Forward-Looking Statements

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

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

Our Business

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

We principally generate revenues from the fees paid for our authentication and grading services. To a much lesser extent, we generate revenues from other related services consisting of: (i) the sale of advertising on our websites;
(ii) the sale of printed publications and collectibles price guides and advertising in such publications and on our website; (iii) the sale of Collectors Club membership subscriptions; (iv) the sale of subscriptions to our CCE dealer-to-dealer Internet bid-ask market for certified coins; and (v) the collectibles trade show conventions that we conduct. We also generate revenues from sales of our collectibles inventory, which is comprised primarily of collectible coins that we have purchased under our coin grading warranty program; however, these activities are not the focus of or an integral part of our business.

Discontinued Operations. In the three months ended December 31, 2008, the Company approved a plan to dispose of the Company's currency authentication and grading business and this business was sold in February 2009. Accordingly, the operations of the currency authentication and grading business have been classified as a discontinued operation held for sale at December 31 2008, and the operations of that business have been reclassified as discontinued operations for all periods presented. In addition, as previously disclosed, we have classified as discontinued operations the remaining activities of our divestiture of the collectibles auctions and sales businesses which we disposed of in fiscal 2004. The discussion that follows focuses almost entirely on our on-going authentication and grading businesses, which comprise substantially all of our continuing operations.

Overview of Results of Operations for the Three and Six Months Ended December 31, 2008

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

                                         (in thousands)                 (in thousands)
                                       Three Months Ended              Six Months Ended
                                          December 31,                   December 31,
                                          2008           2007            2008           2007
 Net revenues                            100.0 %        100.0 %         100.0 %        100.0 %
 Cost of revenues                         58.5 %         67.8 %          55.1 %         57.1 %
 Gross profit                             41.5 %         32.2 %          44.9 %         42.9 %
 Operating expenses:
 Selling and marketing expenses           15.8 %         18.2 %          16.7 %         18.1 %
 General and administrative
 expenses                                 46.0 %         37.9 %          43.3 %         37.4 %
 Amortization of intangibles               4.0 %          2.8 %           3.5 %          2.6 %
 Impairment losses                        93.8 %            -            43.5 %            -
 Total operating expenses                159.6 %         58.9 %         107.0 %         58.1 %
 Operating loss                         (118.1 )%       (26.7 )%        (62.1 )%       (15.2 )%
 Interest income, net                      0.9 %          3.1 %           1.1 %          3.6 %
 Other income                                -              -               -              -
 Loss before income taxes               (117.2 )%       (23.6 )%        (61.0 )%       (11.6 )%
 Provision (benefit) for income
 tax                                      14.8 %         (9.4 )%          6.8 %         (4.6 )%
 Loss from continuing operations        (132.0 )%       (14.2 )%        (67.8 )%        (7.0 )%
 Loss from discontinued
 operations, net of income taxes          (1.1 )%        (0.5 )%         (1.3 )%        (0.6 )%
 Net loss                               (133.1 )%       (14.7 )%        (69.1 )%        (7.6 )%

On going grading, authentication and related service revenues decreased by $878,000 or 9.8% and $1,964,000 or 10.0% in the three months and six months ended December 31, 2008, respectively, compared to the same period of the prior fiscal year, largely due to decreases in grading and authentication fees. Such fees decreased by $781,000 or 10.4% and $1,821,000 or 11.1%, respectively, in the three and six months ended December 31, 2008, while related services decreased by $97,000 or 6.7% and $143,000 or 4.5%, respectively, for those same three and six month periods. We experienced reductions in grading and authentication fees in all of our markets in the three and six months ended December 31, 2008, which we believe were primarily attributable to the increased severity of the economic recession and the tightening of business and consumer credit in the United States during the six months ended December 31, 2008.

The operating losses for the three and six months ended December 31, 2008 (which included an impairment loss related to the Company's jewelry businesses of $7,695,000 recognized in the three months ended December 31, 2008 and reflected in both periods) was $9,693,000 and $10,990,000, respectively. Excluding those impairment losses in the three and six months ended December 31, 2008, and a warranty charge of $822,000 recognized in the three and six months ended December 31, 2007, the operating losses would have been $1,998,000 and $3,295,000, respectively, in the three and six months ended December 31, 2008, compared to $1,796,000 and $2,292,000, respectively, in the three and six months ended December 31, 2007.

