**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 March 31, 2006****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**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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act, (Check
      one):


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




Indicate
      by check mark whether the Registrant is a shell company (as defined in
      Securities Exchange Act Rule 12b-2). YES
      [ ]
      NO x




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





**Class**
            **Outstanding
                at April, 24, 2006****Common
                Stock $.001 Par Value**
            **8,450,397**














**COLLECTORS
      UNIVERSE, INC.**


**QUARTERLY
      REPORT**


**ON
      FORM 10-Q**


**FOR
      THE QUARTER ENDED MARCH 31, 2006**





**TABLE
      OF CONTENTS**








**PART
                I**
            **Financial
                Information**
            **Page**Item
                1.
            Financial
                Statements:Condensed
                Consolidated Balance Sheets as of March 31, 2006and
                June 30, 2005 (unaudited)
            1Condensed
                Consolidated Statements of Operationsfor
                the Three and Nine Months Ended March 31, 2006 and 2005
                (unaudited)
            2Condensed
                Consolidated Statements of Cash Flowsfor
                the Nine Months Ended March 31, 2006 and 2005
                (unaudited)
            3Notes
                to Condensed Consolidated Financial Statements
                (unaudited)
            5Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            22Forward
                Looking Information
            22Our
                Business
            22Factors
                That Can Affect Our Financial Position and
                Operating Results
            24Critical
                Accounting Policies and
                Estimates
            25Results
                of Operations
            28Liquidity
                and Capital Resources
            34Recent
                Accounting Pronouncements
            36Risks
                and Uncertainties That Could Affect Our Future
                Financial Performance
            36Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            37Item
                4.
            Controls
                and Procedures
            38**PART
                II**
            **Other
                Information**Item
                1A
            Risk
                Factors
            39Item
                2
            Unregistered
                Sales of Securities and Use of
                Proceeds
            39Item
                6.
            Exhibits
            40**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**


(in
      thousands, except per share data)


(unaudited)


**March
                31,**
            
            **June
                30,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            45,566
            
            $
            65,439Short-term
                investments
            
            
            7,602
            
            
            -Accounts
                receivable, net of allowance for doubtful accounts of $68 (March)and
                $38 (June)
            
            
            1,663
            
            
            1,508Inventories,
                net
            
            
            435
            
            
            436Prepaid
                expenses and other current assets
            
            
            1,285
            
            
            1,102Customer
                notes receivable
            
            
            3,480
            
            
            1,560Deferred
                income taxes
            
            
            1,350
            
            
            2,854Receivables
                from sale of net assets of discontinued operations
            
            
            114
            
            
            63Current
                assets of discontinued operations held for sale
            
            
            209
            
            
            365Total
                current assets
            
            
            61,704
            
            
            73,327Property
                and equipment, net
            
            
            1,814
            
            
            857Goodwill
            
            
            9,803
            
            
            -Intangible
                assets, net
            
            
            4,487
            
            
            79Deferred
                income taxes
            
            
            690
            
            
            1,051Notes
                receivable from sale of net assets of discontinued
                operations
            
            
            344
            
            
            -Other
                assets
            
            
            230
            
            
            174Non-current
                assets of discontinued operations held for sale
            
            
            -
            
            
            46$
            79,072
            
            $
            75,534**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilities:Accounts
                payable
            
            $
            767
            
            $
            753Accrued
                liabilities
            
            
            1,698
            
            
            1,563Accrued
                compensation and benefits
            
            
            895
            
            
            1,069Income
                taxes payable
            
            
            610
            
            
            -Deferred
                revenue
            
            
            1,488
            
            
            1,001Current
                liabilities of discontinued operations held for sale
            
            
            8
            
            
            27Total
                current liabilities
            
            
            5,466
            
            
            4,413Deferred
                rent and other long-term liabilities
            
            
            418
            
            
            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; shares issued and
                outstandingof
                8,575 at March 31, 2006
              and
                8,610 at June 30, 2005
            
            
            9
            
            
            9Additional
                paid-in capital
            
            
            78,420
            
            
            78,594Accumulated
                deficit
            
            
            (4,220
            )
            
            (7,016
            )Treasury
                stock, at cost (125 shares)
            
            
            (1,021
            )
            
            (1,021
            )Total
                stockholders' equity
            
            
            73,188
            
            
            70,566$
            79,072
            
            $
            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**
            
            **Nine
                Months Ended****March
                31,**
            
            **March
                31,**
            
            **March
                31,**
            
            **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                revenues:Grading,
                authentication and related services
            
            $
            10,022
            
            $
            8,955
            
            $
            26,294
            
            $
            25,132Cost
                of revenues:Cost
                of grading, authentication and related services
            
            
            4,088
            
            
            3,263
            
            
            10,578
            
            
            9,087Gross
                profit
            
            
            5,934
            
            
            5,692
            
            
            15,716
            
            
            16,045Operating
                expenses:Selling
                and marketing expenses
            
            
            1,378
            
            
            876
            
            
            3,386
            
            
            2,581General
                and administrative expenses
            
            
            3,254
            
            
            2,588
            
            
            9,500
            
            
            7,167Settlement
                of lawsuit
            
            
            -
            
            
            -
            
            
            -
            
            
            500Total
                operating expenses
            
            
            4,632
            
            
            3,464
            
            
            12,886
            
            
            10,248Operating
                income
            
            
            1,302
            
            
            2,228
            
            
            2,830
            
            
            5,797Interest
                income, net
            
            
            588
            
            
            245
            
            
            1,738
            
            
            419Other
                income (expenses), net
            
            
            8
            
            
            (20
            )
            
            24
            
            
            (18
            )Income
                before provision for income taxes
            
            
            1,898
            
            
            2,453
            
            
            4,592
            
            
            6,198Provision
                for income taxes
            
            
            804
            
            
            981
            
            
            1,965
            
            
            2,487Income
                from continuing operations
            
            
            1,094
            
            
            1,472
            
            
            2,627
            
            
            3,711Income
                (loss) from operations of discontinued operations,net
                of gains
              on
                sales of discontinued businesses(net
                of income taxes)
            
            
            -
            
            
            (3
            )
            
            169
            
            
            (79
            )Net
                income
            
            $
            1,094
            
            $
            1,469
            
            $
            2,796
            
            $
            3,632Net
                income per basic share:Income
                from continuing operations
            
            $
            0.13
            
            $
            0.21
            
            $
            0.31
            
            $
            0.57Income
                (loss) from operations of discontinued operations,net
                of gains
              on
                sales of discontinued businesses(net
                of income taxes)
            
            
            -
            
            
            -
            
            
            0.02
            
            
            (0.01
            )Net
                income
            
            $
            0.13
            
            $
            0.21
            
            $
            0.33
            
            $
            0.56Net
                income per diluted share:Income
                from continuing operations
            
            $
            0.12
            
            $
            0.19
            
            $
            0.30
            
            $
            0.53Income
                (loss) from operations of discontinued operations,net
                of gains
              on
                sales of discontinued businesses(net
                of income taxes)
            
            
            -
            
            
            -
            
            
            0.02
            
            
            (0.01
            )Net
                income
            
            $
            0.12
            
            $
            0.19
            
            $
            0.32
            
            $
            0.52Weighted
                average shares outstanding:Basic
            
            
            8,485
            
            
            7,113
            
            
            8,486
            
            
            6,523Diluted
            
            
            8,822
            
            
            7,571
            
            
            8,807
            
            
            6,968








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)


**Nine****Months Ended**
              **March
                31****,**2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            2,796
            
            $
            3,632Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Depreciation
                and amortization
            
            
            621
            
            
            355Loss
                on disposal of fixed assets
            
            
            3
            
            
            -Loss
                on termination of sublease
            
            
            83
            
            
            -Provision
                for doubtful accounts
            
            
            49
            
            
            18Provisions
                for inventory write down
            
            
            47
            
            
            -Discontinued
                operations
            
            
            (169
            )
            
            79Stock-based
                compensation
            
            
            398
            
            
            27Provision
                for deferred income taxes
            
            
            1,485
            
            
            2,264Changes
                in operating assets and liabilities:Short-term
                investments
            
            
            (7,602
            )
            
            (2,294
            )Accounts
                receivable
            
            
            (32
            )
            
            (146
            )Inventories
            
            
            (46
            )
            
            53Prepaid
                expenses and other current assets
            
            
            (302
            )
            
            (8
            )Income
                taxes payable
            
            
            610
            
            
            13Other
                assets
            
            
            (36
            )
            
            (18
            )Accounts
                payable
            
            
            10
            
            
            213Accrued
                liabilities
            
            
            (184
            )
            
            205Accrued
                compensation and benefits
            
            
            (343
            )
            
            (129
            )Other
                long-term liabilities
            
            
            (50
            )
            
            72Deferred
                revenue
            
            
            487
            
            
            23Net
                cash provided by (used in) operating activities
            
            
            (2,175
            )
            
            4,359CASH
                FLOWS FROMINVESTING
                ACTIVITIES:Capital
                expenditures
            
            
            (1,090
            )
            
            (178
            )Collection
                of receivables from sales of discontinued operations
            
            
            358
            
            
            1,543Purchases
                of business, net of cash acquired
            
            
            (14,554
            )
            
            -Advances
                on customer notes receivable
            
            
            (3,524
            )
            
            (2,575
            )Proceeds
                from collection of customer notes receivable
            
            
            1,604
            
            
            2,333Purchase
                of intangible assets, capitalized software
            
            
            (121
            )
            
            (100
            )Net
                cash provided by (used in) investing activities
            
            
            (17,327
            )
            
            1,023CASH
                FLOWS FROMFINANCING
                ACTIVITIES:Proceeds
                from sale of common stock, net
            
            
            -
            
            
            35,897Proceeds
                from employee stock purchase plan
            
            
            -
            
            
            34Payments
                for retirement of common stock
            
            
            (703
            )
            
            -Proceeds
                from exercise of stock options
            
            
            132
            
            
            262Net
                cash provided by (used in) financing activities
            
            
            (571
            )
            
            36,193Net
                cash provided by operating activities of discontinued
                operations
            
            
            200
            
            
            603Net
                increase (decrease) in cash and cash equivalents
            
            
            (19,873
            )
            
            42,178Cash
                and cash equivalents at beginning of period
            
            
            65,439
            
            
            21,454Cash
                and cash equivalents at end of period
            
            $
            45,566
            
            $
            63,632SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Interest
                paid
            
            $
            12
            
            $
            3Income
                taxes paid
            
            $
            93
            
            $
            156





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)





**Nine
                Months Ended**
              **March
                31,**2006
            
            2005SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED):Effective
                July 14, 2005, the Company acquired CoinFacts.com in a transactionsummarized
                as follows:Goodwill
            
            $
            515
            
            
            -Purchase
                price
            
            
            515
            
            
            -Effective
                September 2, 2005, the Company acquired Certified Coin Exchange (CCE)in
                a transaction summarized as follows:Fair
                value of net liabilities assumed
            
            
            (18
            )
            
            -Deferred
                taxes recognized at acquisition
            
            
            (379
            )
            
            -Intangible
                assets
            
            
            947
            
            
            -Fair
                value of computertradingpost.com, Inc., including net
                assets
            
            
            600
            
            
            -Goodwill
            
            
            1,200
            
            
            -Purchase
                price, net of cash acquired
            
            
            2,350
            
            
            -Effective
                November 8, 2005, the Company acquired Gem Certification and Appraisal
                Lab
                (GCAL)in
                a transaction
              summarized
                as
                follows:Fair
                value of net assets acquired
            
            
            119
            
            
            -Intangible
                assets
            
            
            53
            
            
            -Goodwill
            
            
            3,067
            
            
            -Purchase
                price, net of cash acquired
            
            
            3,239
            
            
            -Effective
                December 22, 2005, the Company acquired the business of Gemprint
                Corporationin
                a transaction
              summarized
                as
                follows:Fair
                value of net assets acquired
            
            
            96
            
            
            -Intangible
                assets
            
            
            3,444
            
            
            -Goodwill
            
            
            5,021
            
            
            -Purchase
                price, net of cash acquired
            
            
            8,561
            
            
            -SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:In
                connection with the sale of CTP, the company received a note receivable
                of
                $458,000.  In addition, the Company realized a gain of $22,000 on the
                disposal of one of its collectible sales businesses, which proceeds
                were received subsequent to March 31, 2006 (see note
                7).


