**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
                1934****For
                the quarter ended September 30, 2005****OR**q
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 [NO FEE REQUIRED]****For
                the transition period from _______ to _____****Commission
                file number 0-27887**CU logo
                
                **COLLECTORS
                  UNIVERSE, INC.**
                **(Exact
                  name of Registrant as specified in its
                  charter)**





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





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes  ü  No





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




YES
      [ ]
      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 October 29, 2005****Common
                Stock $.001 Par Value**
            **8,486,103**














**COLLECTORS
      UNIVERSE, INC.**


**QUARTERLY
      REPORT**


**ON
      FORM 10-Q**


**FOR
      THE QUARTER ENDED SEPTEMBER 30, 2005**





**TABLE
      OF CONTENTS**








**PART
                I**
            **Financial
                Information**
            **Page**Item
                1.
            Financial
                Statements:Condensed
                Consolidated Balance Sheets as of September 30, 2005and
                June 30, 2005 (unaudited)
            1Condensed
                Consolidated Statements of Operationsfor
                the Three-Months Ended September 30, 2005 and 2004
                (unaudited)
            2Condensed
                Consolidated Statements of Cash Flowsfor
                the Three Months Ended September 30, 2005 and 2004
                (unaudited)
            3Notes
                to Condensed Consolidated Financial Statements
                (unaudited)
            4Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            18Forward
                Looking Information
            18Our
                Business
            18Factors
                That Can Affect Our Financial Position and
                Operating Results
            19Critical
                Accounting Policies and
                Estimates
            20Results
                of Operations
            22Liquidity
                and Capital Resources
            27Recent
                Accounting Pronouncements
            28Risks
                and Uncertainties That Could Affect
                Our Future Financial Performance
            28Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            29Item
                4.
            Controls
                and Procedures
            29**PART
                II**
            **Other
                Information**Item
                6.
            Exhibits
            31**SIGNATURES**
            
            S-1**INDEX
                TO EXHIBITS**
            E-1**EXHIBITS****Exhibit
                31.1**
            Certifications
                of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley
                Act of
                2002**Exhibit
                31.2**
            Certifications
                of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley
                Act of
                2002**Exhibit
                32.1**
            Chief
                Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
                Act of 2002**Exhibit
                32.2**
            Chief
                Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
                Act of 2002








i


**PART
      I - FINANCIAL INFORMATION**





ITEM
      1.  FINANCIAL
      STATEMENTS


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**


**as
      of September 30, 2005 and June 30, 2005**


(in
      thousands, except per share data)


(unaudited)


**September
                30,**
            
            **June
                30,****2005**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            66,714
            
            $
            65,439Accounts
                receivable, net of allowance for doubtful accounts of $48 (September)and
                $38 (June)
            
            
            1,229
            
            
            1,508Inventories,
                net
            
            
            437
            
            
            436Prepaid
                expenses and other current assets
            
            
            1,044
            
            
            1,102Customer
                notes receivable
            
            
            77
            
            
            1,560Deferred
                income taxes
            
            
            2,154
            
            
            2,854Receivables
                from sale of net assets of discontinued operations
            
            
            15
            
            
            63Current
                assets of discontinued operations held for sale
            
            
            274
            
            
            365Total
                current assets
            
            
            71,944
            
            
            73,327Property
                and equipment, net
            
            
            854
            
            
            857Goodwill
                and other intangibles
            
            
            2,828
            
            
            79Deferred
                income taxes
            
            
            635
            
            
            1,051Other
                assets
            
            
            110
            
            
            174Non-current
                assets of discontinued operations held for sale
            
            
            463
            
            
            46$
            76,834
            
            $
            75,534**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            392
            
            $
            753Accrued
                liabilities
            
            
            2,035
            
            
            1,563Accrued
                compensation and benefits
            
            
            869
            
            
            1,069Deferred
                revenue
            
            
            1,250
            
            
            1,001Current
                liabilities of discontinued operations held for sale
            
            
            37
            
            
            27Total
                current liabilities
            
            
            4,583
            
            
            4,413Deferred
                rent and other long-term liabilities
            
            
            572
            
            
            555Commitment**s**and contingencies
            
            
            **-**
            
            
            **-**Stockholders'
                equity:Preferred
                stock, $.001 par value; 5,000 shares authorized; no shares issued
                or
                outstanding
            
            
            -
            
            
            -Common
                stock, $.001 par value; 45,000 shares authorized; issued 8,611 at
                September 30, 2005 and 8,610 at June 30, 2005
            
            
            9
            
            
            9Additional
                paid-in capital
            
            
            78,740
            
            
            78,594Accumulated
                deficit
            
            
            (6,049
            )
            
            (7,016
            )Treasury
                stock, at cost (125 shares)
            
            
            (1,021
            )
            
            (1,021
            )Total
                stockholders' equity
            
            
            71,679
            
            
            70,566$
            76,834
            
            $
            75,534





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****September
                30,****2005**
            
            **2004**Net
                revenues
            
            $
            8,825
            
            $
            8,195Cost
                of revenues
            
            
            3,316
            
            
            2,826Gross
                profit
            
            
            5,509
            
            
            5,369Selling
                and marketing expenses
            
            
            1,089
            
            
            957General
                and administrative expenses
            
            
            3,145
            
            
            2,287Stock-based
                compensation
            
            
            132
            
            
            -Total
                operating expenses
            
            
            4,366
            
            
            3,244Operating
                income
            
            
            1,143
            
            
            2,125Interest
                income, net
            
            
            542
            
            
            66Other
                expenses
            
            
            8
            
            
            (2
            )Income
                before income taxes
            
            
            1,693
            
            
            2,189Provision
                for income taxes
            
            
            (714
            )
            
            (878
            )Income
                from continuing operations
            
            
            979
            
            
            1,311Loss
                from discontinued operations, net of gain on sales of discontinuedbusinesses
                (net of income taxes)
            
            
            (12
            )
            
            (69
            )Net
                income
            
            $
            967
            
            $
            1,242Net
                income per basic share :Income
                from continuing operations
            
            $
            0.11
            
            $
            0.21Loss
                from discontinued operations, net of gain on sales of discontinuedbusinesses
                (net of income taxes)
            
            
            -
            
            
            (0.01
            )Net
                income
            
            $
            0.11
            
            $
            0.20Net
                income per diluted share:Income
                from continuing operations
            
            $
            0.11
            
            $
            0.20Loss
                from discontinued operations, net of gain on sales of discontinuedbusinesses
                (net of income taxes)
            
            
            -
            
            
            (0.01
            )Net
                income
            
            $
            0.11
            
            $
            0.19Weighted
                average shares outstanding:Basic
            
            
            8,486
            
            
            6,214Diluted
            
            
            8,806
            
            
            6,569





See
      accompanying notes to condensed consolidated financial
      statements.


2


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


(in
      thousands, except share data)


(unaudited)


**Three
                Months Ended**
              **September
                30,**2005
            
            2004CASH
                FLOWS FROM OPERATING ACTIVITIES:Income
                from continuing operations
            
            $
            979
            
            $
            1,311Adjustments
                to reconcile income from continuing operations to net cash providedby
                operating activities:Depreciation
                and amortization
            
            
            121
            
            
            142Loss
                on disposal of fixed assets
            
            
            3
            
            
            -Loss
                on termination of sublease
            
            
            83
            
            
            -Stock-based
                compensation
            
            
            132
            
            
            -Provision
                for doubtful accounts
            
            
            25
            
            
            2Deferred
                income taxes
            
            
            693
            
            
            832Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            296
            
            
            (103
            )Inventories
            
            
            (1
            )
            
            82Prepaid
                expenses and other assets
            
            
            39
            
            
            114Income
                taxes
            
            
            -
            
            
            (10
            )Other
                assets
            
            
            -
            
            
            (18
            )Accounts
                payable
            
            
            (361
            )
            
            196Accrued
                liabilities
            
            
            (67
            )
            
            (227
            )Deferred
                rent and other long-term liabilities
            
            
            17
            
            
            25Accrued
                compensation and benefits
            
            
            (200
            )
            
            65Deferred
                revenue
            
            
            176
            
            
            (6
            )Net
                cash provided by operating activities
            
            
            1,935
            
            
            2,405CASH
                FLOWS FROM INVESTING ACTIVITIES:Capital
                expenditures
            
            
            (99
            )
            
            (64
            )Collection
                of receivables from sales of discontinued businesses
            
            
            48
            
            
            801Purchase
                of businesses, net of cash acquired
            
            
            (2,279
            )
            
            -Advances
                on customer notes receivable
            
            
            (78
            )
            
            -Proceeds
                from collection of customer notes receivable
            
            
            1,561
            
            
            -Net
                cash (used in) provided by investing activities
            
            
            (847
            )
            
            737CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from exercise of stock options
            
            
            14
            
            
            3Net
                cash provided by financing activities
            
            
            14
            
            
            3Discontinued
                Operations:Net
                cash provided by investing activities
            
            
            173
            
            
            448Net
                increase in cash and cash equivalents
            
            
            1,275
            
            
            3,593Cash
                and cash equivalents at beginning of period
            
            
            65,439
            
            
            21,454Cash
                and cash equivalents at end of period
            
            $
            66,714
            
            $
            25,047SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Interest
                paid
            
            $
            3
            
            $
            -Income
                taxes paid
            
            $
            16
            
            $
            10





See
      accompanying notes to condensed consolidated financial statements.