Our jewelry grading and authentication businesses accounted for substantially all of those operating losses, incurring operating losses (before the impairment loss) of $1,581,000 and $3,211,000, respectively, in the three and six months ended December 31, 2008, compared with $1,882,000 and $3,691,000, respectively, in the three and six months ended December 31, 2007.

We implemented cost reduction measures in all of our operations throughout the six month period ended December 31, 2008 and will continue to review and make changes considered necessary to our costs based on our expectations regarding near term revenues.

We recognized the impairment losses in our jewelry businesses during the three months ended December 31, 2008, due primarily to the uncertainties of forecasting the impact of the economic recession on our jewelry businesses.

These, as well as other factors affecting our operating results in the second quarter of fiscal 2009, are described in more detail below.

Factors That Can Affect our Financial Position and Operating Results

Factors that Can Affect our Revenues. Our authentication and grading fees, which accounted for approximately 82% of our total net revenues in the six months ended December 31, 2008, are primarily affected by (i) the volume and mix, among coins, sportscards and other collectibles and high-value assets, of authentication and grading submissions; (ii) in the case of coins and sportscards, the "turn-around" times requested by our customers, because we charge higher fees for faster service times; and (iii) the mix of authentication and grading submissions between vintage or "classic" coins and sportscards, on the one hand, and modern coins and sportscards, on the other hand, because dealers generally request faster turn-around times for vintage or classic coins and sports cards than they do for modern submissions, as vintage or classic collectibles are of significantly higher value and are more saleable by dealers than modern coins and sportscards.

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

Six of our coin authentication and grading customers accounted for, in the aggregate, approximately 13% of our total net revenues in the three months ended December 31, 2008, as compared to 10% in the year ended June 30, 2008. As a result, the loss of one or more of those customers, or a decrease in the volume of grading submissions from any of them to us, would cause our net revenues to decline and, therefore, could adversely affect the profitability of our grading and authentication operations.

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

Impact of Economic Conditions on Financial Performance. We generate substantially all of our revenues from the collectibles and the diamond and colored gemstone markets. Accordingly, our operating results are affected by the financial performance of those markets, which depends to a great extent on
(i) discretionary consumer spending and, hence, on the availability of disposable income, (ii) on other economic conditions, including prevailing interest and inflation rates, which affect consumer confidence, (iii) the availability and cost of financing that collectibles dealers and consumers need to fund their purchases of collectibles or diamonds and colored gemstones, and
(iv) the performance and volatility of the gold and other precious metals markets and the stock markets. These conditions primarily affect the volume of purchases and sales of collectibles and high-value assets which, in turn, affects the volume of authentication and grading submissions to us, because our services facilitate commerce in collectibles. Accordingly, factors such as improving economic conditions which usually result in increases in disposable income and consumer confidence, and volatility in and declines in the prices of stocks and a weakening in the value of the U.S. Dollar, which often lead investors to increase their purchases of precious metals, such as gold bullion and other coins and collectibles, may 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, may decline during periods characterized by recessionary economic conditions, declines in disposable income and consumer confidence, reductions in the availability or increases in the costs of financing, or by increasing stock prices and relative stability in the stock markets. Due to the severity of the economic recession and the worsening of the credit crisis in the United States in the three and six months ended December 31, 2008, we have experienced declines in the demand for our services in all of our grading and authentication markets, as the collectibles and jewelry that we authenticate and grade are considered luxury items. As a result of these economic conditions and the resulting uncertainties as to the level of revenues we can expect from our jewelry businesses in future periods, in the three months ended December 31, 2008 we recognized additional impairment losses, totaling approximately $7.7 million, in the carrying values of the assets of our jewelry businesses, which are reflected in our results of operation in both the three and six month periods ended December 31, 2008.