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. Since July 1,
      2005,
      the Company has acquired four businesses and disposed of an unrelated business
      affiliated with one of the acquired businesses (see note 2 below). These
      acquisitions have been consolidated from the respective dates of their
      acquisition and the business disposed of was deconsolidated as of the date
      of
      its sale.





*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 and nine months ended March 31, 2006 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, as permitted by 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, including the classification of stock-based compensation expense
      which has been classified consistent with cash compensation paid to the same
      employee, in accordance with Staff Accounting Bulletin No. 107, issued by the
      Securities and Exchange Commission related to SFAS No. 123(R) (see “ *Stock-Based
      Compensation”* in this
      note 1 below). Intangible assets, net of accumulated amortization, are
      classified separately on the condensed consolidated balance sheets at June
      30,
      2005 and March 31, 2006. At June 30, 2005, intangible assets, net, in the amount
      of $79,000, were included as part of other assets.





*Revenue
      Recognition*





Net
      revenues consist primarily of fees generated from the authentication and grading
      of coins, sportscards, autographs, currency, stamps and diamonds. Authentication
      and grading revenues are generally recognized when those services have been
      performed by the Company and the item is shipped back to the customer.
      Authentication and grading fees generally are prepaid, although the Company
      offers open account privileges to larger dealers. Advance payments received
      for
      authentication and 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
      the Company has extended credit, revenue is recorded at the time the item is
      shipped to the customer.





5


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





*Use
      of Estimates*





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the dates
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting periods. Actual results could differ from those estimates,
      and such differences could be material to the condensed consolidated financial
      statements.





*Long-Lived
      Assets*




Management
      regularly reviews property and equipment and other long-lived assets, including
      certain identifiable intangible assets 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, 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 March 31, 2006, the Company
      does not believe there have been any impairments 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.




*Capitalized
      Software*




At
      March
      31, 2006, the Company capitalized approximately $120,000 as capitalized software
      in accordance with Statement of Position (SOP) 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* .
      SOP
      98-1 requires that certain costs incurred, either from internal or external
      sources, be capitalized as part of intangible assets and amortized on a
      straight-line basis over the useful life of the software. Planning, training,
      support and maintenance costs incurred either prior to or following the
      implementation phase are recognized as expense in the period in which they
      occur. The Company evaluates the carrying values of capitalized software to
      determine if the carrying values are impaired, and, if necessary, the Company
      would recognize an impairment loss in the period in which the impairment
      occurred.




*Stock-Based
      Compensation*





At
      March
      31, 2006, 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 statements of
      operations for the three and nine months ended March 31, 2005, as all options
      granted under these plans had an exercise price equal to the market value of
      the
      underlying common stock on the date of grant.





Effective
      July 1, 2005, on the first day of the Company’s fiscal year 2006, the Company
      adopted the fair value recognition provisions of SFAS No. 123(R), *Share
      Based Payments* ,
      using
      the modified-prospective transition method. Under this transition method,
      compensation cost recognized in the three and nine months ended March 31, 2006
      includes: (a) compensation cost for all share-based payments granted and not
      yet
      vested prior to July 1, 2005, based on the grant date fair value estimated
      in
      accordance with the original provisions of SFAS No. 123, and (b) compensation
      cost for all share-based payments granted


6


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





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. Since stock-based compensation expense recognized in the statements
      of
      operations for the three and nine months ended March 31, 2006 is based on awards
      expected to vest, the compensation expense has been reduced for estimated
      forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time
      of
      grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those estimates. We estimated forfeitures to be 4% of the options
      issued.





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





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 awards are sometimes granted with
      immediate vesting.





The
      weighted-average grant date fair value of employee stock options granted during
      the three and nine months ended March 31, 2006 was $5.69, using the
      Black-Scholes model with the following weighted-average
      assumptions:





**Three
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2006**Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Expected
                volatility
            
            
            78.0
            %
            
            78.0
            %Risk-free
                interest rate
            
            
            3.9
            %
            
            3.9
            %Expected
                lives
            
            
            2.0
                years
            
            
            2.0
                years





The
      Company granted no options in the three months ended March 31, 2006, whereas,
      the Company granted a total of 10,000 options during the nine months ended
      March
      31, 2006. At June 30, 2005, the Company had 443,000 unvested options outstanding
      with a grant date weighted-average fair value of $4.67, and at March 31, 2006,
      there were 327,000 unvested options outstanding with a weighted average fair
      value of $4.51.





As
      a
      result of adopting SFAS No. 123(R) on July 1, 2005, the Company’s net income
      before income taxes for the three and nine months ended March 31, 2006 was
      $133,000 and $398,000 lower, respectively, 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 and nine months ended March 31, 2006 would have
      been $0.14 and $0.14, and $0.38 and $0.36, respectively, if the Company had
      not
      adopted SFAS No. 123 (R), compared to reported basic and diluted net income
      per
      share of $0.13 and $0.12, and $0.33 and $0.32, respectively.


7


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





The
      total
      amount of compensation expense related to non-vested awards not yet recognized
      at March 31, 2006 was $1,398,000 and, assuming no change in forfeiture rates,
      that amount will be recognized as compensation expense as follows:





FISCAL
                YEAR ENDING JUNE 30,2006
            
            $
            132,0002007
            
            
            516,0002008
            
            
            488,0002009
            
            
            259,0002010
            
            
            3,000Total
            
            $
            1,398,000





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





Prior
      to
      the adoption of SFAS No. 123(R), the Company classified all tax benefits
      resulting from the exercise of stock options as operating cash flows in the
      statements of cash flows. SFAS No. 123(R) requires the cash flows from the
      tax
      benefits resulting from tax deductions in excess of the compensation cost
      recognized for those options (excess tax benefits) to be classified as financing
      cash flows. There were no such tax benefits resulting from the exercise of
      stock
      options for the three and nine months ended March 31, 2006.





SFAS
      No.
      123(R) requires the Company to continue to provide the pro forma disclosures
      in
      accordance with SFAS No. 123, as amended, for all prior periods presented in
      which share-based payments to employees are accounted for under APB Opinion
      No.
      25. The following table illustrates the effect on net income and net income
      per
      share for the three and nine months ended March 31, 2005 if the Company had
      applied the fair value recognition provisions of SFAS No. 123 to share-based
      employee compensation.





(in
                thousands,
              except
                per share data)
              (unaudited)
            
            (in
                thousands,
              except
                per share data)
              (unaudited)**Three
                Months**
              **Ended**
              **March
                31,**
            
            **Nine
                Months**
              **Ended**
              **March
                31,****2005**
            
            **2005**Net
                income, as reported
            
            $
            1,469
            
            $
            3,632Add:
                Stock-based employee compensation expense included in reportednet
                income, net of related tax effects
            
            
            16
            
            
            16Deduct:
                Total stock-based employee compensation expense determined underfair
                value based method for awards,
              net
                of
                related tax effects
            
            
            (125
            )
            
            (273
            )Pro
                forma net income
            
            $
            1,360
            
            $
            3,375Net
                income per common share - basic:As
                reported
            
            $
            0.21
            
            $
            0.56Pro
                forma
            
            $
            0.19
            
            $
            0.52Net
                income per common share - diluted:As
                reported
            
            $
            0.19
            
            $
            0.52Pro
                forma
            
            $
            0.18
            
            $
            0.48





8


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





The
      weighted-average grant date fair value of stock options granted during the
      three
      and nine months ended March 31, 2005 was $8.56 and $7.43, respectively, which
      was determined using the Black-Scholes model with the following weighted-average
      assumptions:





**Three
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,****2005**
            
            **2005**Dividend
                yield
            
            
            0.0
            %
            
            0.0
            %Expected
                volatility
            
            
            75.0
            %
            
            74.31
            %Risk-free
                interest rate
            
            
            3.66
            %
            
            2.92
            %Expected
                lives
            
            
            2.0
                years
            
            
            2.0
                years





The
      following is a summary of stock option activity during the periods indicated
      below:





**Number**
              **Of
                Shares**
            
            **Exercise**
              **Price
                Per Share**
            
            **Weighted
                Average Exercise Price Per Share**Options
                outstanding at June 30, 2004
            
            
            822
            
            $
            2.55
            
            
            -
            
            $
            30.52
            
            $
            10.56Granted
            
            
            295
            
            
            11.58
            
            
            -
            
            
            20.10
            
            
            17.09Cancelled
            
            
            (70
            )
            
            3.08
            
            
            -
            
            
            30.52
            
            
            17.70Exercised
            
            
            (71
            )
            
            2.55
            
            
            -
            
            
            12.00
            
            
            3.99Options
                outstanding at June 30, 2005
            
            
            976
            
            
            2.55
            
            
            -
            
            
            24.00
            
            
            12.49Granted
            
            
            10
            
            
            -
            
            $
            12.90
            
            
            
            
            
            12.90Cancelled
            
            
            (81
            )
            
            3.08
            
            
            -
            
            
            20.00
            
            
            15.52Exercised
            
            
            (16
            )
            
            3.08
            
            
            -
            
            
            13.73
            
            
            8.56Options
                outstanding at March 31, 2006
            
            
            889
            
            $
            2.55
            
            
            -
            
            $
            24.00
            
            $
            12.29





The
      total
      pre-tax intrinsic value of options exercised during the three and nine months
      ended March 31, 2006, was $94,000 and $106,000, respectively. The total pre-tax
      intrinsic value of options exercised during the three and nine months ended
      March 31, 2005 was $189,000 and $866,000, respectively.





The
      following table summarizes significant ranges of outstanding and exercisable
      options as of March 31, 2006:





(in
                thousands, except per share data)Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Prices
            
            Number
              of
                Shares Outstanding
            
            Weighted
              Average
              Remaining
              Contractual
              Life
                (years)
            
            Weighted-
              Average
              Exercise
              Price
            
            Aggregate
              Intrinsic
              Value
            
            Number
                of
              Shares
              Exercisable
            
            Weighted
              Average
              Exercise
              Price
            
            Aggregate
              Intrinsic
              Value$  
                2.55
            
            $
            3.79
            
            
            180
            
            
            6.62
            
            $
            3.32
            
            $
            1,918
            
            
            148
            
            $
            3.32
            
            $
            1,585$  
                5.28
            
            $
            7.60
            
            
            69
            
            
            7.46
            
            $
            7.32
            
            $
            462
            
            
            69
            
            $
            7.32
            
            $
            462$   8.00
            
            $
            12.00
            
            
            182
            
            
            7.24
            
            $
            10.40
            
            $
            653
            
            
            95
            
            $
            9.99
            
            $
            380$ 12.90
            
            $
            18.00
            
            
            226
            
            
            8.55
            
            $
            14.26
            
            $
            49
            
            
            82
            
            $
            15.29
            
            $
            3$ 19.60
            
            $
            24.00
            
            
            232
            
            
            6.56
            
            $
            20.27
            
            $
            -
            
            
            182
            
            $
            20.44
            
            $
            -889
            
            
            
            
            $
            12.29
            
            $
            3,082
            
            
            576
            
            $
            12.00
            
            $
            2,430





9


SIGNIFICANT
      ACCOUNTING POLICIES (CONTINUED)





The
      aggregate intrinsic values set forth in the above table represent the total
      pre-tax intrinsic values, based on the Company’s closing stock price of $13.99
      as of March 31, 2006, and assuming all the optionees had exercised their options
      as of that date. At March 31, 2006, options to purchase a total of 576,000
      shares of our common stock were exercisable at a weighted-average exercise
      price
      of $12.00 per share, of which options to purchase 324,000 shares were
“in-the-money options.” As of June 30, 2005, outstanding options to purchase a
      total of 527,000 shares of our common stock were exercisable at a
      weighted-average exercise price of $11.93.