3


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


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


(in
      thousands, except share data)


(unaudited)








**Three
                Months Ended**
              **September
                30,**2005
            
            2004SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED):Effective
                July 14, 2005, the Company acquired CoinFacts.com in a transaction
                summarized as follows:Goodwill
            
            $
            515
            
            
            -Cash
                paid
            
            
            (515
            )
            
            -Effective
                September 2, 2005, the Company acquired CCE in a transaction summarized
                as
                follows:Fair
                value of net liabilities assumed
            
            
            (70
            )
            
            -Deferred
                taxes recognized at acquisition
            
            
            (423
            )
            
            -Transition
                costs
            
            
            27
            
            
            -Intangible
                assets
            
            
            947
            
            
            -Fair
                value of CTP, including net assets
            
            
            501
            
            
            -Goodwill
            
            
            1,282
            
            
            -Purchase
                price, net of cash acquired
            
            
            (2,264
            )*
            
            -*
                $500,000 of the purchase price was payable subsequent to September
                30,
                2005 and is included in accrued liabilities at September 30,
                2005.


4


**COLLECTORS
      UNIVERSE, INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (UNAUDITED)**





1. SIGNIFICANT
      ACCOUNTING POLICIES





*Principles
      of Consolidation*





The
      accompanying interim condensed consolidated financial statements include the
      accounts of Collectors Universe, Inc. and its subsidiaries (the “Company”). All
      intercompany transactions and accounts have been eliminated. In July 2005,
      the
      Company purchased substantially all the assets of CoinFacts.com, and in
      September 2005, the Company acquired the common stock of Certified Coin Exchange
      (“CCE”) and a related business. Such acquisitions have been consolidated at the
      date of acquisition (see note 2).





*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, consolidated operating results, and consolidated 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 months ended September 30, 2005 are not necessarily indicative of the
      results that may be expected for the year ending June 30, 2006 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, 2005. Amounts related to disclosure of June 30, 2005 balances within
      these interim condensed consolidated financial statements were derived from
      the
      aforementioned Form 10-K.





*Reclassifications*





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





*Revenue
      Recognition*





Net
      revenues consist primarily of fees generated from the authentication and grading
      of coins, sportscards, autographs, currency 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.





*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 may be material to the condensed consolidated financial
      statements.





5


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





*Long-Lived
      Assets*




Management
      regularly reviews property and equipment and other long-lived assets, including
      certain identifiable intangibles and goodwill, for possible impairment. This
      review occurs annually, or more frequently if events or changes in circumstances
      indicate the carrying amount of the asset may not be recoverable in full. If
      there is indication of impairment of property and equipment or amortizable
      intangible assets, then management prepares an estimate of future cash flows
      (undiscounted and without interest charges) expected to result from the use
      of
      that asset and its eventual disposition. If these cash flows are less than
      the
      carrying amount of the asset, an impairment loss is recognized to write down
      the
      asset to its estimated fair value. The fair value is estimated at the present
      value of the future cash flows discounted at a rate commensurate with
      management’s estimates of the business risks. As of September 30, 2005, the
      Company does not believe there have been any impairment of its long-lived
      assets. There can be no assurance, however, that there will be no impairment
      of
      the Company’s long-lived assets in the future.




*Stock-Based
      Compensation*





At
      September 30, 2005, the Company had three stock-based compensation plans. Prior
      to July 1, 2005, the Company accounted for these plans under the recognition
      and
      measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations, as permitted by Statement of Financial Accounting
      Standards (“SFAS”) No. 123, *Accounting
      for Stock-Based Compensation* .
      No
      stock-based employee compensation cost was recognized in the statement of
      operations for the three months ended September 30, 2004, as all options granted
      under these plans had an exercise price equal to the market value of the
      underlying common stock on the date of grant.





Effective
      July 1, 2005, the Company adopted the fair value recognition provisions of
      SFAS
      No. 123(R) *Share-Based
      Payments,* using
      the
      modified-prospective-transition method. Under this transition method,
      compensation cost recognized in the three months ended September 30, 2005
      includes: (a) compensation cost for all share-based payments granted prior
      to,
      but not yet vested as of July 1, 2005, based on the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123, and (b)
      compensation cost for all share-based payments granted subsequent to June 30,
      2005, based on the grant-date fair value estimated in accordance with the
      provisions of SFAS No. 123(R). Results for prior periods have not been
      restated.





The
      method of calculating stock-based compensation under SFAS 123(R) is consistent
      with the method used to compute stock-based compensation under SFAS 123, except
      under SFAS 123(R), we are required to estimate forfeitures, which we were not
      required to estimate under SFAS 123. We estimated forfeitures to be 4%.





For
      the
      three months ended September 30, 2005, the fair value of each option grant
      is
      estimated on the date of grant using the Black-Scholes option-pricing method
      with the following weighted-average assumption used:





Dividend
      yield 0%


Expected
      volatility 78%


Risk-free
      interest rate 3.9%


Expected
      lives 2
      years




At
      June
      30, 2005, the Company had 443,000 unvested options with a grant date weighted
      average fair value of $4.67, and at September 30, 2005, there were 445,000
      unvested options with a weighted average fair value of $4.71.  The Company
      granted 10,000 options during the quarter.




As
      a
      result of adopting SFAS No. 123(R) on July 1, 2005, the company’s income before
      income taxes and net income for the three months ended September 30, 2005 is
      $132,000 lower than if it had continued to account for share-based compensation
      under APB Opinion No. 25. Basic and diluted net income per share for the three
      months ended September 30, 2005 would have been $0.13 and $0.12,


6


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





respectively,
      if the Company had not adopted SFAS No. 123(R), compared to reported basic
      and
      diluted net income per share of $0.11 and $0.11, respectively.





The
      total
      amount of compensation cost related to non-vested awards not yet recognized
      at
      September 30, 2005, was $1,673,000, and such amount will be recognized as
      compensation expense assuming the employees to whom the options were granted
      continue to be employed by the Company, as follows:





FY
                2006
            
            $
            403,000FY
                2007
            
            
            520,000FY
                2008
            
            
            488,000FY
                2009
            
            
            259,000FY
                2010
            
            
            3,000Total
            
            $
            1,673,000





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





Prior
      to
      the adoption of SFAS No. 123(R), the Company presented all tax benefits of
      deductions resulting from the exercise of stock options as operating cash flows
      in the statement of cash flows. SFAS No. 123(R) requires the cash flows
      resulting from the tax benefits resulting from tax deductions in excess of
      the
      compensation cost recognized for those options (excess tax benefits) to be
      classified as financing cash flows. There are no tax benefits resulting from
      the
      exercise of stock options for the three months ended September 30,
      2005.





SFAS
      No.
      123(R) requires the Company to continue to provide the pro forma disclosures
      required by SFAS No. 123 for all periods presented in which share-based payments
      to employees are accounted for under APB Opinion No. 25. The following table
      illustrates the effect on net income and net income per share for the three
      months ended September 30, 2004 if the Company had applied the fair value
      recognition provisions of SFAS No. 123 to share-based employee
      compensation.








Three
                Months
              Ended
              September
                30,2004Net
                income, as reported
            
            $
            1,242Add:Stock-based
                employee compensation expense includedin
                reported net income, net of related tax effects
            
            
            -Deduct:Total
                stock-based employee compensation expense determinedunder
                fair value based method for all awards, net of related tax
                effects.
            
            
            (40
            )Pro
                forma net income
            
            $
            1,202Net
                income per common share - basic:As
                reported
            
            $
            0.20Pro
                forma
            
            $
            0.19Net
                income per common share - diluted:As
                reported
            
            $
            0.19Pro
                forma
            
            $
            0.18





7


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





The
      fair
      value of each option grant during the three months ended September 30, 2004,
      was
      estimated on the date of grant using the Black-Scholes option-pricing model
      with
      the following weighted-average assumption used:





Dividend
      yield 0%


Expected
      volatility 72%


Risk-free
      interest rate 2.4%


Expected
      lives 2
      years





*Concentrations*




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




Financial
      Instruments and Cash Balances. At
      September 30, 2005, the Company’s funds of approximately $64 million were
      primarily invested in high quality commercial paper, certificates of deposit
      and
      a money market fund. In addition, at September 30, 2005, the Company had in
      excess of $2 million in a non-interest bearing bank account for general
      day-to-day operations.




Accounts
      Receivable .
      A
      substantial portion of accounts receivable is due from collectibles dealers.
      At
      September 30, 2005 and June 30, 2005, one customer accounted for approximately
      31% and 46%, respectively, of total accounts receivable balances. The Company
      performs an analysis of the expected collectibility of accounts receivable
      based
      on several factors, including the age and extent of significant past due
      accounts and economic conditions or trends that may offset the ability of the
      debtor to pay their account receivable balances. Based on such review, the
      Company makes an allowance for doubtful accounts, when necessary. The allowance
      for doubtful accounts receivable was $48,000 at September 30, 2005.





Customers .
      The
      authentication and grading of collectible coins accounted for approximately
      65%
      and 68% of our net revenues for the three months ended September 30, 2005 and
      2004, respectively.





Customer
      Notes Receivables. At June
      30, 2005, the Company had short term customer notes receivable balances
      outstanding in an aggregate principal amount of $1,560,000 to two collectibles
      dealers who are long time customers. Such customer notes receivables were fully
      repaid in the three months ended September 30, 2005. In addition, one new
      advance of $77,000 was made in the three months ended September 30, 2005, and
      such advance is repayable in August 2006. We perform an analysis of the expected
      collectibility of customer notes receivable based on several factors, including
      the age and extent of significant past due notes and economic conditions or
      trends that may adversely affect the ability of the debtor to pay their customer
      notes receivable.





