Forward-Looking Statements

The discussion in this Item 2 of this Quarterly Report on Form 10-Q (this "Report") 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 expected future 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. Readers of this Report are urged to read in their entirety, and the forward looking statements and information contained in this Report are qualified by (i) the discussion set forth below under the caption "Factors That Can Affect our Financial Position and Operating Results" and (ii) the Risk Factors that are described in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 (the "Fiscal 2009 10-K"), which we filed with the Securities and Exchange Commission (the "SEC") on September 4, 2009.

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 or revise any forward-looking statements contained in this Report or in our Fiscal 2009 10-K or any other prior filings with the SEC, except as may be required by applicable law or applicable Nasdaq rules.

Our Business

Collectors Universe, Inc. ("we", "us" or the "Company") provides grading and authentication services to dealers and collectors of high-value coins, trading cards, event tickets, autographs, sports and historical memorabilia and stamps. We believe that our authentication and grading services add value to these collectibles by enhancing their marketability and thereby providing increased liquidity to the dealers, collectors and consumers that own, buy and sell them.

We principally generate revenues from the fees paid for our authentication and grading services. To a much lesser extent, we generate revenues from other related services consisting of: (i) the sale of advertising on our websites;
(ii) the sale of printed publications and collectibles price guides and advertising in such publications and on our website; (iii) the sale of membership subscriptions in our Collectors Club, which is designed to attract interest in high-value collectibles among new collectors; (iv) the sale of subscriptions to our CCE dealer-to-dealer Internet bid-ask market for certified coins and CoinFacts; and (v) the management and operation of collectibles trade shows and conventions. 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, such sales are neither the focus nor an integral part of our on-going revenue generating activities.

Recent Developments

Continuing Operations. Our continuing operations consist of the grading and authentication of coins, trading cards, stamps and autographs, our CCE dealer-to-dealer bid-ask market for certified coins and collectibles trade shows and conventions that we conduct. The discussions that follow focus almost entirely on the continuing businesses.

Discontinued Operations. The remaining assets and liabilities of the jewelry, Gemprint and currency authentication and grading businesses have been classified as discontinued operations at June 30, 2009 and September 30, 2009, and the operations of these businesses have been reclassified as discontinued operations for all periods presented in this Report. In addition, we continue to classify as discontinued operations the remaining activities, of our collectibles auctions and sales businesses which we disposed of in fiscal 2004.

During the first quarter of fiscal 2010, we recorded a $53,000 loss from discontinued operations as compared to a loss from discontinued operations of $1,766,000, for the same period in fiscal 2009. Since we were able to substantially complete the sale and disposal of the assets of the discontinued businesses during fiscal 2009, we expect losses from the disposal of the remaining assets of those businesses to decline substantially in fiscal 2010 as compared to fiscal 2009. We will, however, review and if necessary, make adjustments to the accrual established for the real estate leases in New York City, associated with our former jewelry operations.

Overview of Results of Operations for the Three Months Ended September 30, 2009 and 2008

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

                                                              Three Months Ended September 30,
                                                               2009                      2008
Net
revenues                                                            100.0 %                   100.0 %
Cost of
revenues                                                             40.2 %                    45.6 %
Gross
profit                                                               59.8 %                    54.4 %
Operating expenses:
Selling and marketing
expenses                                                             12.9 %                    13.8 %
General and administrative
expenses                                                             27.7 %                    36.9 %
Total operating
expenses                                                             40.6 %                    50.7 %
Operating
income                                                               19.2 %                     3.7 %
Interest and
other                                                                 0.5 %                     1.5 %
Income before income tax
expense                                                              19.7 %                     5.2 %
Income tax
expense                                                              (1.3 )%                      -
Income from continuing
operations                                                           18.4 %                     5.2 %
Loss from discontinued operations (net of income
taxes)                                                               (0.6 )%                  (19.5 )%
Net income
(loss)                                                               17.8 %                   (14.3 )%

Our gross profit, operating income and income from continuing operations, during this year's first quarter, increased both in absolute dollars and as a percentage of net revenues as compared to the same quarter of fiscal 2009. Those increases were primarily attributable to an increase in our coin revenues on which we earn a higher gross profit margin than in our other grading and authentication businesses, and reductions in costs of revenues and selling, general and administrative expenses that we achieved as a result of a cost reduction program which we initiated in fiscal 2009 and have continued into the current fiscal year. The factors that contributed to the improvement in our operating results in this year's first quarter are discussed in greater detail below.