*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.




Cash
      and Cash Equivalents and Short-Term Investments. At March
      31, 2006, the Company had invested funds of approximately $50 million, which
      were primarily invested in high quality commercial paper, certificates of
      deposit, auction rate securities, a money market fund, and a municipal bond.
       In addition, at March 31, 2006, the Company had approximately $3 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
      March 31, 2006 and June 30, 2005, one customer accounted for approximately
      18%
      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 and other conditions or trends that may adversely affect
      the ability of debtors to pay their account receivable balances. Based on such
      review, the Company establishes an allowance for doubtful accounts, when
      necessary. The allowance for doubtful accounts receivable was $68,000 at March
      31, 2006.





Customers .
      The
      authentication and grading of collectible coins accounted for approximately
      64%
      and 70% of our net revenues for the nine months ended March 31, 2006 and 2005,
      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 from two collectibles
      dealers who are long time customers. Those customer notes receivables have
      been
      fully repaid in accordance with their terms. At March 31, 2006 there were five
      notes receivable outstanding in the aggregate principal amount of $3,480,000,
      which are repayable at various dates through January 2007. 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, in the period of the change, the cumulative effect
      of
      changing to the new accounting principle. SFAS No. 154 ** will
      require retrospective application to prior period 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.


10


In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 155, *Accounting
      for Certain Hybrid Financial Instruments* (an
      amendment of FASB Statements No. 133 and 140) and SFAS No.156, *Accounting
      for Servicing of Financial Assets* (an
      amendment of FASB Statement No. 140). We do not expect the adoption of SFAS
      No.
      155 and SFAS No. 156 to have a material impact on the Company’s financial
      position or results of operation.





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 its
      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 an affiliated business,
      Computertradingpost.com, Inc. (“CTP”), for an aggregate purchase price of
      $2,180,000, of which $1,680,000 was paid in cash at closing and the balance
      of
      $500,000 was paid within 60 days thereafter. In addition, there was a provision
      for a working capital adjustment that was determined to be $37,000. CCE is
      a
      subscription-based dealer-to-dealer internet bid-ask market for third-party
      certified coins. CCE’s operating results have been consolidated into our
      operating results from the date of its acquisition.





The
      Company was required to purchase CTP as a condition to its acquisition of CCE.
      At the time it consummated the CCE acquisition, the Company intended to dispose
      of CTP, and, effective November 30, 2005, disposed of CTP. In accordance with
      SFAS No. 144, the results of operations of CTP from the date of acquisition
      through November 30, 2005, which included revenue of approximately $120,000
      and
      operating income of $38,000, were consolidated as part of income from
      discontinued operations in the accompanying condensed consolidated statements
      of
      operations for the nine months ended March 31, 2006, and the loss on the sale
      of
      CTP is included in the gain on the sale of discontinued operations for the
      nine
      months ended March 31, 2006 (see note 7 below).





On
      November 8, 2005, the Company acquired Gem Certification & Appraisal Lab
      (“GCAL”), a forensic gemological certification and grading laboratory. As part
      of that transaction, the Company also acquired all of the common stock of
      Diamond Profile Laboratory, Inc. (“DPL”), a scientific diamond light performance
      analysis laboratory, and all publishing and other rights to “Palmieri’s Market
      Monitor,” an educational and informative industry publication currently
      published by the Gemological Appraisal Association, Inc. (“GAA”). The Company
      paid an aggregate acquisition price of $3 million in cash for GCAL, DPL and
      the
      publishing and other rights to “Palmieri’s Market Monitor,” plus the assumption
      of $50,000 of certain transaction-related costs.





On
      December 22, 2005, the Company acquired the business and substantially all
      of
      the assets of Gemprint Corporation (“Gemprint”). These assets consist primarily
      of a patented technology for non-invasive diamond identification which Gemprint
      uses to digitally capture the unique refractive light pattern (or “gemprint”) of
      each diamond that is processed with that technology. The acquisition was
      consummated pursuant to an asset purchase agreement. Under that agreement,
      the
      Company paid a purchase price consisting of $7.5 million in cash, and assumed
      certain pre-acquisition liabilities and a lease commitment at closing, and
      agreed to pay $1 for each diamond that the Company registers using the gemprint
      process in excess of 100,000 registrations during any year in the five-year
      period ending December 22, 2010.





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


11


BUSINESS
      ACQUISITIONS (CONTINUED)





The
      Company has performed a preliminary purchase price allocation with respect
      to
      each of 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 Company 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.





The
      following table set forth the Company’s preliminary purchase price allocation
      with respect to each of these acquisitions:





**(in
                thousands)****CCE**
            
            **Coin**
              **Facts**
            
            **GCAL**
            
            **Gemprint**
            
            **Total**Cost
                of Investment:Purchase
                price
            
            $
            2,217
            
            $
            500
            
            $
            3,000
            
            $
            7,500
            
            $
            13,217Liabilities
                assumed
            
            
            -
            
            
            -
            
            
            50
            
            
            125
            
            
            175Direct
                costs
            
            
            160
            
            
            15
            
            
            217
            
            
            431
            
            
            823Investment
                banking fees
            
            
            -
            
            
            -
            
            
            -
            
            
            417
            
            
            417Lease
                obligation assumed
            
            
            -
            
            
            -
            
            
            -
            
            
            88
            
            
            882,377
            
            
            515
            
            
            3,267
            
            
            8,561
            
            
            14,720Value
                Assigned to Assets and Liabilities:Current
                assets
            
            
            93
            
            
            -
            
            
            44
            
            
            113
            
            
            250Fixed
                assets
            
            
            -
            
            
            -
            
            
            125
            
            
            81
            
            
            206Current
                liabilities
            
            
            (38
            )
            
            -
            
            
            (22
            )
            
            (98
            )
            
            (158
            )Deferred
                revenue
            
            
            (73
            )
            
            -
            
            
            -
            
            
            -
            
            
            (73
            )Assets
                Sold: CTP
            
            
            600
            
            
            -
            
            
            -
            
            
            -
            
            
            600Deferred
                taxes
            
            
            (379
            )
            
            -
            
            
            -
            
            
            -
            
            
            (379
            )Transition
                services
            
            
            27
            
            
            -
            
            
            -
            
            
            -
            
            
            27Intangible
                Assets with Finite Lives:Customer
                list
            
            
            676
            
            
            -
            
            
            -
            
            
            -
            
            
            676Software/Technology
            
            
            207
            
            
            -
            
            
            -
            
            
            1,199
            
            
            1,406Covenants
                not to compete
            
            
            25
            
            
            -
            
            
            -
            
            
            -
            
            
            25Patents
            
            
            -
            
            
            -
            
            
            -
            
            
            1,865
            
            
            1,865Intangible
                Assets with Indefinite Lives:Trade
                name and marks
            
            
            39
            
            
            -
            
            
            53
            
            
            131
            
            
            223Database
            
            
            
            
            
            
            
            
            
            
            
            249
            
            
            249Excess
                of purchase price over fair valueof
                net assets acquired (goodwill)
            
            $
            1,200
            
            $
            515
            
            $
            3,067
            
            $
            5,021
            
            $
            9,803





Intangible
      assets with finite lives in the amount of $3,972,000 are being amortized over
      their estimated useful lives, as follows:





**CCE**
            
            **Gemprint**Customer
                List
            
            
            15
                years
            
            
            -Software/Technology
            
            
            5
                years
            
            
            7
                yearsCovenant
                not to compete
            
            
            5
                years
            
            
            -Patent
            
            
            -
            
            
            20
                years





12


BUSINESS
      ACQUISITIONS (CONTINUED)





Based
      on
      these useful lives, annual amortization for each of the next five years will
      be
      approximately $91,000 and approximately $266,000 for CCE and Gemprint,
      respectively.





The
      following pro forma financial data presents the unaudited pro-forma consolidated
      statements of income for the Company for the three and nine-month periods ended
      March 31, 2006 and 2005 based on the assumption that the Coinfacts, CCE, GCAL
      and Gemprint acquisitions had been consummated on July 1, 2004, rather than
      on
      the actual dates of their acquisition. These pro forma unaudited statements
      of
      operations do not purport to represent what the Company’s actual results of
      operations would have been had these acquisitions been consummated on July
      1,
      2004 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 fiscal year.





(in
                thousands, except per share data)
              Pro-Forma
                Financial Data**Three
                Months Ended**
              **March
                31,**
            
            **Three
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Revenue
            
            $
            10,022
            
            $
            9,389
            
            $
            26,688
            
            $
            26,491Operating
                income
            
            
            1,302
            
            
            2,292
            
            
            2,742
            
            
            5,909Interest
                income, net
            
            
            588
            
            
            245
            
            
            1,738
            
            
            419Other
                income (expense), net
            
            
            8
            
            
            (20
            )
            
            24
            
            
            (18
            )Income
                before provision for income taxes
            
            
            1,898
            
            
            2,517
            
            
            4,504
            
            
            6,310Provision
                for income taxes
            
            
            (804
            )
            
            (1,007
            )
            
            (1,925
            )
            
            (2,530
            )Income
                from continuing operations
            
            
            1,094
            
            
            1,510
            
            
            2,579
            
            
            3,780Income
                from discontinued operations
            
            
            -
            
            
            12
            
            
            182
            
            
            (25
            )Net
                income
            
            $
            1,094
            
            $
            1,522
            
            $
            2,761
            
            $
            3,755Net
                income per diluted share:Income
                from continuing operations
            
            $
            0.12
            
            $
            0.20
            
            $
            0.29
            
            $
            0.54Income
                (loss)****from
                discontinued operations
            
            $
            -
            
            $
            -
            
            $
            0.02
            
            $
            -Net
                income
            
            $
            0.12
            
            $
            0.20
            
            $
            0.31
            
            $
            0.54





3.  CASH
      AND
      CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS





At
      March
      31, 2006, cash and cash equivalents and short-term investments totaled
      approximately $53 million, primarily comprised of high-quality commercial paper
      issued by U.S. or foreign companies, auction rate securities, money market
      funds, a municipal bond, and bank certificates of deposit totaling
      approximately $50 million. The minimum credit quality of the commercial paper
      portfolio 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. Trading securities
      are carried at market value in the accompanying condensed consolidated balance
      sheet at March 31, 2006. Unrealized gains on such trading securities were
      recognized in the condensed consolidated statements of operations for the three
      and nine months ended March 31, 2006 and were approximately $130,000 at March
      31, 2006.