The following tables provide information regarding the respective numbers of coins, sportscards, autographs, currency, diamonds and colored gemstones that were graded or authenticated by us in the three months ended December 31, 2008 and 2007 and their estimated values, which are the amounts at which those coins, sportscards and stamps and other high-value assets were insured by the dealers and collectors who submitted them to us for grading and authentication.

                                     Units Processed                                  Declared Value (000)
                             Three Months Ended December 31,                     Three Months Ended December 31,
                             2008                      2007                      2008                      2007
Coins                  291,500        44.9 %     292,800        43.0 %   $ 250,052        70.4 %   $ 246,840        59.8 %
Sportscards            292,300        45.1 %     313,000        46.0 %      17,548         4.9 %      19,402         4.7 %
Autographs              47,700         7.3 %      50,000         7.3 %       3,685         1.1 %       6,159         1.5 %
Stamps                   6,600         1.0 %      11,700         1.7 %       7,129         2.0 %       8,928         2.1 %
Diamonds                 9,700         1.5 %      12,000         1.8 %      43,778        12.3 %     115,418        28.0 %
Colored Gemstones        1,600         0.2 %       1,100         0.2 %      32,918         9.3 %      16,066         3.9 %
Total                  649,400       100.0 %     680,600       100.0 %   $ 355,110       100.0 %   $ 412,813       100.0 %



                                         Units Processed                                      Declared Value (000)
                                  Six Months Ended December 31,                          Six Months Ended December 31,
                                2008                         2007                        2008                      2007
Coins                     619,600         46.3 %       659,900         45.2 %   $ 552,774         72.9 %   $ 711,762        74.9 %
Sportscards               593,900         44.3 %       651,500         44.6 %      44,109          5.8 %      41,997         4.4 %
Autographs                 89,300          6.7 %        94,800          6.5 %       8,538          1.1 %      16,634         1.7 %
Stamps                     13,900          1.0 %        31,400          2.2 %      12,200          1.6 %      11,987         1.3 %
Diamonds                   19,500          1.5 %        19,700          1.4 %      78,843         10.4 %     138,627        14.6 %
Colored Gemstones           3,000          0.2 %         2,000          0.1 %      61,723          8.2 %      29,210         3.1 %
Total                   1,339,200        100.0 %     1,459,300        100.0 %   $ 758,187        100.0 %   $ 950,217       100.0 %

Critical Accounting Policies and Estimates

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

Grading Warranty Costs. We offer a limited warranty covering the coins, sportscards, stamps and currency that we authenticate and grade. Under the warranty, if any such collectible that was previously authenticated and graded by us is later submitted to us for re-grading and either (i) receives a lower grade upon resubmittal or (ii) is determined not to have been authentic, we will offer to purchase the collectible or, at our option, pay the difference in value of the item at its original grade as compared with its lower grade. However this warranty is voided if the collectible, upon resubmittal to us, is not in the same tamper-resistant holder in which it was placed at the time we last graded the item. If we purchase an item under a warranty claim, we recognize the difference in value of the item at its original grade and its re-graded estimated value as a reduction in our warranty reserve. We include the purchased item in our inventory at the re-graded estimated value of the item. We offer a similar limited warranty of two years' duration on the diamonds we grade. We accrue for estimated warranty costs based on historical trends and related experience. Certain warranty claims were received by us in the second quarter and early in third quarter of fiscal 2008 that were significant in relation to our historical claims experience and, as a result, we recognized, in the second quarter of 2008, an additional expense of $822,000 for those claims. We also decided to increase our warranty accrual rate, effective January 1, 2008, to reflect this higher warranty claims experience, and we continue to monitor the adequacy of our warranty reserves on an on-going basis. In relation to those items, which we include in inventory at the re-graded estimated value (as discussed under Inventory Valuation Reserves below) there are a number of factors that can cause such estimated values of those items between the time they are purchased under our warranty policy and they are sold by us. However, once we have classified such items as inventory and they have been held in inventory over a quarter end period, we classify the ultimate gain or loss on the disposal of such inventory as part of the gain or loss on product sales and not as an adjustment to our warranty revenues.