Factors That Can Affect our Financial Position and Operating Results

Factors that Can Affect our Revenues and our Gross Profit Margins. The revenues of our continuing operations are comprised of (i) fees generated by our authentication and grading of high-value collectibles, and (ii) to a lesser extent, revenues from sales of collectibles club memberships, advertising on our websites and in printed publications and collectibles price guides, subscription-based revenues primarily generated by our CCE dealer-to-dealer Internet bid-ask market for collectible coins that have been authenticated and graded (collectively, "certified") and CoinFacts and fees earned from the management, operation and promotion of collectibles trade shows and conventions. Our revenues also include revenues from sales of products, which consist primarily of coins that we purchase under our warranty policy. However, those revenues, which vary from period to period depending on the volume and dollar amounts of the coin warranty claims we receive, are not the focus and do not constitute an integral part of our on-going revenue generating activities.

Our authentication and grading fees accounted for approximately 81% of our total net revenues for the three months ended September 30, 2009. The amounts of such revenues and our gross profit margins are primarily affected by the volume of coin and collectibles sales and purchase transactions by collectibles dealers and collectors, because our collectibles authentication and grading services generally facilitate sales and purchases of coins and other high value collectibles by providing dealers and collectors with a high level of assurance as to the authenticity and quality of the collectibles they seek to sell or buy. Consequently, dealers and collectors most often submit coins and other collectibles to us for authentication and grading at those times when they are in the market to sell or buy coins and other high value collectibles. Furthermore, because a significant proportion of our costs of sales are fixed in nature in the short-term, our gross profit margin also is affected by the overall volume of collectibles that we authenticate and grade in any period. Other factors that affect both our revenues and gross profit margins include (i) the volume and mix of authentication and grading submissions among coins and trading cards, on the one hand, and other collectibles on the other hand, because we are able to charge higher authentication and grading fees on coins and sports cards than on other collectibles; (ii) in the case of coins and trading cards, the "turnaround" times requested by our customers, because we charge higher fees for faster service times; and (iii) the mix of authentication and grading submissions between vintage or "classic" coins and trading cards, on the one hand, and modern coins and trading cards, on the other hand, because dealers generally request faster turnaround times for vintage or classic coins and trading cards than they do for modern submissions, as vintage or classic collectibles are of significantly higher value and are more saleable by dealers than modern coins and trading cards.

Our revenues and gross profit margins also are affected by the level of coin authentication and grading submissions we receive at collectibles trade shows where we provide on-site authentication and grading services to show attendees, because they typically request higher priced same-day turnaround for the coins they submit to us for authentication and grading at those shows. The level of trade show submissions varies from period to period depending upon a number of factors, including the number and the timing of the shows and the volume of collectible coins that are bought and sold at those shows by dealers and collectors. In addition, the number of such submissions and, therefore, the revenues and gross profit margin we generate from the authentication and grading of coins at trade shows can be impacted by short-term changes in the prices of gold that sometimes occur around the time of the shows, because gold prices can affect the willingness of dealers and collectors to sell and purchase coins at the shows.

Five of our coin authentication and grading customers accounted, in the aggregate, for approximately 10% of our total net revenues in the three months ended September 30, 2009. As a result, the loss of any of those customers, or a significant decrease in the volume of grading submissions from any of them to us, could cause our net revenues to decline and, therefore, could adversely affect our results of operations.