13


CASH
      AND
      CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (CONTINUED)





Securities
      classified as short-term investments on the balance sheet at March 31, 2006
      totaled $7,602,000 and consisted of auction rate securities and a municipal
      bond.  Because these securities have been classified as trading securities
      under SFAS No. 115, such securities are presented as current assets on our
      condensed consolidated balance sheet at March 31, 2006 and net sales and
      purchase activity of these securities are presented as operating cash flows
      within our condensed consolidated statements of cash flows for the nine months
      ended March 31, 2006.





Auction
      rate securities are debt securities with a long-term nominal maturity for which
      the interest rate is reset through a “dutch auction” process. An auction is
      typically held every 7, 28, or 35 days. Interest on these securities is paid
      at
      the end of each auction period. In a dutch auction, a Broker-dealer submits
      bids, on behalf of current and prospective investors to the auction agent.
      Interest rates are determined through the auction process.





Auction
      rate securities and a municipal bond totaling $6,000,000 were classified as
      cash
      and cash equivalents at December 31, 2005, as opposed to short-term investments,
      as required.  In connection with the preparation of the condensed
      consolidated financial statements for the quarter ended March 31, 2006, the
      Company concluded that it was appropriate to classify securities of this nature
      as short-term investments, and such classification has been followed as
      discussed above.  Had the Company classified these securities as short-term
      investments instead of cash and cash equivalents at December 31, 2005, cash
      flows from operations for the six months ended December 31, 2005, would have
      been reduced by $6,000,000 and would have resulted in a net use of cash in
      operations of $5,038,000, as opposed to cash provided by operations of $962,000,
      as reported.





4.
            INVENTORIES





Inventories
                consist of the following:(in
                thousands)**March
                31,**
            
            **June
                30,****2006**
            
            **2005**Coins
            
            $
            318
            
            $
            276Other
                collectibles
            
            
            37
            
            
            37Grading
                raw materials consumable inventory
            
            
            161
            
            
            157516
            
            
            470Less
                inventory reserve
            
            
            (81
            )
            
            (34
            )Inventories,
                net
            
            $
            435
            
            $
            436




5. PROPERTY
      AND EQUIPMENT





Property
                and equipment consist of the following:(in
                thousands)**March
                31,**
            
            **June
                30,****2006**
            
            **2005**Coins
                and stamp grading reference sets
            
            $
            62
            
            $
            62Computer
                hardware and equipment
            
            
            1,124
            
            
            988Computer
                software
            
            
            930
            
            
            900Equipment
            
            
            2,003
            
            
            1,330Furniture
                and office equipment
            
            
            781
            
            
            689Leasehold
                improvements
            
            
            596
            
            
            438Trading
                card reference library
            
            
            52
            
            
            525,548
            
            
            4,459Less
                accumulated depreciation and amortization
            
            
            (3,734
            )
            
            (3,602
            )Property
                and equipment, net
            
            $
            1,814
            
            $
            857





14


6. ACCRUED
      LIABILITIES





Accrued
      liabilities consist of the following:





(in
                thousands)**March
                31,**
            
            **June
                30,****2006**
            
            **2005**Warranty
                costs
            
            $
            638
            
            $
            609Professional
                fees
            
            
            135
            
            
            211Other
            
            
            925
            
            
            743$
            1,698
            
            $
            1,563





The
      following table presents the changes in the Company’s warranty reserve during
      the nine months ended March 31, 2006 and 2005:





(in
                thousands)**Nine
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**Warranty
                reserve, beginning of period
            
            $
            609
            
            $
            492Charged
                to cost of revenue
            
            
            329
            
            
            406Warranty
                payments
            
            
            (300
            )
            
            (178
            )Warranty
                reserve, end of period
            
            $
            638
            
            $
            720





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 authentication and grading business, 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 March 31, 2006 and June 30, 2005 and condensed consolidated statements
      of operations for the three and nine-month periods ended March 31, 2006 and
      2005. 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, as part of the acquisition of CCE in September
      2005, the Company acquired the common stock of CTP. The Company’s intent at the
      date of acquisition was to dispose of CTP, and the Company disposed of CTP
      in
      November 2005. The operating results of CTP are classified as part of
      discontinued operations from the date of acquisition through the date of its
      disposal.





15


DISCONTINUED
      OPERATIONS (CONTINUED)





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)
              **Three
                Months Ended**
            
            (in
                thousands)
              **Nine
                Months Ended****March
                31,**
              **2006**
            
            **March
                31,**
              **2005**
            
            **March
                31,**
              **2006**
            
            **March
                31,**
              **2005**Net
                revenues
            
            $
            6
            
            $
            73
            
            $
            319
            
            $
            343Income
                (loss) before income taxes
            
            $
            (14
            )
            $
            (2
            )
            $
            44
            
            $
            (294
            )Gain
                (loss) on sale ofdiscontinued
                businesses
            
            
            14
            
            
            (2
            )
            
            313
            
            
            162-
            
            
            (4
            )
            
            357
            
            
            (132
            )Income
                tax benefit
            
            
            -
            
            
            (1
            )
            
            (188
            )
            
            (53
            )Net
                income (loss) fromdiscontinued
                operations
            
            $
            -
            
            $
            (3
            )
            $
            169
            
            $
            (79
            )





As
      discussed in note 2, income from discontinued operations in the nine months
      ended March 31, 2006 includes the results of operations of CTP for the period
      that the Company owned that business, the sale of a portion of the remaining
      inventory of the Company’s collectible auction and direct sales businesses, net
      of reserves previously established against such inventory, and net of bad debt
      expenses of $73,000 related to notes receivable that became uncollectible in the
      three months ended September 30, 2005.





The
      gains
      realized on sales of discontinued businesses in the three and nine-month periods
      ended March 31, 2006 and 2005, respectively, primarily relate to contingent
      consideration arising from the sale of one of the Company’s collectibles auction
      businesses that became determinable in those periods.





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)****March
                31,**
              **2006**
            
            **June
                30,**
              **2005**Current
                assets:Accounts
                receivable
            
            $
            20
            
            $
            58Inventories
            
            
            123
            
            
            189Consignment
                advances
            
            
            30
            
            
            30Notes
                receivable
            
            
            36
            
            
            88$
            209
            
            $
            365Non-current
                assets:Notes
                receivable, net of current portion
            
            $
            -
            
            $
            46$
            -
            
            $
            46Current
                liabilities:Consignors
                payable
            
            $
            1
            
            $
            1Other
                current liabilities
            
            
            7
            
            
            26$
            8
            
            $
            27





16


DISCONTINUED
      OPERATIONS (CONTINUED)





At
      March
      31, 2006, the Company’s balance sheet included as part of receivables from the
      sale of net assets of discontinued operations, $22,000 in connection with the
      sale of one of its auction businesses, a component of discontinued operations.
      Amounts received by the Company according to the sale agreement are recognized
      as part of gain on the sale of discontinued operations, a component of income
      from discontinued operations in the statement of operations.





In
      November 2005, the Company recorded a note receivable in the amount of $458,000
      in connection with the sale of CTP (see note 2) bearing interest at 10% per
      annum and payable over 5 years. The Company has a security interest in the
      assets of CTP and certain personal assets of the purchaser. At March 31, 2006,
      the carrying amount of this note was approximately $435,000 of which the current
      portion of approximately $92,000 is included in the condensed consolidated
      balance sheet as of March 31, 2006 as part of receivables from sale of net
      assets of discontinued operations. The long-term portion of approximately
      $344,000 is classified as non-current notes receivable from sale of net assets
      of discontinued operations in the condensed consolidated balance sheet as of
      March 31, 2006.





8.
            INCOME TAXES





Income
      tax expense was provided for at a rate of 43% for the three and nine-month
      periods ended March 31, 2006, compared with 40% for the three and nine-month
      periods ended March 31, 2005. The increased rate in 2006 reflects the expected
      federal and state statutory rate of approximately 40% adjusted for certain
      permanent tax differences, primarily related to stock compensation expense
      for
      incentive stock options that are not allowable for income tax
      purposes.






17






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 and nine-month periods ended March 31, 2006
      and
      2005, respectively, are as follows:





(in
                thousands,
              except
                per share data)
            
            (in
                thousands,
              except
                per share data)**Three
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Income
                from continuing operations
            
            $
            1,094
            
            $
            1,472
            
            $
            2,627
            
            $
            3,711Income
                (loss) from discontinued operations, net of gainson
                sales of
              discontinued businesses (net of income taxes)
            
            
            -
            
            
            (3
            )
            
            169
            
            
            (79
            )Net
                income
            
            $
            1,094
            
            $
            1,469
            
            $
            2,796
            
            $
            3,632Net
                income (loss) per basic share:From
                continuing operations
            
            $
            0.13
            
            $
            0.21
            
            $
            0.31
            
            $
            0.57From
                discontinued operations, net of gains
              on
                sales of discontinued businesses (net of income taxes)
            
            
            -
            
            
            -
            
            
            0.02
            
            
            (0.01
            )Net
                income
            
            $
            0.13
            
            $
            0.21
            
            $
            0.33
            
            $
            0.56Net
                income (loss) per diluted share:From
                continuing operations
            
            $
            0.12
            
            $
            0.19
            
            $
            0.30
            
            $
            0.53From
                discontinued operations, net of gains
              on
                sales of discontinued businesses (net of income taxes)
            
            
            -
            
            
            -
            
            
            0.02
            
            
            (0.01
            )Net
                income
            
            $
            0.12
            
            $
            0.19
            
            $
            0.32
            
            $
            0.52Weighted
                average shares outstanding:Basic
            
            
            8,485
            
            
            7,113
            
            
            8,486
            
            
            6,523Effect
                of dilutive shares
            
            
            337
            
            
            458
            
            
            321
            
            
            445Diluted
            
            
            8,822
            
            
            7,571
            
            
            8,807
            
            
            6,968





Options
      and warrants to purchase approximately 631,000 and 726,000 shares of common
      stock for the three and nine months ended March 31, 2006, respectively, and
      approximately 414,000 shares of common stock for the three and nine months
      ended
      March 31, 2005, respectively, at exercise prices of up to $24 per share, were
      not included in the computation of diluted earnings per share because the
      exercise prices of the options and warrants were greater than the average market
      price of the Company’s shares for those 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 on other criteria that
      are
      set forth in SFAS No. 131, *Disclosures
      About Segments of an Enterprise and Related Information.*





18


BUSINESS
      SEGMENTS (CONTINUED)





With
      respect to the Company’s continuing operations, it operates principally in four
      reportable service segments: coins, sportscards, diamonds, and other high-end
      collectibles. Services provided by these segments include authentication,
      grading, publication, advertising and subscription-based revenues. The other
      collectibles segment includes autographs, stamps, currency, and CCE subscription
      businesses, none of which meet the quantitive thresholds to qualify as a
      separate segment, as defined in SFAS No. 131.





Operating
      expenses are allocated to each service segment. Stock-based compensation is
      recognized by segment for those employees of the reported segment. The Company
      does not allocate specific assets to these service segments. All of the
      Company’s sales and identifiable assets are located in the Unit ed
      States.