**Recent
      Accounting Pronouncement**





In
      May
      2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 154, *Accounting
      Changes and Error Corrections.* SFAS
      No.
      154 replaces APB Opinion No. 20, *Accounting
      Changes* and FASB
      Statement No 3, *Reporting
      Accounting Changes in Interim Financial Statements* which
      required that most voluntary changes in accounting principle be recognized
      by
      including in net income of the period of the change the cumulative effect of
      changing to the new accounting principle. SFAS No. 154 ** will
      require retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. This
      statement is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154
      for
      our fiscal year beginning July 1, 2006. We do not expect the adoption of SFAS
      No. 154 to have a material impact on the Company’s financial position or results
      of operation.


8


2. BUSINESS
      ACQUISITIONS





On
      July
      14, 2005, the Company acquired substantially all the assets of CoinFacts.com
      (“CoinFacts”) for $500,000 in cash. CoinFacts.com operates an internet website
      on which it publishes detailed proprietary information and history on U.S.
      Coins. The results of CoinFacts have been consolidated from the date of
      acquisition.





On
      September 2, 2005, the Company acquired all of the common stock of Certified
      Coin Exchange (“CCE”) and all of the common stock of a related business (“CTP”)
      for an aggregate purchase price of $2,180,000, of which $1,680,000 was paid
      in
      cash at closing. The remaining balance of $500,000, which was paid after
      September 30, 2005, was included in accrued liabilities in the accompanying
      condensed consolidated balance sheet at September 30, 2005. CCE is a
      subscription-based dealer-to-dealer internet bid-ask market for third-party
      certified coins. CCE’s operating results have been consolidated in to our
      operating results from the date of its acquisition.





The
      Company intends to, and is in the process of selling CTP. In accordance with
      SFAS 144, the assets of CTP are classified as held for sale in the accompanying
      condensed consolidated balance sheet at September 30, 2005 and are stated at
      fair value, less disposal costs, and the results of operation of CTP from the
      date of acquisition through September 30, 2005, are classified as part of the
      loss from discontinued operations for the three months ended September 30,
      2005.





The
      Company has performed an initial and preliminary purchase price allocation
      with
      respect to these acquisitions **** in
      accordance with the purchase method of accounting for business combinations.
      The
      purchase method of accounting allocates the amount paid for an acquisition
      over
      the fair value of the assets and liabilities acquired, and measures the excess
      of the purchase price over the fair value as goodwill. Goodwill is evaluated
      at
      least annually for impairment, or more frequently, if the acquirer believes
      that
      the goodwill has been impaired due to changing facts and circumstances. Other
      intangible assets that are separable from goodwill and have definite lives
      are
      subject to amortization over their remaining useful lives. Indefinite-lived
      intangible assets are subject to on-going evaluation for impairment.





9


The
      Company performed an initial and preliminary purchase price allocation as set
      forth in the following table:





(in
                thousands)**CCE**
            
            **Coin**
              **Facts**
            
            **Total**Cost
                of Investment:Purchase
                Price
            
            $
            2,180
            
            $
            500
            
            $
            2,680Other
                direct costs
            
            
            135
            
            
            15
            
            
            1502,315
            
            
            515
            
            
            2,830Value
                Assigned to Assets and Liabilities:Current
                assets
            
            
            93
            
            
            -
            
            
            93Current
                liabilities
            
            
            (39
            )
            
            -
            
            
            (39
            )Deferred
                revenue
            
            
            (73
            )
            
            -
            
            
            (73
            )Assets
                held for sale
            
            
            501
            
            
            -
            
            
            501Deferred
                taxes
            
            
            (423
            )
            
            -
            
            
            (423
            )Transition
                services
            
            
            27
            
            
            -
            
            
            27Intangible
                Assets with Finite LivesCustomer
                list
            
            
            676
            
            
            -
            
            
            676Software
            
            
            207
            
            
            -
            
            
            207Covenants
                not to compete
            
            
            25
            
            
            -
            
            
            25Intangible
                Assets with Indefinite Lives:Trade
                name and marks
            
            
            39
            
            
            -
            
            
            39Excess
                of purchase price over fair value of net assets acquired
                (goodwill)
            
            $
            1,282
            
            $
            515
            
            $
            1,797





The
      intangible assets with finite lives will be amortized over their estimated
      useful lives, as follows:





Customer
                List
            15
                yearsSoftware
            5
                yearsCovenant
                not to compete
            5
                years





Based
      on
      these useful lives, annual amortization for each of the next five years will
      be
      approximately $91,000.





10


The
      following pro forma financial data presents the unaudited pro-forma consolidated
      statements of income for the Company for the three month periods ended September
      30, 2005 and 2004 based on the assumption that the Coinfacts and CCE
      acquisitions had both been consummated on July 1, 2004, rather than on the
      actual dates of their acquisition. These pro forma unaudited statements of
      income do not purport to represent what the Company’s actual results of
      operations would have been had these acquisitions been consummated on July
      1,
      2005 and are not necessarily indicative of the Company’s results of operations
      for any subsequent interim period in the current fiscal year or in any
      subsequent year.





(in
                thousands)**Three
                Months Ended September 30,**
            
            **Three
                Months Ended**
              **September
                30,****2005**
            
            **2004**Revenue
            
            $
            9,041
            
            $
            8,398Operating
                income
            
            
            1,206
            
            
            2,183Interest
                income, net
            
            
            542
            
            
            66Other
                income (expense), net
            
            
            8
            
            
            (2
            )Income
                before provision for income taxes
            
            
            1,756
            
            
            2,247Provision
                for income taxes
            
            
            (738
            )
            
            (899
            )Income
                from continuing operations
            
            
            1,018
            
            
            1,348Income
                from discontinued operations
            
            
            10
            
            
            (33
            )Net
                income
            
            
            1,028
            
            
            1,315Net
                income per diluted share:Income
                from continuing operations
            
            $
            0.12
            
            $
            0.21Income
                (loss)****from
                discontinued operations
            
            $
            0.00
            
            $
            (0.01
            )Net
                income
            
            $
            0.12
            
            $
            0.20





3. CASH
      AND
      CASH EQUIVALENTS





At
      September 30, 2005, cash and cash equivalents included approximately $62 million
      of securities primarily comprising high-quality commercial paper, and
      certificates of deposit issued by U.S. or foreign companies. The minimum credit
      quality of the commercial paper portfolio funds in a money market account must
      be rated no less than single-A long term or A1/P1 short term, and the portfolio
      must contain no more than 25% exposure to securities of issuers whose principal
      business activities are in the same industry. However, the 25% limitation does
      not apply to securities guaranteed by the U.S. government or to bank
      obligations, subject to U.S. banking regulations. In addition, the weighted
      average maturity of the portfolio must not exceed 90 days. Such trading
      securities are carried at market value in the accompanying condensed
      consolidated balance sheet at September 30, 2005. Unrealized gains on such
      trading securities were approximately $110,000 for the three months ended
      September 30, 2005.




11


4. INVENTORIES




Inventories
                consist of the following:(in
                thousands)**September
                30,**
            
            **June
                30,****2005**
            
            **2005**Coins
            
            $
            280
            
            $
            276Other
                collectibles
            
            
            41
            
            
            37Grading
                raw materials consumable inventory
            
            
            154
            
            
            157475
            
            
            470Less
                inventory reserve
            
            
            (38
            )
            
            (34
            )Inventories,
                net
            
            $
            437
            
            $
            436





5. PROPERTY
      AND EQUIPMENT





Property
                and equipment consist of the following:(in
                thousands)**September
                30,**
            
            **June
                30,****2005**
            
            **2005**Coins
                and Stamp grading reference sets
            
            $
            62
            
            $
            62Computer
                hardware and equipment
            
            
            1,042
            
            
            988Computer
                software
            
            
            902
            
            
            900Equipment
            
            
            1,332
            
            
            1,330Furniture
                and office equipment
            
            
            727
            
            
            689Leasehold
                improvements
            
            
            438
            
            
            438Trading
                card reference library
            
            
            52
            
            
            524,555
            
            
            4,459Less
                accumulated depreciation and amortization
            
            
            (3,701
            )
            
            (3,602
            )Property
                and equipment, net
            
            $
            854
            
            $
            857





6. ACCRUED
      LIABILITIES





Accrued
      liabilities consist of the following:





(in
                thousands)**September
                30,**
            
            **June
                30,****2005**
            
            **2005**Warranty
                Costs
            
            $
            583
            
            $
            609Professional
                fees
            
            
            400
            
            
            211Amount
                due for acquisition (note 2)
            
            
            500
            
            
            -Other
            
            
            552
            
            
            743$
            2,035
            
            $
            1,563





12


The
      following table presents the changes in the Company’s warranty reserve during
      the three months ended September 30, 2005 and 2004 (in thousands):





(in
                thousands)**Three
                Months Ended September 30,**
            
            **Three
                Months Ended**
              **September
                30,****2005**
            
            **2004**Warranty
                reserve, beginning of period
            
            $
            609
            
            $
            492Charged
                to cost of revenue
            
            
            116
            
            
            143Payments
            
            
            (142
            )
            
            (33
            )Warranty
                reserve, end of period
            
            $
            583
            
            $
            602





7.
            DISCONTINUED
                OPERATIONS





As
      previously disclosed, on December 4, 2003, the Company’s Board of Directors
      authorized management to implement a plan to focus the Company’s financial and
      management resources, and collectibles expertise, on the operations and growth
      of its grading and authentication businesses, by divesting the Company’s
      collectibles auctions and direct sales businesses. Therefore, in accordance
      with
      SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      the
      assets and related liabilities of those collectible sales businesses, are
      classified as held for sale and the related operating results are classified
      as
      discontinued operations in the accompanying condensed consolidated balance
      sheets at September 30, 2005 and June 30, 2005 and condensed consolidated
      statements of operations for the three-month periods ended September 30, 2005
      and 2004. The Company sold or otherwise disposed of all of its collectibles
      auctions and direct sales businesses prior to the beginning of the quarter
      ended
      March 31, 2005, but elected to retain, and has been liquidating, the remaining
      inventories, accounts receivable and liabilities of those businesses.