Impact of Economic Conditions on our Financial Performance. As discussed above, our operating results are affected by the volume of collectibles transactions which, in turn, is primarily affected by (i) the disposable income available to collectors and their confidence about future economic conditions, because high-value collectibles are generally viewed as luxury goods and are purchased with disposable income; (ii) the cash flows generated by collectibles dealers and their confidence about future economic conditions, which affect the willingness of such dealers to purchase collectibles for resale; (iii) the availability and cost of borrowings because collectibles dealers often rely on borrowings to fund their purchases of collectibles, (iv) prevailing and anticipated rates of inflation, because the threat of and actual increases in inflation often lead investors and consumers to purchase gold and silver coins as a hedge against inflation; and (v) the performance and volatility of the gold and other precious metals markets, which affects the level of purchases and sales of collectible coins, because investors and consumers will often increase their purchases of gold coins if they believe that the market prices of gold will increase. As a result, the volume of collectibles transactions and, therefore, the demand for our authentication and grading services, generally increase during periods characterized by economic growth, accessibility to lower cost of borrowings, or increases in inflation or in gold prices. By contrast, collectibles transactions and, therefore, the demand for our services generally decline during periods characterized by economic downturns or recessions, declines in consumer and business confidence, an absence of inflationary pressure, or declines in the market prices of gold. However, these conditions can sometimes counteract each other as it is not uncommon, for example, for investors to shift funds from gold to other investments during periods of economic growth and growing consumer and business confidence.

Despite the continued uncertainties about the ultimate severity and duration of the current economic downturn, the number of coins graded and authenticated during the first quarter of fiscal 2010 increased by 9.3% as compared to the number authenticated and graded in the corresponding quarter of fiscal 2009. As a result, we recorded an increase in coin grading and related revenues of approximately 11.3% in this year's first quarter as compared to the first quarter of fiscal 2009. On the other hand, during this year's first quarter, the number of trading cards and autographs that we authenticated and graded declined by approximately 2.7% and, as a result, revenues generated by that division, which is our second largest business, declined by 8.1%, as compared to the first quarter of fiscal year 2009.

The following tables provide information regarding the respective number of coins, trading cards, autographs and stamps that we graded or authenticated in the fiscal years ended June 30, 2009 and 2008.

                                   Units Processed                                  Declared Value (000)
                          Three Months Ended September 30,                    Three Months Ended September 30,
                           2009                      2008                      2009                      2008
Coins                358,700        51.4 %     328,100        48.4 %   $ 276,307        90.9 %   $ 302,722        89.2 %
Cards and
Autographs (1)       334,100        47.9 %     343,200        50.5 %      23,943         7.9 %      31,416         9.3 %
Stamps                 5,400         0.7 %       7,300         1.1 %       3,717         1.2 %       5,071         1.5 %
Total                698,200       100.0 %     678,600       100.0 %   $ 303,967       100.0 %   $ 339,209       100.0 %

Factors That Can Affect our Financial Position. A substantial number of our authentication and grading customers prepay our authentication and grading fees when they submit their collectibles to us for authentication and grading. As a result, historically, we have been able to rely on internally generated cash and have never incurred borrowings to fund our continuing operations. We expect that internally generated cash flow will be sufficient to fund our continuing operations.

Other factors that can affect our overall financial position include the use of available cash to fund the payment of cash dividends or the acquisition of outstanding shares. For example, in July 2009, we used a total of approximately $8.9 million of available cash to purchase a total of 1,749,828 shares of our common stock, at a price of $5.00 per share, in a "Dutch Auction" tender offer that we made to our stockholders. See "Liquidity and Capital Resources - Dutch Auction Tender Offer" below.

Trends and Challenges in our Businesses

In response to the economic recession and the credit crisis that adversely impacted the volume of authentication and grading submissions to us, during fiscal 2009 we implemented a cost reduction program in order to reduce our costs of revenue and our operating expenses and, thereby, to bring those costs and expenses more in line with our revenues and to increase our gross profits and operating income. During the three months ended September 30, 2009, that program enabled us to realize reductions in both our costs of revenues and operating expenses and, thereby, to increase our gross margins, operating income and income from continuing operations and our cash flows.