(in
                thousands)
            
            (in
                thousands)**Three
                Months Ended**
              **March
                31,**
            
            **Nine
                Months Ended**
              **March
                31,**Net
                revenues from external customers
            
            
            **2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Coins
            
            $
            6,511
            
            $
            6,386
            
            $
            16,814
            
            $
            17,487Sportscards
            
            
            2,177
            
            
            2,070
            
            
            6,247
            
            
            6,093Diamonds
            
            
            173
            
            
            -
            
            
            256
            
            
            -All
                other
            
            
            1,161
            
            
            499
            
            
            2,977
            
            
            1,552Total
                revenue
            
            $
            10,022
            
            $
            8,955
            
            $
            26,294
            
            $
            25,132Operating
                income(loss)
                before unallocated expensesCoins
            
            $
            3,192
            
            $
            3,496
            
            $
            7,946
            
            $
            9,254Sportscards
            
            
            327
            
            
            286
            
            
            686
            
            
            924Diamonds
            
            
            (541
            )
            
            -
            
            
            (589
            )
            
            -All
                other
            
            
            5
            
            
            (333
            )
            
            (28
            )
            
            (573
            )Total
            
            
            2,983
            
            
            3,449
            
            
            8,015
            
            
            9,605Legal
                settlement
            
            
            -
            
            
            -
            
            
            -
            
            
            (500
            )Unallocated
                operating expenses
            
            
            (1,681
            )
            
            (1,221
            )
            
            (5,185
            )
            
            (3,308
            )Consolidated
                operating income
            
            $
            1,302
            
            $
            2,228
            
            $
            2,830
            
            $
            5,797





11.
            LINE OF CREDIT





To
      provide a source of funds for its Dealer Financing Program, in June 2005 the
      Company’s 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). At March 31, 2005,
      there
      was no balance outstanding under this line of credit.





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 March 31, 2006,
      these costs were 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 and nine months ended March 31, 2006. The
      unamortized amount of such costs, equal to $212,000, is included in prepaid
      expenses and other current assets in the accompanying condensed consolidated
      balance sheet at March 31, 2006. On a quarterly basis, CFC incurs an unused
      credit line fee of 0.25% per annum, or approximately $4,400, based on the
      average daily unused portion of the total facility during the
      quarter.


19


LINE
      OF
      CREDIT (CONTINUED)





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 March 31, 2006 and received the required
      consent from the lender for the purchase of the Gemprint business (see note
      2)
      and repurchases of the Company’s common stock.





12.
            STOCK
                BUYBACK PROGRAM





On
      December 6, 2005,
      the Company announced that its Board of Directors had approved a $10 million
      Stock Buyback Program. The program authorizes the Company to make up to $10
      million of stock purchases in the open market or private transactions, in
      accordance with applicable SEC rules. The Company is under no obligation to
      repurchase any shares under this program, and the timing, actual number and
      value of shares that may be repurchased under this program will depend on a
      number of factors, including the Company’s future financial performance, the
      Company’s available cash resources and competing uses for the cash that may
      arise in the future, prevailing market prices of the Company’s common stock and
      the number of shares that become available for sale at prices that the Company
      believes are attractive. During the three months ended March 31, 2006, the
      Company repurchased and retired 50,000 shares at a cost of approximately
      $700,000. Common stock at par value and additional paid-in capital were reduced
      by the $700,000.





13.
            LEGAL
                MATTERS




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




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




Miller
      has filed a Notice of Appeal seeking an appellate court review, a reversal
      of
      the judgment entered by the trial court and a finding, that as a matter of
      law,
      he is entitled to statutory damages equal to $750 for each use of his name
      by
      the Company, or more than $10 million in total. The Company has been informed
      by
      its trial counsel that, in California, it generally takes at least one year,
      and
      sometimes as long as two years, from the filing of an appeal of a damage award,
      before the appeal is actually heard by an appellate court.




20


LEGAL
      MATTERS (CONTINUED)




The
      Company continues to believe that it will not incur any material liability
      to
      Miller in this case. However, there is little interpretive history with respect
      to the measure of damages in a case such as the Miller case, creating a number
      of relatively novel legal issues. As a result, it is not possible to predict,
      with certainty, how an appellate court 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 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.


21


**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, beliefs and views 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 of the factors and the risks and
      uncertainties that could cause these differences, and readers of this Report
      are
      urged to read those sections of this Report in their entirety, and to review
      certain additional risks factors that are described in our Annual Report on
      Form
      10-K for the fiscal year ended June 30, 2005.




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 any of our prior filings with the Securities and Exchange
      Commission.




**Our
      Business**




Collectors
      Universe Inc. (the “Company”) provides authentication and grading services to
      dealers and collectors of high-end collectible coins, sportscards, stamps,
      sports and entertainment memorabilia autographs and currency. Additionally,
      in
      December 2005, we began offering diamond authentication and grading services
      to
      wholesale and retail dealers of diamonds. We believe that our authentication
      and
      grading services add value to these collectibles and to diamonds by enhancing
      their marketability and, thereby, providing increased liquidity to the dealers
      and collectors that own and buy and sell them.




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
      authenticated and graded 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.




On
      November 8, 2005, the Company acquired Gem Certification & Appraisal Lab
      (“GCAL”), a 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




22


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,” and assumed certain
      transaction-related costs of $50,000.




On
      December 22, 2005, the Company acquired the business and substantially all
      of
      the assets of Gemprint Corporation (“Gemprint”), consisting primarily of a
      patented technology for non-invasive diamond identification which Gemprint uses
      to digitally capture the unique refractive light pattern (or “gemprint”) of each
      diamond that is processed with that technology. The Company paid a purchase
      price for Gemprint’s business and assets of $7.5 million in cash, and assumed
      certain pre-acquisition liabilities and lease commitments, and agreed to pay
      additional contingent purchase price of $1 for each diamond that the Company
      registers using the gemprint process in excess of 100,000 registrations per
      year
      during the five year period ending December 22, 2010.




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




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




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.




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 March 31,
      2006.




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




In
      connection with our acquisition of CCE in September 2005, we also acquired
      one
      of its affiliated companies (“CTP”) that was engaged in an unrelated business.
      At the time we consummated the CCE acquisition we intended to dispose of CTP
      and, effective November 30, 2005, we disposed of CTP. Accordingly, CTP has
      been
      classified as a discontinued business and its operating results for the period
      during the nine months ended March 31, 2006 that we owned it have been included
      in discontinued operations.




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




23


**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 nine months ended March
      31,
      2006 and 2005, respectively, we used cash of $2,175,000 (which is net of
      $7,602,000 invested in short-term investments) and generated cash of $4,359,000
      (which is net of $2,294,000 invested in short-term investments) from the
      operating activities of our continuing businesses.




During
      the nine months ended March 31, 2006, we generated cash of $558,000, primarily
      from the sales of our collectibles sales businesses and the liquidation of
      the
      inventories and accounts receivable of those businesses that we had retained.
      As
      a result, at March 31, 2006, the remaining assets of those businesses, which
      we
      are in the process of liquidating, totaled approximately $209,000, 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 and the total number of units of collectibles submitted
      to
      us for authentication and grading and the level of our non-grading revenues.
      The
      gross profit on our authentication and grading revenues is affected by the
      (i) mix of collectibles submission revenues among coins, sportscards and
      other collectibles, (ii) the mix of submission revenues between vintage or
“classic” coins and sportscards, on the one hand, and modern coins and
      sportscards, on the other hand and (iii) in the case of coins and
      sportscards, the “turn-around” times 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. Furthermore, because a
      significant proportion of our direct costs are fixed in nature, our gross profit
      is also affected by the overall volume of collectibles authenticated and graded
      in any period.




*Impact
      of Economic Conditions on Financial Performance* .
      We
      generate substantially all of our revenues from the collectibles 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, 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.




24


The
      following tables provide information regarding the respective numbers of coins,
      sportscards, autographs, stamps, currency and diamonds that were authenticated
      and graded by us in the three and nine months ended March 31, 2006 and 2005
      and
      their estimated values, which are the amounts at which those coins, sportscards,
      autographs, stamps, currency and diamonds were insured by the dealers and
      collectors who submitted them to us for authentication and grading.




**Units
                Processed**
              **Three
                Months Ended March 31**
            
            **Percent**
              **Increase**
              **(decrease)**
            
            
            **Declared
                Value (000)**
              **Three
                Months Ended March 31****2006**
            
            **2005****(1)**
            
            
            
            **2006**
            
            
            
            **2005****(1)**Coins
            
            
            474,000
            
            
            56
            %
            
            449,000
            
            
            59
            %
            
            6
            %
            
            
            
            $
            577,693
            
            
            93
            %
            
            
            
            $
            321,632
            
            
            92
            %Sportscards
            
            
            315,000
            
            
            37
            %
            
            283,000
            
            
            38
            %
            
            11
            %
            
            
            
            
            18,288
            
            
            3
            %
            
            
            
            
            17,110
            
            
            5
            %Autographs
            
            
            45,000
            
            
            5
            %
            
            15,000
            
            
            2
            %
            
            200
            %
            
            
            
            
            3,845
            
            
            1
            %
            
            
            
            
            6,466
            
            
            2
            %Stamps
            
            
            10,000
            
            
            1
            %
            
            7,000
            
            
            1
            %
            
            43
            %
            
            
            
            
            5,430
            
            
            1
            %
            
            
            
            
            4,051
            
            
            1
            %Currency(1)
            
            
            9,000
            
            
            1
            %
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            8,208
            
            
            1
            %
            
            
            
            
            -
            
            
            -Diamonds(1)
            
            
            1,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            9,740
            
            
            1
            %
            
            
            
            
            -
            
            
            -Total
            
            
            854,000
            
            
            100
            %
            
            754,000
            
            
            100
            %
            
            13
            %
            
            
            
            $
            623,204
            
            
            100
            %
            
            
            
            $
            349,259
            
            
            100
            %








**Units
                Processed**
              **Nine
                Months Ended March 31**
            
            **Percent**
              **Increase**
              **(decrease)**
            
            
            **Declared
                Value (000)**
              **Nine
                Months Ended March 31****2006**
            
            **2005****(1)**
            
            
            
            **2006**
            
            
            
            **2005****(1)**Coins
            
            
            1,226,000
            
            
            54
            %
            
            1,241,000
            
            
            59
            %
            
            (1
            %)
            
            
            
            $
            1,208,616
            
            
            91
            %
            
            
            
            $
            897,853
            
            
            91
            %Sportscards
            
            
            873,000
            
            
            38
            %
            
            801,000
            
            
            38
            %
            
            9
            %
            
            
            
            
            53,358
            
            
            4
            %
            
            
            
            
            48,989
            
            
            5
            %Autographs
            
            
            134,000
            
            
            6
            %
            
            54,000
            
            
            2
            %
            
            148
            %
            
            
            
            
            11,341
            
            
            1
            %
            
            
            
            
            23,424
            
            
            2
            %Stamps
            
            
            26,000
            
            
            1
            %
            
            19,000
            
            
            1
            %
            
            37
            %
            
            
            
            
            13,752
            
            
            1
            %
            
            
            
            
            14,579
            
            
            2
            %Currency(1)
            
            
            23,000
            
            
            1
            %
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            31,433
            
            
            2
            %
            
            
            
            
            -
            
            
            -Diamonds(1)
            
            
            2,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            19,703
            
            
            1
            %
            
            
            
            
            -
            
            
            -Total
            
            
            2,284,000
            
            
            100
            %
            
            2,115,000
            
            
            100
            %
            
            8
            %
            
            
            
            $
            1,338,203
            
            
            100
            %
            
            
            
            $
            984,845
            
            
            100
            %




(1)  We
        began
        offering currency authentication and grading services and diamond grading
        services for the first time during the nine months ended March 31,
        2006.




**Critical
      Accounting Policies and Estimates**




*General.* In
      accordance with accounting principles generally accepted in the United States
      of
      America (“GAAP”), we record our assets at the lower of cost or fair value. In
      determining the fair value of certain of our assets, principally accounts
      receivable and 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 fully collect our accounts receivable or 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 other
      unanticipated events were to happen that might affect our operations, we may
      be
      required under GAAP to adjust our earlier estimates that are affected by those
      changes or events. 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.