In
      addition, as discussed in note 2 above as part of the acquisition of CCE, the
      Company acquired the common stock of CTP, which the Company intends to and
      is in
      the process of selling. Such sale is expected to be finalized in the second
      quarter of fiscal 2006.




The
        operating results of the discontinued collectible sales businesses ,
        and those
        of
        CTP since the date of its acquisition, that are included
        in the accompanying consolidated condensed statements of operations, are
        as
        follows (in thousands):


**(in
                thousands)****Three
                Months Ended**
              **September
                30,****2005**
            
            **2004**Net
                revenues
            
            $
            61
            
            $
            255Loss
                from operations
            
            
            (36
            )
            
            (234
            )Gain
                on sale of discontinued businesses
            
            
            4
            
            
            11932
            
            
            (115
            )Income
                tax benefit
            
            
            20
            
            
            46Net
                loss from discontinued operations
            
            $
            (12
            )
            $
            (69
            )





The
      loss
      from discontinued operations in the three months ended September 30, 2005
      includes bad debt expenses of approximately $73,000 related to a note receivable
      that became uncollectible in the period.





The
      gains
      realized on sales of discontinued businesses in the three-month periods ended
      September 30, 2005 and September 30, 2004 related to contingent consideration
      that became determinable in those periods.


13


The
      following table contains summary balance sheet information with respect to
      the
      net assets and liabilities of the collectible sales businesses held for sale
      that are included in the accompanying condensed consolidated balance sheets:





**(in
                thousands)****September
                30,**
              **2005**
            
            **June
                30,**
              **2005**Current
                assets:Accounts
                receivable
            
            $
            3
            
            $
            58Inventories
            
            
            189
            
            
            189Consignment
                advances
            
            
            30
            
            
            30Notes
                receivable
            
            
            52
            
            
            88$
            274
            
            $
            365Non-current
                assets:Goodwill
                and other intangibles
            
            
            463
            
            
            -Notes
                receivable, net of current portion
            
            $
            -
            
            $
            46$
            463
            
            $
            46Current
                liabilities:Consignors
                payable
            
            $
            1
            
            $
            1Other
                current liabilities
            
            
            36
            
            
            26$
            37
            
            $
            27





8.
            INCOME TAXES





Income
      tax expense was provided for at rates of 42% and 40% for the three-month periods
      ended September 30, 2005 and September 30, 2004, respectively. The increased
      rate, in 2005, reflects the expected federal and state statutory rate of
      approximately 40% adjusted for certain permanent tax differences related to
      stock compensation expense for incentive stock options that are not allowable
      for income tax purposes.






14





9.
            NET
                INCOME PER SHARE





Net
      income per share is determined in accordance with SFAS No. 128, *Earnings
      Per Share* .
      Net
      income per share for the three-month periods ended September 30, 2005 and 2004,
      respectively, are computed as follows:





(in
                thousands,
              except
                share data)**Three
                Months Ended**
              **September
                30,****2005**
            
            **2004**Income
                from continuing operations
            
            $
            979
            
            $
            1,311Loss
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            (12
            )
            
            (69
            )Net
                income
            
            $
            967
            
            $
            1,242NET
                INCOME (LOSS) PER SHARE - BASIC:Income
                from continuing operations
            
            $
            0.11
            
            $
            0.21Loss
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            -
            
            
            (0.01
            )Total
            
            $
            0.11
            
            $
            0.20NET
                INCOME (LOSS) PER SHARE - DILUTED:Income
                from continuing operations
            
            $
            0.11
            
            $
            0.20Loss
                from discontinued operations, net of gain on sales ofdiscontinued
                businesses (net of income taxes)
            
            
            -
            
            
            (0.01
            )Total
            
            $
            0.11
            
            $
            0.19WEIGHTED
                AVERAGE SHARES OUTSTANDING:Basic
            
            
            8,486
            
            
            6,214Effect
                of dilutive share
            
            
            320
            
            
            355Diluted
            
            
            8,806
            
            
            6,569





Options
      and warrants to purchase approximately 745,000 shares of common stock for the
      three months ended September 30, 2005 and approximately 530,000 for the three
      months ended September 30, 2004 at exercise prices of up to $24 per share,
      were
      not included in the computation of diluted earnings per share because the
      options’ and warrants’ exercise prices were greater than the average market
      price for the respective periods.





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 three reportable service
      segments: coins, sportscards and other high-end collectibles. Services provided
      by these segments include authentication, grading, publication advertising
      and
      subscription-based revenues.


15


BUSINESS
      SEGMENTS (continued)





We
      allocate operating expenses to each service segment based upon activity levels.
      We do not allocate specific assets to these service segments. All of our sales
      and identifiable assets are located in the Unit ed
      States.





**Three
                Months Ended September 30,****2005**
            
            **2004**Net
                revenues from external customersCoins
            
            $
            5,753
            
            $
            5,608Sportscards
            
            
            2,106
            
            
            2,047Other
            
            
            966
            
            
            540Total
                revenue
            
            $
            8,825
            
            $
            8,195Operating
                income before unallocated expensesCoins
            
            
            2,733
            
            
            2,827Sportscards
            
            
            321
            
            
            338Other
            
            
            60
            
            
            (91
            )Total
            
            
            3,114
            
            
            3,074Unallocated
                operating expenses
            
            
            (1,839
            )
            
            (949
            )Stock-based
                compensation
            
            
            (132
            )
            
            -Consolidated
                operating income
            
            $
            1,143
            
            $
            2,125





11.
            LINE
                OF CREDIT





To
      provide a source of funds for its Dealer Financing Program, in June 2005 our
      wholly-owned subsidiary, Collectors Finance Corp. (“CFC”), entered
      into a two-year revolving bank line of credit agreement, that permits CFC to
      borrow, at any one time, up to the lesser of (i) $7,000,000 or (ii) an amount
      equal to 85% of the aggregate principal amount of customer receivables that
      meet
      the bank’s eligibility criteria. Borrowings under this credit line bear interest
      at rates based on the bank’s Prime Rate or LIBOR, as applicable, and are secured
      by substantially all the assets of CFC (including customer receivables and
      CFC’s
      security interests in customers owned loan collateral).




Costs
      of
      approximately $340,000 (comprising a loan agreement fee, bank fees and legal
      fees) were incurred in connection with this line of credit. At September 30,
      2005, these costs have been capitalized and are being amortized to net interest
      expense for CFC, which is included in net revenues in the condensed consolidated
      statements of operations for the three months ended September 30, 2005. The
      unamortized amount of such costs are included in prepaid expenses and other
      current assets in the accompanying condensed consolidated balance sheet at
      September 30, 2005. On a quarterly basis, CFC incurs an unused line fee of
      0.25%
      per annum, based on the average daily unused portion of the total facility
      during the quarter.




CFC’s
      obligations under this line of credit have been guaranteed by the Company
      pursuant to a Continuing Guaranty Agreement with the bank lender. The terms
      of
      that Agreement require the Company to be in compliance with certain financial
      and other restrictive covenants, and require the consent of the lender (i)
      for
      the Company to pay cash dividends or repurchase shares of its common stock
      in
      amounts exceeding its annual net income in any year, and (ii) to consummate
      more
      than $5 million of business acquisitions in any year. The Company was in
      compliance with all covenants at September 30, 2005.






16





12.
            LEGAL MATTERS




Bill
        Miller v. Collectors Universe, Inc .
        As
        previously reported, the Company is a defendant in this legal action, which
        was
        brought in the Superior Court of California, County of Orange, by Bill Miller,
        a
        former employee of the Company, who was president of one of the Company’s
        collectibles sales businesses that was sold in 2004 and an expert in the
        authentication of autographs and memorabilia. The complaint alleges that
        the
        Company had issued authentication certificates bearing plaintiff’s name without
        his consent, in violation of a California statute prohibiting unauthorized
        appropriation of a person’s name, signature or likeness. The statute provides
        that a person whose name, signature or likeness has been misappropriated,
        in
        violation of the statute, is entitled to recover the greater of $750 or the
        actual damages suffered as a result of the unauthorized use, and any profits
        from that are attributable to that unauthorized use that are not taken into
        account in computing the actual damages. The
        Company denied plaintiff’s allegations and has asserted
        that plaintiff is not entitled, under the statute, to any recovery in excess
        of
        his actual damages and that, in any event, he had not suffered any damages
        as a
        result of the issuance of the certificates.
  On
        November 7, 2005, the jury made a finding of fact that the Company had issued
        14,060 certificates bearing the plaintiff’s signature without his consent. The
        jury also found that the profit attributable to the Company’s use of those
        certificates was $14,060, or $1.00 per certificate, and that the Company
        must
        compensate plaintiff for that profit.  However,
        despite the jury’s finding, the case is not yet concluded and no judgment has
        been entered, because
        the Judge in the action must still rule on the question of whether the
        California statute entitles plaintiff to recover amounts in excess of the
        $14,060 in profits. Plaintiff’s counsel has taken the position that his client
        is entitled to recover damages in excess of $10 million based on the assertion
        that the statute entitles plaintiff to $750 for each certificate issued without
        plaintiff’s consent. The Company, on the other hand, has asserted that, under
        the statute, its liability is limited to amounts approximating the $14,060
        in
        profits awarded by the jury and the Company believes that it will not incur
        any
        material liability to plaintiff in this action. However, there is little
        interpretive history with respect to the statute, creating a number of
        relatively novel legal issues . As
        a
        result, it is not possible to predict, with certainty, how
        the
        Judge will ultimately rule on the issue of damages .
  Other
          Legal Actions .
          The
          Company is named, from time to time, as a defendant in lawsuits that arise
          in
          the ordinary course of its business. Management of the Company believes
          that
          none of those lawsuits currently pending against it is likely to have a
          material
          adverse effect on the Company.


