facility leases for both our former diamond and colored gemstone
laboratories at March 31, 2009.  Such accrual, on a discounted basis,
reflects the estimated time to lease the spaces based on our estimate of current
market rates for rent for the remainder of the lease
periods.  Management is in the process of seeking prospective
subtenants for these spaces, and will re-evaluate its estimated loses and update
the lease accrual, as considered necessary for those lease commitments as new
information becomes available.








ITEM 6.
            EXHIBITS


(a)
              Exhibits:Exhibit
      31.1
              Certification
      of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley
      ActExhibit
      31.2
              Certification
      of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley
      ActExhibit
      32.1
              Chief
      Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
      ActExhibit
      32.2
              Chief
      Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
      ActExhibit
      10.99
              Separation
      Agreement and Mutual Release dated as of March 16, 2009 between the
      Company and Michael R. Haynes








37





SIGNATURES








Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








COLLECTORS
      UNIVERSE, INC.Date:           May
      11, 2009
              
              /s/
      MICHAEL J. MCCONNELLMichael
      J. McConnellChief
      Executive Officer











COLLECTORS
      UNIVERSE, INC.Date:           May
      11, 2009
              
              /s/
      JOSEPH J. WALLACEJoseph
      J. WallaceChief
      Financial Officer



























































S-1


INDEX TO EXHIBITS











Number
              Description31.1
              Certification
      of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley
      Act31.2
              Certification
      of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley
      Act32.1
              Chief
      Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
      Act32.2
              Chief
      Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
      Act10.99
              Separation
      Agreement and Mutual Release dated as of March 16, 2009 between the
      Company and Michael R.
Haynes


E-1