25


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 reject or adjust the payment for the services
      provided to them.




As
      is
      described above, during the nine months ended March 31, 2006 we acquired certain
      businesses and, in accordance with GAAP, we accounted for those acquisitions
      using the purchase method of accounting. That accounting method required us
      to
      allocate the amount paid for those businesses over the fair value of the assets
      and liabilities acquired, and to classify the excess of the purchase price
      over
      that fair value as goodwill. In accordance with GAAP, we will be evaluating
      goodwill for impairments at least annually, or more frequently if we believe
      that goodwill has been impaired in the interim due to changing facts or events
      (see “ *Long-Lived
      Assets* ”
below).
      Other intangible assets that are separable from goodwill and have definite
      lives
      are subject to amortization over their remaining useful lives. Indefinite-lived
      intangible assets are subject to on-going evaluation for
      impairment.




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




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




*Revenue
      Recognition Policies* .
      We
      generally record revenue at the time of shipment of the authenticated and 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 authenticated and graded collectible to the
      dealer.




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




26


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




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




*Grading
      Warranty Costs* .
      We
      offer a warranty covering the coins, sportscards, stamps, currency and diamonds
      that we authenticate and grade. Under the warranty, if any collectible that
      was
      previously authenticated and graded by us is later submitted to us for
      re-grading and either (i) receives a lower grade upon that resubmittal or (ii)
      is determined not to have been authentic, we will offer to purchase the
      collectible or pay the difference in value of the item at its original grade
      as
      compared with its lower grade. However, this warranty is voided if the
      collectible, upon 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 increase our warranty reserves and incur additional charges that would
      adversely affect our results of operations in those periods during which the
      warranty reserve is increased.




*Long-Lived
      Assets.* We
      regularly conduct reviews of property and equipment and other long-lived assets,
      including certain identifiable intangibles and goodwill, for possible
      impairment. Such reviews occur annually, or more frequently if events or changes
      in circumstances indicate the carrying amount of the asset may not be
      recoverable in full. In order to determine if the value of an asset is impaired,
      we make an estimate of the future cash flows (undiscounted and without interest
      charges) expected to result from the use of that asset and its eventual
      disposition and determine its fair value by discounting those cash flows to
      present value using a discount rate commensurate with management’s estimates of
      the business risks associated with the asset. If that estimated fair value
      is
      less than the carrying amount of the asset, an impairment loss is recognized
      to
      write down the asset to its estimated fair value. 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 was any impairment of its long-lived assets as of March 31, 2006. There
      can be no assurance, however, that there will be no impairments of the Company’s
      long-lived assets in the future.




*Stock-Based
      Compensation.* Effective
      July 1, 2005, the Company began recognizing share-based compensation costs
      based
      on the fair value recognition provision of SFAS No. 123(R), using the
      Black-Scholes option valuation method. Under that method, assumptions are made
      with respect to 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 No. 123(R), we recognize and report share-based
      compensation net of option forfeitures that we expect will occur, which we
      estimate on the basis of historical forfeiture experience. Once we determine
      the
      compensation cost of a stock option award, that cost is recognized in our
      consolidated statements of operations over the vesting period of the option
      using the straight-line attribution method.




27


**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****March
                31**
            
            **Nine
                Months Ended March 31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            40.8
            %
            
            36.4
            %
            
            40.2
            %
            
            36.2
            %Gross
                profit
            
            
            59.2
            %
            
            63.6
            %
            
            59.8
            %
            
            63.8
            %Operating
                expenses:Selling
                and marketing expenses
            
            
            13.7
            %
            
            9.8
            %
            
            12.9
            %
            
            10.3
            %General
                and administrative expenses
            
            
            32.5
            %
            
            28.9
            %
            
            36.1
            %
            
            28.5
            %Settlement
                of lawsuit
            
            
            -
            
            
            -
            
            
            -
            
            
            2.0
            %Total
                operating expenses
            
            
            46.2
            %
            
            38.7
            %
            
            49.0
            %
            
            40.8
            %Operating
                income, net
            
            
            13.0
            %
            
            24.9
            %
            
            10.8
            %
            
            23.0
            %Interest
                income, net
            
            
            5.9
            %
            
            2.7
            %
            
            6.6
            %
            
            1.7
            %Other
                expenses
            
            
            0.1
            %
            
            (0.2
            %)
            
            0.1
            %
            
            (0.1
            %)Income
                before provision for income taxes
            
            
            19.0
            %
            
            27.4
            %
            
            17.5
            %
            
            24.6
            %Provision
                for income taxes
            
            
            (8.0
            %)
            
            (11.0
            %)
            
            (7.5
            %)
            
            (9.9
            %)Income
                from continuing operations after income taxes
            
            
            11.0
            %
            
            16.4
            %
            
            10.0
            %
            
            14.7
            %Income
                (loss) from discontinued operations, net of gain on sales
              of
                discontinued businesses (net of income taxes)
            
            
            -
            
            
            -
            
            
            0.6
            %
            
            (0.3
            %)Net
                income
            
            
            11.0
            %
            
            16.4
            %
            
            10.6
            %
            
            14.4
            %


*Net
      Revenues*





Authentication
      and grading fees consist primarily of fees generated from the authentication
      and
      grading of high-value coins, sportscards, autographs, stamps, currency and
      diamonds and, to a much lesser extent, revenues from other collectibles-related
      services, including 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 and other collectible-related services in
      the
      three and nine months ended March 31, 2006 and 2005:




**Three
                Months Ended March 31,****2006**
            
            **2005**
            
            **2006
                vs. 2005****Increase
                (Decrease)****Amount**
            
            **%
                of Net Revenues**
            
            **Amount**
            
            **%
                of Net Revenues**
            
            **Amount**
            
            **Percent**Coins
            
            $
            6,511,000
            
            
            65.0
            %
            $
            6,386,000
            
            
            71.3
            %
            $
            125,000
            
            
            2.0
            %Sportscards
            
            
            2,177,000
            
            
            21.7
            %
            
            2,070,000
            
            
            23.1
            %
            
            107,000
            
            
            5.2
            %Other
                collectibles(1)
            
            
            1,334,000
            
            
            13.3
            %
            
            499,000
            
            
            5.6
            %
            
            835,000
            
            
            167.3
            %Net
                revenues
            
            $
            10,022,000
            
            
            100.0
            %
            $
            8,955,000
            
            
            100.0
            %
            $
            1,067,000
            
            
            11.9
            %





28





**Nine
                Months Ended March 31,****2006**
            
            **2005**
            
            **2006
                vs. 2005****Increase
                (Decrease)****Amount**
            
            **%
                of Net Revenues**
            
            **Amount**
            
            **%
                of Net Revenues**
            
            **Amount**
            
            **Percent**Coins
            
            $
            16,814,000
            
            
            63.9
            %
            $
            17,487,000
            
            
            69.6
            %
            $
            (673,000
            )
            
            (3.8
            %)Sportscards
            
            
            6,247,000
            
            
            23.8
            %
            
            6,093,000
            
            
            24.2
            %
            
            154,000
            
            
            2.5
            %Other
                collectibles(1)
            
            
            3,233,000
            
            
            12.3
            %
            
            1,552,000
            
            
            6.2
            %
            
            1,681,000
            
            
            108.3
            %Net
                revenues
            
            $
            26,294,000
            
            
            100.0
            %
            $
            25,132,000
            
            
            100.0
            %
            $
            1,162,000
            
            
            4.6
            %





(1)
            Other
                collectibles consist of autographs,
                stamps, currency and diamonds and also include revenues from other
                collectible-related services.





The
      increases in revenues of $1,067,000, or 11.9%, and $1,162,000, or 4.6%, in
      the
      three and nine months ended March 31, 2006, respectively, compared to the same
      respective periods of the prior year, were primarily due to (i) increases
      in the number of units graded and authenticated and (ii) increases in
      revenues from other collectible-related services that were primarily
      attributable to revenues of the businesses that we acquired in the first six
      months of the current fiscal year.





While
      the
      total units graded and authenticated in the three and nine months ended March
      31, 2006 increased by 13% and 8%, respectively, grading and authentication
      revenues, by comparison, increased by 9% and 3% respectively, during those
      same
      periods, primarily due to the mix of submission revenues among coins, sportcards
      and other collectibles and the mix of services (in terms of turnaround times
      and
      average service fees among the different customers) provided in the respective
      periods, which affected our average selling prices. We realize our highest
      prices (ASP) on diamonds and stamps. The ASP on coins was down year over year
      as
      it was in all the categories. In the three and nine months ended March 31,
      2006,
      coins accounted for 56% and 54%, respectively, of the total number of units
      graded in those periods, as compared to 59% in the respective corresponding
      periods of 2005. Our autograph authentication business experienced increases
      of
      200% and 148%, respectively, in the number of units authenticated in the quarter
      and nine months ended March 31, 2006, resulting in increases of 52% and 40%,
      respectively, in autograph authentication revenues, for those respective
      periods, in each case as compared to the corresponding periods of the prior
      year. Those increases were due primarily to increases in our autograph
      authentication services offered this year, as compared to last year, and changes
      in our pricing that we believe made such services more attractive to a larger
      number of dealers and collectors.





The
      6%
      increase in the number of coins graded and authenticated in this year’s third
      quarter, as compared to the same quarter of the prior year, was primarily
      attributable to an increase in coin submissions under the Company’s First Strike
      program (which, to date, has primarily been a third quarter program), which
      more
      than offset a reduction in the number of units submitted from a coin dealer
      that
      had been our largest customer until the fourth quarter of fiscal 2005, when
      its
      owner sustained a serious illness. Revenues attributable to coins submissions
      by
      that customer declined from 10% of total revenues in the three and nine months
      ended March 31, 2005 to 5% and 4%, respectively, of total revenues for the
      three
      and nine months ended March 31, 2006. Although, the Company’s growth in revenues
      in the current year have been depressed by the loss of coin revenues from that
      customer, we continue to believe that general economic conditions are favorable
      to our coin grading and other businesses.





*Gross
      Profit*





Gross
      profit is calculated by subtracting the cost of revenues from net revenues.
      Gross profit margin is gross profit stated as a percent of net revenues. Cost
      of
      authentication and grading revenues, primarily consist of labor to authenticate
      and grade collectibles, production costs, credit cards fees, warranty expense
      and occupancy, security and insurance costs that directly relate to providing
      authentication and grading services and printing and other direct costs. In
      the
      three and nine months ended March 31, 2006, our costs of revenues included
      stock-based compensation, earned by employees in our authentication and grading
      division, which is required to be recognized in accordance with SFAS No. 123(R).


29


Set
      forth
      below is information regarding our gross profits in the three and nine months
      ended March 31, 2006 and 2005:





**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Gross
                profit
            
            $
            5,934,000
            
            $
            5,692,000
            
            $
            15,716,000
            
            $
            16,045,000Gross
                profit margin
            
            
            59.2
            %
            
            63.6
            %
            
            59.8
            %
            
            63.8
            %





The
      decline in our gross profit margin in the three and nine month periods ended
      March 31, 2006, was primarily attributable to (i) a modest decline in the
      average service price of coins due to the mix of services provided in the
      periods; (ii) increased grader-related compensation costs of $114,000 and
      $426,000 in the three and nine months ended March 31, 2006, respectively, as
      a
      result of an increase in the number of graders and the implementation of a
      more
      fixed-rate compensation plan; (iii)  a change in the mix of collectibles
      graded to a lower proportion of coins, on which we realize higher margins than
      on authentication and grading of other collectibles; and (iv) stock-based
      compensation expense of $56,000 and $168,000 for the three and nine months
      ended
      March 31, 2006, respectively, recorded as required by SFAS No. 123(R). Stock
      based compensation was not required to be recorded in fiscal 2005 or in prior
      years. Coin revenues represented approximately 65% and 64% of total net revenues
      in the three and nine months ended March 31, 2006, as compared to approximately
      71% and 70% of total net revenues in the same three and nine months of the
      prior
      year.