13.
            SUBSEQUENT EVENTS





On
      November 7, 2005, the Company acquired the outstanding common stock of Gem
      Certification & Appraisal Lab (GCAL), an international forensic gemological
      certification and grading laboratory. As part of that transaction, the Company
      also acquired Diamond Profile Laboratory, Inc. (DPL), a scientific diamond
      light
      performance analysis laboratory, and all publishing and other rights to
“Palmieri’s Market Monitor,” an educational and informative industry publication
      currently published by the Gemological Appraisal Association, Inc. (GAA). The
      Company paid an aggregate acquisition price of $3 million in cash for GCAL,
      DPL
      and the publishing and other rights to “Palmieri’s Market Monitor.”





17


**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 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 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





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 referred to above.





**Our
      Business**





Collectors
      Universe Inc. (the “Company”) provides grading and authentication services to
      dealers and collectors of high-end collectible coins, sportscards, stamps,
      sports and entertainment memorabilia, and autographs that we believe add value
      to those collectibles by enhancing their marketability and, thereby, providing
      increased liquidity to the dealers and collectors that own and buy and sell
      such
      collectibles.





We
      principally generate revenues from the fees paid by dealers and collectors
      for
      our authentication and grading services. To a much lesser extent, we generate
      revenues from the sale of advertising on our websites; the sale of printed
      publications and collectibles price guides and advertising in such publications;
      and the sale of historical data and information about the collectibles graded
      and authenticated by us that we believe facilitates commerce in those
      collectibles.





On
      July
      14, 2005, the Company purchased substantially all the assets of CoinFacts.com,
      which operates an internet website on which it publishes detailed proprietary
      information and history on U.S. Coins. On September 2, 2005, the Company
      acquired the common stock of Certified Coin Exchange (“CCE”), which operates a
      subscription-based dealer-to-dealer internet bid-ask market for third-party
      certified coins. The respective operating results of Coinfacts.com and CCE
      have
      been consolidated into our operating results from the respective dates of their
      acquisition. In connection with our acquisition of CCE, we also acquired a
      related company (“CTP”). We intend to and are in the process of selling CTP and,
      as a result, the assets of CTP have been classified as held for sale and its
      results of operations are classified as part of the loss from discontinued
      operations for the three months ended September 30, 2005.





During
      the period from 1999 through the latter part of fiscal 2004, we also were
      engaged in the business of marketing and selling collectible coins, sportscards
      and sports entertainment and historical memorabilia. Most of those sales were
      made at multi-venue auctions that were conducted by our collectibles sales
      divisions. We also sold collectible coins, at retail, by direct sales
      methods.


18


At
      the
      authorization of our Board of Directors, in December 2003 we adopted a plan
      to
      focus our financial and managerial resources and collectibles expertise on
      the
      operation and growth of our authentication and grading and other collectibles
      service businesses, and to divest our collectibles auctions and direct sales
      businesses.





Pursuant
      to that plan, during fiscal 2004 we sold our collectibles auction businesses
      and
      terminated our direct sales collectible coins business. However, we retained
      the
      collectibles inventories and the outstanding accounts receivables of those
      businesses, substantially all of which had been liquidated by September 30,
      2005.





In
      accordance with Statement of Financial Accounting Standard (“SFAS”) No. 144, the
      assets and related liabilities of the collectible sales businesses and CTP
      have
      been classified as held for sale and their related operating results have been
      classified as discontinued operations.





As
      a
      result of our divestiture of our collectibles auctions and sales businesses,
      the
      discussion that follows focuses almost entirely on our authentication and
      grading businesses, which comprise substantially all of our continuing
      operations.





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





*Factors
      that Can Affect our Revenues and Cash Flows* .
      The
      provision of authentication and grading and other value-added services provides
      relatively stable and predictable cash flows, as the fees for most of the
      grading submissions we receive are prepaid. In the three months ended September
      30, 2005 and 2004, respectively, we generated cash of $1,935,000, and
      $2,405,000, respectively, from the operating activities of our continuing
      businesses.





During
      the three months ended September 30, 2005, we generated cash of $173,000 from
      the sales of our collectibles sales businesses and the liquidation of the
      inventories and accounts receivable of those businesses that were not included
      in those **** sales.
      In
      addition, we increased our assets held for sale by $501,000 as a result of
      an
      acquisition of CTP, which the Company purchased as part of the CCE transaction,
      but which the Company intends to, and is in the process of selling. As a result,
      at September 30, 2005, the remaining assets of those businesses, which we are
      in
      the process of liquidating, totaled approximately $737,000, as compared to
      $411,000 at June 30, 2005.





*Factors
      Affecting our Gross Profit Margins* .
      The
      gross profit margins on authentication and grading submissions are primarily
      affected by the mix of collectibles submitted to us for grading (i) between
      coins and sportscards and (ii) between vintage or “classic” coins and
      sportscards, on the one hand, and modern coins and sportscards, on the other
      hand. In addition, our fees for authentication and grading of coins and
      sportscards vary depending on the “turn-around” time requested by our customers,
      because we charge higher fees for faster service times. Since, as a general
      rule, customers request faster turn-around times for vintage or classic coins
      and sportscards than they do for modern submissions, the mix of submissions
      between vintage and modern collectibles also affects our profit
      margin.





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


19


The
      following table provides information regarding the respective numbers of coins,
      sportscards, autographs, stamps and currency that were graded or authenticated
      by us in the quarters ended September 30, 2005 and 2004 and their estimated
      values, which are the amounts at which those coins, sportscards and stamps
      were
      insured by the dealers and collectors who submitted them to us for grading
      and
      authentication.





**Units
                Processed**
              **Three
                Months Ended September 30,**
            
            **Declared
                Value (000)**
              **Three
                Months Ended September 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Coins
            
            
            395,000
            
            
            53
            %
            
            371,000
            
            
            56
            %
            $
            352,707
            
            
            89
            %
            $
            301,155
            
            
            91
            %Sportscards
            
            
            283,000
            
            
            38
            %
            
            265,000
            
            
            40
            %
            
            17,246
            
            
            5
            %
            
            16,925
            
            
            5
            %Autographs
            
            
            55,000
            
            
            7
            %
            
            22,000
            
            
            3
            %
            
            3,188
            
            
            1
            %
            
            9,767
            
            
            3
            %Stamps
            
            
            9,000
            
            
            1
            %
            
            5,000
            
            
            1
            %
            
            5,169
            
            
            1
            %
            
            4,731
            
            
            1
            %Currency
            
            
            9,000
            
            
            1
            %
            
            -
            
            
            -
            
            
            16,009
            
            
            4
            %
            
            -
            
            
            -Total
            
            
            751,000
            
            
            100
            %
            
            663,000
            
            
            100
            %
            $
            394,319
            
            
            100
            %
            $
            332,578
            
            
            100
            %





**Critical
      Accounting Policies and
      Estimates**





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





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





The
      decisions as to the timing of adjustments or write-downs of this nature also
      require subjective evaluations or assessments about the effects and duration
      of
      events or changes in circumstances. For example, it is difficult to predict
      whether events, such as occurred on September 11, 2001 or increases in interest
      rates or economic slowdowns, will have short or longer term consequences for
      our
      business, and it is not uncommon for it to take some time after the occurrence
      of an event or the onset of changes in economic circumstances for the full
      effects of such events or changes to be recognized. Therefore, management makes
      such estimates based upon the information available at that time and reevaluates
      and adjusts its reserves and allowances for potential write-downs on a quarterly
      basis.





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





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


20


In
      addition, from time to time, the Company is required to account for certain
      one-time transactions in accordance with GAAP. For example, we acquired certain
      businesses in the three months ended September 30, 2005 and, in accordance
      with
      GAAP, we applied the purchase method of accounting to such transactions. The
      purchase method of accounting allocates the amount paid for an acquisition
      over
      the fair value of the assets and liabilities acquired, and measures the excess
      of the purchase price over the fair value as goodwill. Goodwill is evaluated
      at
      least annually for impairment, or more frequently, if the acquirer believes
      that
      the goodwill has been impaired due to changing facts and circumstances. Other
      intangible assets that are separable from goodwill and have definite lives
      are
      subject to amortization over their remaining useful lives. Indefinite-lived
      intangible assets are subject to on-going evaluation for
      impairment.