Inventory Valuation Reserve. Our collectibles inventories are valued at the lower of cost or fair value and have been reduced by an inventory valuation allowance to provide for potential declines in the value of those inventories. The amount of the allowance is determined and is periodically adjusted on the basis of market knowledge, historical experience and estimates concerning future economic conditions or trends that may impact the sale value of the collectibles inventories. Additionally, due to the relative uniqueness of some of the collectibles included in our collectibles inventory, valuation of such collectibles often involves judgments that are more subjective than those that are required when determining the market values of more standardized products due to volatility in the price of precious metal, the condition of the collectible and any specific features of the individual collectible. We review the market values of the collectible on a quarterly basis. Ultimately, we recognize a profit or loss on the actual sale of the collectible relative to its most recent inventory carrying value.

Long-Lived Assets Other Than Goodwill. We regularly conduct reviews of property and equipment and other long-lived assets other than goodwill, including certain identifiable intangibles, for possible impairment. Such reviews occur annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable in full. In order to determine if the value of a definite-lived asset is impaired, we make an estimate of the future undiscounted cash flows expected to result from the use of that asset and its eventual disposition in order to determine if an impairment loss has occurred. If the projected undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recorded to write down the asset to its estimated fair value. The Company has incurred significant operating losses in its jewelry reporting units since the acquisitions of these businesses and the Company recognized impairment losses for these businesses in the three months and year ended June 30, 2008 due to these businesses not meeting management's revenue expectations. In the three months ended December 31, 2008, due to continued uncertainty as to the level of revenues we can expect from these businesses in the future, as well as worse than expected actual performance during the first six months of fiscal 2009 and the continued economic downturn, management has recognized additional impairment losses of $6,347,000 for these businesses during the three month period ended December 31, 2008.

Goodwill. We test the carrying value of goodwill and other indefinite-lived intangible assets on a formal basis at least annually on their respective acquisition anniversary dates, or more frequently if indicators of impairment are determined to exist. We apply a discounted cash flow model or an income approach to determining a fair value that is used to estimate the fair value of the reporting unit on a total basis, which is then compared to the carrying value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment of goodwill exists as of the measurement date. If the fair value is less than the carrying value, then there is the possibility of goodwill impairment and further testing and remeasurement of goodwill is required. In accordance with GAAP, we consider the diamond and colored gemstone grading businesses as separate reporting units for the purpose of testing separately for the impairment of goodwill. The Company has incurred significant operating losses in its jewelry reporting units since the acquisitions of these businesses and the Company recognized impairment losses for these businesses in the three months and year ended June 30, 2008 due to these businesses not meeting management's revenue expectations. In the three months ended December 31, 2008, due to continued uncertainty as to the level of revenues we can expect from these businesses in the future, as well as worse than expected actual performance during the first six months of fiscal 2009 and the continued economic downturn, management has recognized additional goodwill impairment losses of $1,348,000 for these businesses at December 31, 2008.

Income Taxes and Deferred Tax Assets. We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes and FASB Interpretation 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 ("FIN48"). SFAS No. 109 requires the recording of deferred tax assets and liabilities for the future consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets or liabilities result in a deferred tax asset, SFAS No. 109 requires that we evaluate the probability of realizing the future benefits comprising that asset and we review the nature, the expected timing of the realization of these assets and the expiration dates for net operating losses or credits, when determining the likelihood of realization. In the fourth quarter of fiscal 2008, due to the length of time and the extent of the taxable income required to fully realize the deferred tax assets related to impairment losses recognized in the fourth quarter of fiscal 2008, and certain California Enterprise Zone Credits, the Company recorded a valuation allowance of $4,572,000 against deferred tax assets of $5,967,000 at June 30, 2008. The remaining net deferred tax asset of $1,395,000 at June 30, 2008 was determined by management to be more likely than not realizable at June 30, 2008. At December 31, 2008, due to the Company recognizing additional impairment losses for its jewelry businesses, and the Company's core profitable operations not meeting short-term expectations, combined with uncertainty as to the performance of those businesses due to the severe economic conditions currently prevailing, . . .