Partially
      offsetting the impact of these factors on gross profit margin in both the three
      and nine months ended March 31, 2006 was a $194,000 credit for the reversal
      of a
      long-term compensation accrual for a former employee due to the termination
      of
      his employment in the second quarter of fiscal 2006.





*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 and nine month periods ended March 31, 2006 and
      2005.




**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Selling
                and marketing expenses
            
            $
            1,378,000
            
            $
            876,000
            
            $
            3,386,000
            
            $
            2,581,000Percent
                of net revenue
            
            
            13.7
            %
            
            9.8
            %
            
            12.9
            %
            
            10.3
            %





The
      increases, both in absolute dollars and as a percentage of net revenues, in
      selling and marketing expenses in the three and nine months ended March 31,
      2006, respectively, compared to the same respective periods of 2005, were
      primarily attributable to (i) costs of $220,000 and $350,000, respectively,
      incurred in the three and nine months ended March 31, 2006 in connection with
      the launch of the Company’s currency grading division and the commencement of
      marketing programs for the businesses that we acquired in the first six months
      of the current fiscal year, (ii) collectibles trade-show expenses of
      approximately $106,000 and $250,000 incurred in the three and nine month periods
      ended March 31, 2006, respectively, because we participated in one more trade
      show in this year’s third quarter than we did in the same quarter last year, and
      we focused more resources on our trade show programs at which we are able to
      generate higher average service fees due to the faster turn-around times
      demanded by dealers and collectors attending those shows; (iii) increased
      advertising and promotional expenses of $109,000 and $187,000 incurred in the
      three and nine months ended March 31, 2006, including promotional costs
      associated with the Company’s third quarter First Strike Program; and
      (iv) increases in personnel costs in our customer service departments.





30


*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. In the three and nine months
      ended March 31, 2006, G&A expenses also included stock-based compensation
      required to be recognized in accordance with SFAS No. 123(R).





**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**General
                and administrative expenses
            
            $
            3,254,000
            
            $
            2,588,000
            
            $
            9,500,000
            
            $
            7,167,000Percent
                of net revenues
            
            
            32.5
            %
            
            28.9
            %
            
            36.1
            %
            
            28.5
            %





The
      increase in general and administrative expenses of $666,000 and $2,333,000
      in
      the three and nine months ended March 31, 2006, respectively, were primarily
      attributable to general and administrative expenses incurred in connection
      with
      the acquisitions and integration in our operations of the newly acquired
      businesses, investment in infrastructure to support the growth of our
      businesses, litigation costs, audit and Sarbanes Oxley compliance costs and
      stock-based compensation costs (arising from the adoption of SFAS 123(R)).
      The
      increased costs associated with the acquired businesses were approximately
      $390,000 and $600,000, which included business transition and intangible
      amortization costs of $158,000 and $242,000, respectively, in the three and
      nine
      months ended March 31, 2006. We also incurred approximately $60,000 and
      $240,000, respectively, in connection with the implementation of our business
      acquisition and expansion program, in the three and nine months ended March
      31,
      2006. The increased infrastructure costs of approximately $140,000 and $460,000,
      respectively, in the three and nine months ended March 31, 2006 included
      investments in information technology systems and additional space to support
      the growth of our businesses. Litigation costs were approximately $100,000
      lower
      in the quarter ended March 31, 2006 than in the quarter ended March 31, 2005
      during which we incurred increased litigation costs due to the Real Legends
      lawsuit which was settled in that quarter. On the other hand, litigation costs
      increased by approximately $300,000 in the nine months ended March 31, 2006,
      as
      compared to the same period of 2005. That increase was primarily attributable
      to
      the costs of the trial in the Miller lawsuit
      that took place in the second quarter of fiscal 2006. Increased audit and
      Sarbanes Oxley costs of $275,000 were incurred primarily in the first quarter
      of
      fiscal 2006. Stock-based compensation costs recognized pursuant to SFAS 123(R)
      and included in general and administrative expenses for the three and nine
      months ended March 31, 2006 were $76,000 and $227,000,
      respectively.





*Settlement
      of Lawsuit*





**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Settlement
                of lawsuit
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            500,000Percent
                of net revenues
            
            
            -
            
            
            -
            
            
            -
            
            
            2.0
            %





As
      previously reported, during the second quarter of fiscal 3005, the Company
      recognized an expense of $500,000 (net of a $100,000 insurance reimbursement)
      in
      connection with the settlement of the Real
      Legends lawsuit.





31


*Stock-Based
      Compensation*





In
      accordance with SFAS No. 123(R) -- *Share
      Based Payments* which,
      in the Company’s case, became effective as of July 1, 2005, the Company
      recognized stock-based
      compensation of $133,000 and $398,000 for the three and nine months ended March
      31, 2006. That stock-based compensation was attributable to the
      following:




**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**Cost
                of revenues
            
            $
            56,000
            
            $
            168,000Selling
                and marketing expenses
            
            
            1,000
            
            
            3,000General
                and administrative expenses
            
            
            76,000
            
            
            227,000$
            133,000
            
            $
            398,000


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





We
      adopted SFAS No. 123(R) using the modified prospective method. Under this
      transition method, compensation costs recognized in the three and nine months
      ended March 31, 2006 include: (i) compensation cost for all share-based
      awards granted prior to, but not yet vested as of July 1, 2005, based on their
      respective grant date fair values estimated in accordance with the original
      provisions of SFAS No. 123, and (ii) compensation cost for all
      share-based awards granted subsequent to June 30, 2005, based on their
      respective grant-date fair values estimated in accordance with the provisions
      of
      SFAS No. 123(R). In accordance with the modified prospective method, results
      for
      the corresponding periods of the prior year have not been restated and the
      Company will continue to disclose the pro forma effect of option grants on
      net
      earnings and net earnings per share for periods ended prior to July 1, 2005
      in
      the footnotes to its financial statements.




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




We
      will
      also continue to account for equity instruments issued to persons other than
      Company employees and directors (“non-employees”) in accordance with the
      provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No.
      96-18, *Accounting
      for Equity Instruments that are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling Goods or Services.* All
      transactions in which goods or services are the consideration received for
      equity instruments issued to non-employees are accounted for based on the fair
      value of the consideration received or the fair value of the equity instrument
      issued, whichever is more reliably measurable. The measurement date used to
      determine the fair value of any such equity instrument is the earliest to occur
      of (i) the date on which the third-party performance is complete, (ii) the
      date
      on which it is probable that performance will occur, or (iii) if different,
      the
      date on which the compensation has been earned by the non-employee. However,
      no
      equity instruments were issued to non-employees for goods or services during
      the
      three or nine months ended March 31, 2006 and 2005.




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 awards are sometimes granted with
      immediate vesting.




For
      purposes of SFAS No. 123(R), the Company calculates stock-based
      compensation by estimating the fair value of each stock option using the
      Black-Scholes option valuation model and various assumptions that are described
      in note 1 to the condensed consolidated financial statements included in Part
      I
      of this Report. Once the compensation cost of an option is determined, that
      cost
      is recognized on a straight-line basis over the vesting period of the
      option.






32




For
      the
      three and nine months ended March 31, 2006, stock-based compensation consisted
      of compensation costs attributable to options that were outstanding during
      those
      respective periods but which were not fully vested as of July 1, 2005, the
      effective date of SFAS No. 123(R), compensation costs for options that were
      granted during those respective periods, prorated from their respective grant
      dates to March 31, 2006 and adjusted for estimated forfeitures in accordance
      with SFAS No. 123(R). Options to purchase a total of 10,000 shares of our common
      stock were granted to employees during the quarter ended September 30, 2005,
      but
      no options were granted in either of the two subsequent quarters during the
      nine
      months ended March 31, 2006.




The
      method we employ to calculate stock-based compensation is consistent with the
      method used to compute stock-based compensation under SFAS No. 123, except
      that
      under SFAS No. 123(R), we are required to estimate forfeitures, which we were
      not required to and did not estimate under SFAS No. 123. We have estimated
      forfeitures to be 4%, which reduced stock-based compensation cost by $5,000
      and
      $15,000 in the three and nine months ended March 31, 2006,
      respectively.




A
      total
      of $1,398,000 of compensation expense related to non-vested stock-based
      compensation awards remained unrecognized as of March 31, 2006. Based on the
      assumption that the forfeiture rate will remain at 4%, that amount will be
      recognized as compensation expense as follows:





YEAR
                ENDING JUNE 30,2006
            
            $
            132,0002007
            
            
            516,0002008
            
            
            488,0002009
            
            
            259,0002010
            
            
            3,000Total
            
            $
            1,398,000





However,
      these amounts do not include the cost of any additional stock based compensation
      awards that may be granted in future periods nor, as mentioned above, any
      changes that might occur in the Company’s compensation award forfeiture
      rate.




*Interest
        Income, Net*




**Three
                  Months Ended**
                **March
                  31**
              
              **Nine
                  Months Ended**
                **March
                  31,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Interest
                  income, net
              
              $
              588,000
              
              $
              245,000
              
              $
              1,738,000
              
              $
              419,000Percent
                  of net revenue
              
              
              5.9
              %
              
              2.7
              %
              
              6.6
              %
              
              1.7
              %
 Interest income is generated on cash balances that we invest primarily in
        highly
        liquid money market accounts, short-term bank certificates of deposit, auction
        rate securities and commercial paper instruments. Interest income, net totaled
        $588,000 and $1,738,000, respectively, in the three and nine months ended
        March
        31, 2006, compared with $245,000 and $419,000 in the three and nine months
        ended
        March 31, 2005, respectively. These increases were primarily attributable
        to
        increases in our cash and cash equivalent and short-term investment balances
        that were attributable to (i) the sale by us of 2,195,856 shares of our
        common stock in a public offering that we completed in the third quarter
        of
        fiscal 2005, which generated net proceeds to us of $35,657,000; and
        (ii) cash generated from the disposition of our collectibles sales
        businesses; and (iii) cash generated by operations, reduced by cash
        expended for business acquisitions in the current fiscal year. 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 due to increases
        in
        interest rates.





33


*Provision
      for Income Taxes*





**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Provision
                for Income Taxes
            
            $
            804,000
            
            $
            981,000
            
            $
            1,965,000
            
            $
            2,487,000





The
      income tax expense recorded in the three and nine months ended March 31, 2006
      and 2005 was calculated based on our expected combined federal and state
      effective income tax rates of approximately 43% for the fiscal year ended June
      30, 2006 and 40% for the fiscal year ended June 30, 2005. The increase in the
      effective tax rate to 43% in the current fiscal year reflects increased
      permanent differences between the Company’s income for book purposes and for tax
      purposes due primarily to the non-deductibility of compensation costs on
      incentive stock options.