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





*Revenue
      Recognition Policies* .
      We
      record revenue at the time of shipment of the graded collectible to the
      customer. Our authentication and grading customers generally prepay our
      authentication and grading fees when they submit their collectible items to
      us
      for authentication and grading. We record those prepayments as deferred revenue
      until their graded collectibles are shipped back to them. At that time, we
      record the revenues from the authentication and grading services we have
      performed for the customer and deduct this amount from deferred revenue. For
      certain dealers to whom we extend open account privileges, we record revenue
      at
      the time of shipment of the graded collectible to the dealer.





*Accounts
      Receivable and the Allowance for Doubtful Accounts.* In
      the
      normal course of business, we extend payment terms to many of the larger, more
      creditworthy collectibles dealers who submit collectibles to us for grading
      and
      authentication on a recurring basis. We regularly review their accounts,
      estimate the amount of, and establish an allowance for, uncollectible amounts
      in
      each quarterly period. The amount of that allowance is based on several factors,
      including the age and extent of significant past due accounts, and known
      conditions or trends that may affect the ability of account debtors to pay
      their
      accounts receivable balances. Estimates of uncollectible amounts are reviewed
      each quarter and, based on that review, are revised to reflect changed
      circumstances or conditions in the quarterly period they become known. For
      example, if the financial condition of certain dealers or economic conditions
      were to deteriorate, adversely affecting their ability to make payments on
      their
      accounts, increases in the allowance may be required. Since the allowance is
      created by recording a charge against income that is reflected in general and
      administrative expenses, an increase in the allowance will cause a decline
      in
      our operating results in the period when the increase is recorded.





*Inventory
      Valuation Reserve* .
      Our
      collectibles inventories are valued at the lower of cost or market and have
      been
      reduced by an inventory valuation allowance to provide for declines in the
      value
      of those inventories. The amount of the allowance is determined on the basis
      of
      market knowledge, historical experience and estimates concerning future economic
      conditions 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 more standards products sold
      by
      other businesses.





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





*Grading
      Warranty Costs* .
      We
      offer a warranty covering the coins, sportscards, stamps and currency we
      authenticate and grade. Under the warranty, if any collectible that was
      previously graded by us is later submitted to us for re-grading and either
      (i)
      receives a lower grade upon that resubmittal or (ii) is determined not to have
      been authentic, we will offer to purchase the collectible or pay the difference
      in value of the item at its original grade as compared with its lower grade.
      However, this warranty is voided if the collectible, upon resubmittal to us,
      is
      not in the same tamper resistant holder in which it was placed at the time
      we
      last graded it. We accrue for estimated warranty costs based on historical
      trends and related experience. To date our reserves have proved to be adequate.
      However, if warranty claims were to increase in relation to historical trends
      and experience, we would be required to


21


increase
      our warranty reserves and incur additional charges that would adversely affect
      our results of operations in those periods during which the warranty reserve
      is
      increased.





*Long-Lived
      Assets.* Management
      regularly reviews property and equipment and other long-lived assets, including
      certain identifiable intangibles and goodwill, for possible impairment. This
      review occurs annually, or more frequently if events or changes in circumstances
      indicate the carrying amount of the asset may not be recoverable in full. If
      there is indication of impairment of property and equipment or amortizable
      intangible assets, then management prepares an estimate of future cash flows
      (undiscounted and without interest charges) expected to result from the use
      of
      that asset and its eventual disposition. If these cash flows are less than
      the
      carrying amount of the asset, an impairment loss is recognized to write down
      the
      asset to its estimated fair value. The fair value is estimated at the present
      value of the future cash flows discounted at a rate commensurate with
      management’s estimates of the business risks. The Company does not believe there
      were any impairment of its long-lived assets as of September 30, 2005. There
      can
      be no assurance, however, that there will be no impairment of the Company’s
      long-lived assets in the future.




*Stock-Based
      Compensation.* Effective
      July 1, 2005, the Company recognizes compensation costs based on the fair value
      recognition provision of SFAS 123(R), using the Black-Scholes option-pricing
      method. Under such method, assumptions are made for the expected lives of the
      options granted, the expected volatility of the Company’s stock and the
      risk-free interest rate at the date of grant. In addition, under SFAS 123(R),
      we
      estimate forfeitures such that the expense recognized is stated net of such
      estimated forfeitures. Compensation cost is recognized over the vesting period
      of such options using the straight-line attribution method.





**Results
      of Operations**





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





**Three
                Months Ended September 30,****2005**
            
            **2004**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            37.6
            %
            
            34.5
            %Gross
                profit
            
            
            62.4
            %
            
            65.5
            %Operating
                expenses:Selling
                and marketing expenses
            
            
            12.3
            %
            
            11.7
            %General
                and administrative expenses
            
            
            35.6
            %
            
            27.9
            %Stock-based
                compensation
            
            
            1.5
            %
            
            -Total
                operating expenses
            
            
            49.4
            %
            
            39.6
            %Operating
                income
            
            
            13.0
            %
            
            25.9
            %Interest
                income, net
            
            
            6.1
            %
            
            0.8
            %Other
                expenses
            
            
            0.1
            %
            
            -Income
                before provision for income taxes
            
            
            19.2
            %
            
            26.7
            %Provision
                for income taxes
            
            
            (8.1
            %)
            
            (10.7
            %)Income
                from continuing operations after income taxes
            
            
            11.1
            %
            
            16.0
            %Loss
                from discontinued operations, net of gain on
              sales
                of discontinued businesses (net of income taxes)
            
            
            (0.1
            %)
            
            (0.8
            %)Net
                income
            
            
            11.0
            %
            
            15.2
            %





22


*Net
      Revenues*





Grading
      and authentication fees consist primarily of fees generated from the
      authentication and grading of high-value coins, sportscards, autographs, stamps
      and currency and to a lesser extent revenues from the publication of
      collectibles magazines, the sale of advertising for placement on our websites
      and in our magazines, and from subscription-based revenues. Net revenues are
      determined net of discounts and allowances.




The
      following tables set forth information regarding the net revenues attributable
      to the authentication and grading of coins, sportscards and other collectibles
      (principally autographs and stamps), respectively, in the three months ended
      September 30, 2005 and 2004:







**Three
                Months Ended September 30,**
            
            **Percentage**
              **Increase****2005**
            
            **2004**
            
            **2005
                over 2004****Amount**
            
            **%
                of Revenues**
            
            **Amount**
            
            **%
                of Revenues**Net
                Revenues:Coins
            
            $
            5,753
            
            
            65.2
            %
            $
            5,608
            
            
            68.4
            %
            
            2.6
            %Sportscards
            
            
            2,106
            
            
            23.9
            %
            
            2,047
            
            
            25.0
            %
            
            2.9
            %Other
                collectibles
            
            
            966
            
            
            10.9
            %
            
            540
            
            
            6.6
            %
            
            78.9
            %Net
                revenues
            
            $
            8,825
            
            
            100.0
            %
            $
            8,195
            
            
            100.0
            %
            
            7.7
            %





The
      $630,000 (7.7%) increase in revenues for the three months ended September 30,
      2005, compared to the corresponding period of the prior year, reflects a 13%
      increase in the total number of units graded and authenticated, compared to
      the
      corresponding period of the prior year. The number of coins graded and
      authenticated increased by 6%, compared to the corresponding period of the
      prior
      year, while coin revenues increased by 3%, as a result of modern coins
      representing a higher proportion of units graded than in the corresponding
      period of the prior year. For other collectibles, the number of units graded
      and
      authenticated increased by 170%, while other collectibles revenues increased
      by
      79%. For sportscards, the number of units increased by 7%, while sportscard
      revenues increased by 3%. We believe the slowing in the rate of growth in coin
      revenues reflects lower revenues earned by the Company from one of its larger
      customers due to a serious medical problem. The Company earned approximately
      10%
      from such customer in the three months ended September 30, 2004, compared with
      approximately 4% in the three months ended September 30, 2005. In addition,
      we
      have seen a minor slowdown in the coin market.




*Gross
      Profit*




Gross
      profit is calculated by subtracting the cost of revenues from net revenues.
      Cost
      of revenues for grading and authentication revenues, primarily consist of labor
      to grade and authenticate collectibles, production costs, credit cards fees,
      warranty expense and occupancy, security and insurance costs that directly
      relate to providing authentication and grading services. For other revenues,
      cost of revenue include printing and other direct costs. Gross profit margin
      is
      gross profit stated as a percent of net revenues.





Set
      forth
      below is information regarding our gross profits in the quarter ended September
      30, 2005 and 2004.





**Three
                Months Ended September 30,****2005**
            
            **2004****Amount**
            
            **%
                of Revenues**
            
            **Amount**
            
            **%
                of Revenues**Gross
                profit
            
            $
            5,509
            
            
            62.4
            %
            $
            5,369
            
            
            65.5
            %





The
      total
      gross profit margin earned in the three months ended September 30, 2005 was
      62.4%, compared with 65.5% in the corresponding period of the prior year. The
      decline in the gross profit margin in the three months


23


ended
      September 30, 2005, primarily related to the change in the mix of collectibles
      authenticated and graded in the quarter and increases in direct costs for coins,
      consisting of grading and support personnel and security costs totaling
      approximately $240,000, compared to the corresponding period of the prior year.





*Selling
      and Marketing Expenses*





Selling
      and marketing expenses include advertising and promotions costs, trade-show
      related expenses, customer service personnel costs and third party consulting
      costs. Set forth below is information regarding our selling and marketing
      expenses in the three-month period ended September 30, 2005 and
      2004.





**Three
                Months Ended September 30,****2005**
            
            **2004**Selling
                and marketing expenses
            
            $
            1,089,000
            
            $
            957,000Percent
                of net revenues
            
            
            12.3
            %
            
            11.7
            %





The
      increase in the dollar amount of selling and marketing expenses in the three
      months ended September 30, 2005, compared to the same respective period of
      2004,
      was primarily attributable to increases in trade-show related costs of
      approximately $85,000, attributable to our coin and other collectibles division,
      and increased sales and marketing and customer service personnel costs of
      approximately $50,000. Selling and marketing costs are generally higher in
      the
      first quarter of the year, because the number of large trade shows held in
      that
      fiscal quarter ordinarily exceeds the number held in any of the other fiscal
      quarters of the year.





*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 and other miscellaneous expenses.





**Three
                Months Ended September 30,****2005**
            
            **2004**General
                and administrative expense
            
            $
            3,145,000
            
            $
            2,287,000Percent
                of net revenues
            
            
            35.6
            %
            
            27.9
            %





In
      dollar
      terms, the main components of the increase in G&A expenses in the three
      months ended September 30, 2005, compared to September 30, 2004, consisted
      primarily of (i) approximately $360,000 of expenses associated with the audit
      of
      the effectiveness of the Company’s internal control over financial reporting
      pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and annual financial
      statement audit for fiscal year 2005, as such costs are recognized as incurred;
      (ii) approximately $75,000 of increased finance and internal audit costs
      associated with supporting the increased compliance of Sarbanes-Oxley Section
      404 audit and the continued expansion of the Company’s business; (iii) increased
      costs incurred of $55,000 for upgrading and expansion of the Company’s internal
      systems to support the Company’s increased volume of business and entry into new
      markets; (iv) new business development costs of $136,000, as the Company
      evaluates and identifies new business opportunities; (v) non-cash costs of
      $83,000 in connection with the termination of a sublease at the Company’s
      corporate headquarters; and (vi) increased legal fees of $85,000, primarily
      in
      connection with a pending legal proceeding.





*Stock-Based
      Compensation*





**Three
                Months Ended September 30,****2005**
            
            **2004**Stock-based
                compensation
            
            $
            132,000
            
            $
            -Percent
                of net revenues
            
            
            1.5
            %
            
            0
            %





24


As
      discussed in note 1 to the Company’s condensed consolidated financial
      statements, effective July 1, 2005, the Company adopted SFAS 123(R) for
      share-based payments, which required the Company to recognize stock-based
      compensation of $132,000 for the three months ended September 30, 2005.





Stock-based
      compensation relates to the following:





Cost
                of revenues
            
            $
            56,000Selling
                and marketing expenses
            
            
            1,000General
                and administrative expenses
            
            
            75,000$
            132,000





Prior
      to
      the adoption of SFAS 123(R), we accounted for our stock option plans in
      accordance with the Accounting Principle Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. As such, compensation expense was recorded at the
      date
      of grant only if the quoted market price of the underlying stock on that date
      exceeded the exercise price of the options. However, we had provided pro forma
      net earnings and pro forma net earnings per share disclosures as if the fair
      value of all stock options as of the grant date were recognized as expense
      over
      the vesting period in accordance with SFAS 123 *Accounting
      for* ****** *Stock-Based
      Compensation.*





The
      Company adopted SFAS 123(R) using the modified prospective method, whereby
      no
      prior periods are restated; rather the Company will continue to disclose prior
      period pro forma net earnings and net earnings per share in footnote
      disclosures.





We
      will
      continue to account for equity instruments issued to persons other than Company
      employees and directors (“non-employees”) in accordance with the provisions of
      SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18, *Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services* .
      All
      transactions in which goods or services are the consideration received for
      equity instruments issued to non-employees are accounted for based on the fair
      value of the consideration received or the fair value of the equity instrument
      issued, whichever is more reliably measurable. The measurement date used to
      determine the fair value of any such equity instruments is the earliest to
      occur
      of (i) the date on which the third-party performance is complete, or (ii) the
      date on which it is probable that performance will occur, or (iii) if different,
      the date on which the compensation has been earned by the non-employee. However,
      no equity instruments were issued to non-employees for goods or services during
      fiscal 2005 and 2006.





The
      Company issues stock options to employees and outside directors whose only
      condition for vesting are continued employment or service during the related
      vesting period. Typically, the vesting period is four years for employee awards
      and six months for director awards, although there can be awards granted with
      immediate vesting.





The
      Company calculates stock-based compensation by estimating the fair value of
      each
      option granted using the Black-Scholes option pricing model using various
      assumptions as discussed in note 1 to the condensed consolidated financial
      statements. Compensation cost is recognized on a straight-line basis over the
      vesting period.





For
      the
      three months ended September 30, 2005, stock-based compensation comprised
      compensation costs attributable to such period for those options that were
      not
      fully vested upon adoption of SFAS 123(R) and compensation costs for options
      that were granted during the period, prorated from the date of grant to
      September 30, 2005, adjusted for estimated forfeitures in accordance with SFAS
      123(R).





Such
      method of calculation of stock-based compensation is consistent with the method
      used to compute stock-based compensation under SFAS 123, except that under
      SFAS
      123(R), we are required to estimate forfeitures, which we were not required
      to
      and did not estimate under SFAS 123. We have estimated forfeitures to be 4%,
      which reduced stock-based compensation cost by $5,000 in the three months ended
      September 30, 2005.


25


The
      total
      amount of compensation cost related to non-vested awards not yet recognized
      at
      September 30, 2005, was $1,673,000, and such amount will be recognized as
      compensation expense assuming the employees to whom the options were granted
      continue to be employed by the Company, as follows:





FY
                2006
            
            $
            403,000FY
                2007
            
            
            520,000FY
                2008
            
            
            488,000FY
                2009
            
            
            259,000FY
                2010
            
            
            3,000Total
            
            $
            1,673,000





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





There
      were no modifications made to outstanding share options prior to the adoption
      of
      SFAS 123(R).





*Interest
      Income, Net*





**Three
                Months Ended September 30,****2005**
            
            **2004**Interest
                income, net
            
            $
            542,000
            
            $
            66,000Percent
                of net revenues
            
            
            6.1
            %
            
            0.8
            %





Interest
      income is generated on cash balances that we invest primarily in highly liquid
      money market accounts, short-term bank certificates of deposit and commercial
      paper instruments. Interest income, net was $542,000 in the three months ended
      September 30, 2005, compared with $66,000 in the three months ended September
      30, 2004. The increase in interest income in the three months ended September
      30, 2005, compared to 2004, resulted primarily from increases in our cash and
      cash equivalent balances that were attributable to (i) the cash generated from
      the disposition of our collectibles sales businesses, (ii) the increases in
      income generated by our authentication and grading businesses, and (iii) the
      sale by us of 2,195,856 shares of our common stock in a public offering that
      we
      completed in the third quarter of fiscal 2005, which generated net proceeds
      to
      us of $35,657,000. Also contributing to the increase in interest income was
      an
      increase in the rates at which we earned interest on our cash and cash
      equivalent balances.





*Income
      Tax Expense*





**Three
                Months Ended September 30,****2005**
            
            **2004**Income
                tax expense
            
            $
            714,000
            
            $
            878,000





The
      income tax expense recorded in the three months ended September 30, 2005 and
      2004 was calculated based on our expected combined federal and state effective
      income tax rate of approximately 42% for the three months ended September 30,
      2005 and 40% for the three months ended September 30, 2004. The increase in
      the
      effective rate to 42% reflects increased permanent differences between the
      Company’s income for book purposes and for tax purposes due to the
      non-deductibility of compensation costs recognized on incentive stock options,
      in the three months ended September 30, 2005.





26


*Discontinued
      Operations*





**Three
                Months Ended September 30,****2005**
            
            **2004**Loss from
                discontinued operations, netof
                gain on sales of discontinuedbusinesses
                (net of income taxes).
            
            $
            (12
            )
            $
            (69
            )





The
      net
      loss from discontinued operations in the three months ended September 30, 2005
      includes the results of CTP from September 2, 2005, which was the date of
      acquisition through September 30, 2005 and the continued activities associated
      with the disposition of the assets (consisting primarily of inventories and
      accounts receivables) of the collectibles sales businesses that we sold. In
      the
      three months ended September 30, 2005, the Company recognized a pre-tax bad
      debt
      expense of $73,000 in connection with a note receivable of one of our
      discontinued businesses, that became uncollectible.





**Liquidity
      and Capital Resources**





At
      September 30, 2005, we had cash and cash equivalents of $66,714,000, as compared
      to cash and cash equivalents of $65,439,000 at June 30, 2005. Contributing
      to
      that increase were (i) cash generated from operating income attributable to
      the increases in authentication and grading revenues, and (ii)  cash from
      collections of customer notes receivable.





Historically,
      we have relied on internally-generated funds, rather than borrowings, as our
      primary source of funds to support our grading operations. We expect our
      authentication and grading services to provide us with relatively predictable
      cash flows, largely because (i) in many instances our customers prepay for
      those services at the time they submit their collectibles to us for
      authentication and grading, and (ii) in the event of a decline in
      authentication and grading submissions, we can reduce certain of our variable
      costs to reduce the impact on our cash flows of such a decline.





During
      the three months ended September 30, 2005, our operating activities provided
      net
      cash of $1,935,000.





Net
      cash
      used in investing activities was $847,000 for the three months ended September
      30, 2005 and consisted primarily of cash received from the net collections
      of
      customer notes receivables of $1,483,000 and collections from the sale of our
      discontinued businesses of $48,000, offset by capital expenditures of $99,000
      and cash paid for acquisitions in the period of $2,279,000.