*Discontinued
      Operations*





**Three
                Months Ended**
              **March
                31**
            
            **Nine
                Months Ended**
              **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Income
                (loss) from discontinued operations,net
                of gain on sales of
              discontinued
                businesses(net
                of income taxes)
            
            $
            -
            
            $
            (3,000
            )
            $
            169,000
            
            $
            (79,000
            )





Income
      from discontinued operations in the nine months ended March 31, 2006 is
      attributable to the continued activities associated with the disposition of
      the
      assets (consisting primarily of inventories) of the collectibles sales
      businesses that we sold and the results of CTP from September 2, 2005 (the
      date
      of its acquisition) through November 30, 2005 (the date of its disposition).
      In
      the three and nine months ended March 31, 2006, we recognized a pre-tax gains
      of
      $25,000 and $320,000, respectively, on the disposal of direct collectibles
      businesses, the amounts of which became determinable in that period. In the
      nine
      months ended March 31, 2006, the Company recognized a pre-tax bad debt expense
      of $73,000 in connection with a note receivable, attributable to the operations
      of one of our discontinued businesses, that became uncollectible in that
      period.





**Liquidity
      and Capital Resources**




At
      March
      31, 2006, we had cash, cash equivalents and short-term investments of
      $53,168,000, as compared to cash and cash equivalents of $65,439,000 at June
      30,
      2005. That decrease was primarily attributable to the use of $14,554,000 of
      cash
      to fund the purchase prices that we paid for the businesses that we acquired
      in
      the first six months of fiscal 2006.




Historically,
      we have relied on internally-generated funds, rather than borrowings, as our
      primary source of funds to support our grading operations. Historically, our
      authentication and grading services have provided us with relatively predictable
      cash flows, largely because in many instances our customers prepay for those
      services at the time they submit their collectibles to us for authentication
      and
      grading.




*Cash
      Used In Operating Activities* .
      During
      the nine months ended March 31, 2006, our operating activities used net cash
      of
      approximately $2,175,000 that was attributable primarily to cash generated
      from
      our authentication and grading services, $7,602,000 of cash outflow that was
      invested in short-term investments and a reduction of $1,485,000 in deferred
      income taxes as a result of our use of our net operating losses in the period
      to
      reduce our taxes payable. A March 31, 2006, the Company had fully utilized
      its
      net operating losses (NOLs) for federal income tax purposes.  However, the
      Company continues to have losses and tax credits available for state income
      tax
      purposes.




*Cash
      Used in Investing Activities* .
      We used
      net cash of $17,327,000 in investing activities in the nine months ended March
      31, 2006, primarily to fund (i) the purchase of the businesses we acquired
      during that period and (ii) net advances that we made under our dealer
      financing programs of our Collectors Finance division, and (iii) capital
      expenditures, primarily for the purchase of fixed assets.




34


*Cash
      Used in Financing Activities* .
      We used
      net cash of $571,000 in financing activities, including cash expended for the
      purchase of 50,000 shares of our common stock at a cost of $703,000 and cash
      generated from the exercise of stock options for $132,000.




*Bank
      Line of Credit* .
      In
      fiscal 2005 we organized Collectors Finance Corporation (“CFC”), as a
      wholly-owned subsidiary, to engage in the business of making loans primarily
      to
      coin dealers. All such loans are required to be collateralized by the delivery
      to us of collectibles coins that have a fair market value of at least the amount
      of the loans. The loans are required to be repaid to us when those collectibles
      are returned to the dealers. To provide a source of funding for those short
      term
      loans, in June 2005 CFC obtained a revolving bank line of credit pursuant to
      a
      loan and security agreement that permits CFC to borrow, at any one time, up
      to
      the lesser of (i) $7,000,000 or (ii) an amount equal to 85% of the aggregate
      principal amount of those of its loan receivables that meet the bank’s
      eligibility criteria. Borrowings under that credit line, which has a term of
      two
      years, bear interest at rates based on the bank’s prime rate or LIBOR, as
      applicable, and are secured by the loan receivables due CFC. There were no
      borrowings outstanding under that line of credit at March 31, 2006.




CFC’s
      obligations under this line of credit have been guaranteed by the Company
      pursuant to a Continuing Guaranty Agreement with the bank lender. The terms
      of
      that Agreement require the Company to be in compliance with certain financial
      and other restrictive covenants, and require the consent of the lender (i)
      for
      the payment of cash dividends or the repurchase shares of common stock by the
      Company in an aggregate amount 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 of these covenants at March 31, 2006
      and
      received the required consents from the lender for the purchase of the Gemprint
      business and the repurchase of the Company’s common stock during the third
      quarter of 2006.





*Outstanding
      Financial Obligations* .
      We had
      the following outstanding obligations under operating leases, net of sublease
      income, at March 31, 2006 for years ending June 30:





2006
            
            $
            449,0002007
            
            
            1,559,0002008
            
            
            1,552,0002009
            
            
            1,497,0002010
            
            
            763,000Thereafter
            
            
            2,116,000$
            7,936,000





With
      the
      exception of these obligations, we do not have any material financial
      obligations, such as long-term debt, capital lease, or purchase obligations.
      In
      the event that CFC incurs any borrowings under its line of credit, we will
      have
      an obligation to repay such borrowings; however, as noted above, there were
      no
      borrowings outstanding under this line of credit at March 31, 2006.





In
      December 2005, the Company’s Board of Directors approved a $10 million stock
      buyback program. The program authorizes the Company to make up to $10 million
      of
      stock repurchases in open market or privately negotiated transactions, in
      accordance with applicable Securities Exchange Commission rules, when
      opportunities to make such repurchases, at attractive prices, become available.
      The Company is under no obligation to repurchase any shares under the stock
      buyback program and the timing, actual number and value of shares that may
      be
      repurchased under that program will depend on a number of factors, including
      the
      Company's future financial performance, the Company's available cash resources
      and competing uses for the cash that may arise in the future, prevailing market
      prices of the Company's common stock and the number of shares that become
      available for sale at prices that the Company believes are attractive. During
      the quarter ended March 31, 2006, the Company repurchased a total of 50,000
      shares of its common stock for an aggregate purchase price of approximately
      $700,000. Additional information regarding these share repurchases is set forth
      in Item 2 of Part II of this report.




35


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, (iv) make private and open market
      share repurchases under our stock buyback program if there are opportunities
      to
      do so at prices that we believe are attractive, and (v) 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. In the case of the Company,
      SFAS
      No. 154 will become effective for our fiscal year beginning July 1,
      2006.




In
      March
      2006, the Financial Accounting Standards Board (“FASB”) issued Statement of
      Financial Accounting Standards (“SFAS”) No. 155, *Accounting
      for Certain Hybrid Financial Instruments* (an
      amendment of FASB Statements No. 133 and 140) and SFAS No.156, *Accounting
      for Servicing of Financial Assets* (an
      amendment of FASB Statement No. 140). We do not expect the adoption of SFAS
      No.
      155 and SFAS No. 156 to have a material impact on our financial position or
      results of operation.





**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 or assets, either
                of which
                could reduce the volume of authentication and grading submissions
                and,
                therefore, the authentication and 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
                fact that, during the nine months ended March 31, 2006, a total of
                6 of
                our customers accounted for 23% of our net revenues, in the aggregate,
                which means that the loss of any of those customers, or even a reduction
                by any of those customers in the volume of their authentication and
                grading submissions to us, would cause our net revenues to decline
                and,
                therefore, could harm our profitability;






36




·
            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, paper currency and diamond 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;




·
            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;




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




·
            the
                risk that we will not succeed in investing our available cash and
                cash
                equivalents and short-term investments, which totaled approximately
                $53
                million at March 31, 2006, in a manner that will generate returns
                comparable to those we realize on the investment we have made in
                our core
                authentication and grading businesses, which would adversely affect
                our
                profitability; and




·
            the
                risk that the trial court decision in our favor in theMillercase, which is being appealed by the plaintiff, will be reversed
                on appeal
                and that we could ultimately incur a material liability in that case.




Certain
      of these risks and uncertainties, as well as other risks, are more fully
      described above in this Section of this Report (entitled
      “Management's Discussion and Analysis of Financial Condition and Results of
      Operations”) and in the Section entitled
      “Factors That Could Affect Our Future Financial Performance” in Part I of 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.




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.




**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 and short-term investment balances that we
      maintain, we are exposed to risk of changes in short-term interest rates. At
      March 31, 2006, we had approximately $53 million in cash and cash equivalents
      and short-term investments, primarily invested in high-grade commercial paper,
      money market funds, auction rate securities, 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.




37


**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.




Our
      management, under the supervision and with the participation of our Chief
      Executive Officer and our Chief Financial Officer, evaluated the effectiveness
      of our disclosure controls and procedures in effect as of March 31, 2006. Based
      on this evaluation, our Chief Executive Officer and Chief Financial Officer
      concluded that, as of March 31, 2006, 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 March 31, 2006, that has materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.




38







**PART
      II - OTHER INFORMATION**





**ITEM
      1A.**  **RISK
      FACTORS**





There
      were no material changes in the risk factors that were disclosed under the
      caption “Factors That Could Affect Our Future Financial Performance” in Part I
      of our Annual Report on Form 10-K for our fiscal year ended June 30, 2005,
      except as may otherwise be set forth above under the caption “Risks and
      Uncertainties That Could Affect Our Future Financial Performance” in Item 2 of
      Part I of this report.





**ITEM
      2.**  **UNREGISTERED
      SALES OF SECURITIES AND USE OF
      PROCEEDS**





Share
      Repurchases .




On
      December 6, 2005, Collectors Universe, Inc. reported that its Board of Directors
      had authorized a stock buyback program, pursuant to which the Company may,
      from
      time to time, in accordance with the applicable Securities and Exchange
      Commission rules, purchase up to an aggregate of $10 million of its shares
      of
      common stock in open market and private transactions, when opportunities to
      makes such purchases become available at attractive prices. The Company is
      under
      no obligation to repurchase any shares under the stock buyback program and
      the
      timing, actual number and value of shares that may be repurchased under this
      program will depend on a number of factors, including the Company’s future
      financial performance; the Company’s available cash resources and competing uses
      for the cash that may arise in the future; prevailing market prices of the
      Company’s common stock; and the number of shares that become available for sale
      at prices that the Company believes are attractive. In addition the Company
      may
      suspend or terminate this program at any time, without notice.




The
      following table sets forth information regarding our share repurchases in each
      of the months during the quarter ended March 31, 2006. These purchases are
      the
      initial share repurchases made by the Company under this program.






**(a**
            
            **(b)**
            
            **(c)**
            
            **(d)****Monthly
                Periods**
              **During
                Quarter Ended**
              **March
                31, 2006**
            
            **Total
                Number**
              **of
                Shares Purchased**
            
            **Average
                Price Paid per Share**
            
            **Total
                Number of Shares Purchased**
              **as
                Part of Publicly Announced**
              **Programs**
            
            **A****pproximate
                Dollar Value**
              **of
                Shares that**
              **May
                Yet Be**
              **Purchased
                Under**
              **the
                Programs**January
                1 to January 31, 2005
            
            
            0
            
            
            N/A
            
            
            N/A
            
            $
            10,000,000February
                1 to February 28, 2006
            
            
            0
            
            
            N/A
            
            
            N/A
            
            $
            10,000,000March
                1to
                March 31, 2006
            
            
            50,000
            
            $
            14.02
            
            
            50,000
            
            $
            9,299,202Total
            
            
            50,000
            
            $
            14.02
            
            
            50,000








39


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





ExhibitsExhibit
                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











40





**SIGNATURES**








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











**COLLECTORS
                UNIVERSE, INC.**Date:May
                10, 2006
            
            /s/
                MICHAEL R. HAYNESMichael
                R. HaynesChief
                Executive Officer











**COLLECTORS
                UNIVERSE, INC.**Date:May
                10, 2006
            
            /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