In
      the
      three months ended September 30, 2005, financing activities provided net cash
      of
      $14,000 from the exercise of stock options by employees.





We
      had
      the following outstanding obligations under operating leases, net of sublease
      income for years ending June 30:





2006
            
            $
            1,092,0002007
            
            
            1,164,0002008
            
            
            1,150,0002009
            
            
            1,157,0002010
            
            
            414,000$
            4,977,000





With
      the
      exception of those obligations, we do not have any material financial
      obligations, such as long-term debt, capital lease, or purchase obligations.
      We
      continue to have an obligation to repay any future borrowings under CFC’s $7
      million revolving line of credit; however, there were no borrowings outstanding
      under this line of credit at September 30, 2005.


27


We
      plan
      to use our cash resources to (i) expand existing and implement new
      marketing programs, (ii) introduce new services for our customers;
      (iii) acquire or start-up other high-value collectibles or high-value asset
      authentication and grading businesses, and (iv) fund working capital
      requirements, and for other corporate purposes. We also may seek borrowings,
      and
      we may issue additional shares of our stock, to finance acquisitions of
      additional authentication and grading businesses.





**Recent
      Accounting Pronouncement**




In
      May
      2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 154, *Accounting
      Changes and Error Corrections.* SFAS
      No.
      154 replaces APB Opinion No. 20, *Accounting
      Changes* and FASB
      Statement No 3, *Reporting
      Accounting Changes in Interim Financial Statements* which
      required that most voluntary changes in accounting principle be recognized
      by
      including in net income of the period of the change the cumulative effect of
      changing to the new accounting principle. SFAS No. 154 ** will
      require retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine either
      the period-specific effects or the cumulative effect of the change. This
      statement is effective for accounting changes and corrections of errors made
      in
      fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154
      for
      our fiscal year beginning July 1, 2006.





**Risks
      and Uncertainties That Could Affect Our Future
      Financial Performance**





There
      are
      a number of risks and uncertainties 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 this time. Those risks
      and
      uncertainties include, but are not limited to:




·
            changes
                in general economic conditions or changes in conditions in the
                collectibles markets in which we operate, such as a possible decline
                in
                the popularity of some high-value collectibles, either of which could
                reduce the volume of authentication and grading submissions and,
                therefore, the grading fees we generate;




·
            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, including declines
                in the value of precious metals or recessionary conditions that could
                lead
                to reduced coin and other collectibles submissions 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
                concentration of revenues from a small number of customers, the loss
                of
                any of which could result in a decline in our revenues and
                income;




·
            increased
                competition from other collectibles’ authentication and grading companies
                that could 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
                risk that we will incur unanticipated liabilities under our authentication
                and grading warranties that would increase our operating expenses;




·
            The
                risk that new service offerings and business initiatives, such as
                autograph, stamp and paper currency grading services, and our recently
                inaugurated dealer financing program, will not gain market acceptance
                or
                will be unsuccessful and will, as a result, increase our operating
                expenses and reduce our overall profitability or cause us to incur
                losses;






28




·
            the
                risk that our strategy to exit the collectibles sales business and
                focus
                substantially all of our resources on our authentication and grading
                businesses will not be successful in enabling us to improve our
                profitability over the longer term or to grow our existing businesses
                or
                acquire or commence authentication and grading businesses outside
                our
                current markets;




·
            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 our
                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, and that
                we will
                not achieve adequate returns on the investments we may make in acquiring
                other or establishing new businesses, any of which would harm our
                profitability or cause us to incur losses;




·
            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; and




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




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”), in the Section entitled
      “Factors That Could Affect Our Future Financial Performance” in our
      Annual Report on Form
      10-K for our
      fiscal year
      ended June 30, 2005,
      as
      filed with the SEC under the Securities Exchange Act of 1934, as amended and
      in
      the Section entitled “Risk Factors” in the Prospectus dated February 16, 2005
      that
      we filed with the SEC under the Securities Act of 1933,
      as
      amended.




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
      our **** 2005 Annual
      Report on Form 10-K **** or
      our
      Prospectus dated February 16, 2005.




**ITEM
      3.** **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Market
      risk represents the risk of loss that may impact the financial position, results
      of operations or cash flows of the Company 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 September 30, 2005, we had
      $66,714,000 in cash and cash equivalents, primarily invested in high-grade
      commercial paper, money market funds and certificates of deposit. 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
      4.****CONTROLS
      AND PROCEDURES**





Our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act of 1934, as amended (the
      “Exchange Act” ) are
      designed to provide reasonable assurance that information required to be
      disclosed in our reports filed under that Act, such as this Quarterly Report,
      is
      recorded, processed, summarized and reported within the time periods specified
      in the rules of the Securities and Exchange Commission. Our disclosure controls
      and procedures also are designed to ensure that such information is accumulated
      and communicated to our management, including our CEO and CFO, to allow timely
      decisions regarding required disclosures.


29


Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and the Chief Financial Officer, evaluated the effectiveness
      of our disclosure controls and procedures in effect as of September 30, 2005.
      Based on this evaluation, our Chief Executive Officer and Chief Financial
      Officer concluded that, as of September 30, 2005, our disclosure controls and
      procedures were effective to provide reasonable assurance that material
      information, relating to the Company and its consolidated subsidiaries, required
      to be included in our Exchange Act reports, including this Quarterly Report
      on
      Form 10−Q, is made known to management, including the CEO and CFO, on a timely
      basis.





There
      were no changes in our internal control over financial reporting that occurred
      during the quarter ended September 30, 2005, that has materially affected,
      or
      are reasonably likely to materially affect, our internal control over financial
      reporting


30


**PART
      II - OTHER INFORMATION**




**ITEM
      1.     LEGAL PROCEEDINGS**




Bill
        Miller v. Collectors Universe, Inc .
        As
        previously reported, the Company is a defendant in this legal action, which
        was
        brought in the Superior Court of California, County of Orange, by Bill Miller,
        a
        former employee of the Company, who was president of one of the Company’s
        collectibles sales businesses that was sold in 2004 and an expert in the
        authentication of autographs and memorabilia. The complaint alleges that
        the
        Company had issued authentication certificates bearing plaintiff’s name without
        his consent, in violation of a California statute prohibiting unauthorized
        appropriation of a person’s name, signature or likeness. The statute provides
        that a person whose name, signature or likeness has been misappropriated,
        in
        violation of the statute, is entitled to recover the greater of $750 or the
        actual damages suffered as a result of the unauthorized use, and any profits
        from that are attributable to that unauthorized use that are not taken into
        account in computing the actual damages. The
        Company denied plaintiff’s allegations and has asserted
        that plaintiff is not entitled, under the statute, to any recovery in excess
        of
        his actual damages and that, in any event, he had not suffered any damages
        as a
        result of the issuance of the certificates.
  On
        November
        7, 2005, the jury made a finding of fact that the Company had issued 14,060
        certificates bearing the plaintiff’s signature without his consent. The jury
        also found that the profit attributable to the Company’s use of those
        certificates was $14,060, or $1.00 per certificate, and that the Company
        must
        compensate plaintiff for that profit.  However,
        despite the jury’s finding, the case is not yet concluded and no judgment has
        been entered, because
        the Judge in the action must still rule on the question of whether the
        California statute entitles plaintiff to recover amounts in excess of the
        $14,060 in profits. Plaintiff’s counsel has taken the position that his client
        is entitled to recover damages in excess of $10 million based on the assertion
        that the statute entitles plaintiff to $750 for each certificate issued without
        plaintiff’s consent. The Company, on the other hand, has asserted that, under
        the statute, its liability is limited to amounts approximating the $14,060
        in
        profits awarded by the jury and the Company believes that it will not incur
        any
        material liability to plaintiff in this action. However, there is little
        interpretive history with respect to the statute, creating a number of
        relatively novel legal issues . As
        a
        result, it is not possible to predict, with certainty, how
        the
        Judge will ultimately rule on the issue of damages .


**ITEM
      6.** **EXHIBITS**








(a)
            ExhibitsExhibit
                31.1
            Certification
                of Chief Executive Officer Under Section 302of
                the Sarbanes-Oxley Act of 2002Exhibit
                31.2
            Certification
                of Chief Financial Officer Under Section 302of
                the Sarbanes-Oxley Act of 2002Exhibit
                32.1
            Chief
                Executive Officer Certification Under Section 906of
                the Sarbanes-Oxley Act of 2002Exhibit
                32.2
            Chief
                Financial Officer Certification Under Section 906of
                the Sarbanes-Oxley Act of 2002











31





**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:November
                9, 2005
            
            /s/
                MICHAEL R. HAYNESMichael
                R. HaynesChief
                Executive Officer











**COLLECTORS
                UNIVERSE, INC.**Date:November
                9, 2005
            
            /s/
                JOSEPH J. WALLACEJoseph
                J. WallaceChief
                Financial Officer





































































































S-1


**INDEX
      TO EXHIBITS**











**Number**
            **Description**Exhibit
                31.1
            Certification
                of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley
                Act of
                2002Exhibit
                31.2
            Certification
                of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley
                Act of
                2002Exhibit
                32.1
            Chief
                Executive Officer Certification Under Section 906 of the Sarbanes-Oxley
                Act of 2002Exhibit
                32.2
            Chief
                Financial Officer Certification Under Section 906 of the Sarbanes-Oxley
                Act of 2002




















































































































E-1