Critical Accounting Policies and Estimates

During the three months ended September 30, 2009, except as discussed below, there were no changes in the critical accounting policies or estimates that were described in Item 7 of our Annual Report on Form 10-K, filed with the SEC, for the fiscal year ended June 30, 2009. 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.

Accrual for Facility Lease Expenses. We continue to have obligations to pay rent and other charges under two multi-year leases for office facilities in New York City that had been occupied by our jewelry authentication and grading businesses prior to our discontinuance of and exit from those businesses in fiscal 2009. Although we are seeking to sublet those facilities in order to reduce our financial obligations under these leases, adverse conditions in the real estate market in New York City have made it difficult for us to predict how soon and the rents at which we will be able to sublet those office facilities. As a result, at the time we discontinued the jewelry businesses we established accruals totaling approximately $3,700,000 for the rents and other charges that we estimated we will have to pay through the term of the leases. Due primarily to an increase in available office space and further decreases in office rents in New York City, at June 30, 2009 we increased that accrual by $815,000, and at June 30, 2009 and September 30, 2009, the lease obligations were carried on our balance sheets at values of approximately $4,454,000 and $4,309,000, respectively. Moreover, it will be necessary for us to review our estimates of our ongoing lease expenses on a quarterly basis and it may become necessary for us to further increase our lease accrual in the future.

Goodwill. We test the carrying value of goodwill and other indefinite-lived intangible assets on a formal basis at least annually on their respective acquisition anniversary dates, or more frequently if indicators of impairment are determined to exist. We apply a discounted cash flow model or an income approach in determining a fair value that is used to estimate the fair value of the reporting unit on a total basis, which is then compared to the carrying value of the reporting unit. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, no impairment of goodwill exists as of the measurement date. If the fair value is less than the carrying value, then there is the possibility of goodwill impairment and further testing and re-measurement of goodwill is required. During the first quarter of fiscal 2010, we completed the annual goodwill impairment evaluations with respect to the goodwill acquired in our fiscal year 2006 purchases of CCE and CoinFacts and the fiscal year 2007 acquisition of our Expos business, and determined that the carrying value at September 30, 2009 of the acquired goodwill for these respective businesses was not impaired. The use of the income approach requires that future after-tax cash flows be discounted using a discount rate that reflects a risk adjusted weighted average cost of capital. We determined the fair value of the Expos and CCE reporting units using discount rates of 18% and 17%, respectively, and we concluded that the excess fair value of approximately 10% over the carrying value of our Expos reporting unit at September 30, 2009 was sufficient to conclude that no impairment existed at September 30, 2009. We considered the discount rates applied to Expos and CCE to be reasonable based upon the recurring and predictable nature of the revenues for these businesses and were consistent with the discount rates applied in previous years. However, a higher discount rate of 20% for Expos could have resulted in the need for further testing and re-measurement of goodwill and the possibility of an impairment expense.

Stock-Based Compensation. On June 1, 2009, the Compensation Committee of the Board of Directors approved a management incentive compensation program for the fiscal year ending June 30, 2010 (the "2010 Stock Incentive Program"), for our three executive officers, Michael J. McConnell, our CEO, David G. Hall, our President, and Joseph J. Wallace, our CFO. Under the terms of that Program, on July 31, 2009, these three officers were awarded the following numbers of restricted shares: Mr. McConnell -- 101,034 shares; Mr. Hall -- 101,034 shares; and Mr. Wallace -- 50,517 shares. Retention by the officers of their restricted shares is subject to satisfaction of certain vesting requirements and, if a vesting requirement that applies to any of the shares is not satisfied; those shares will be forfeited and cancelled. Those vesting requirements consist of the following:

(1) Performance-Based Vesting Requirement. The vesting of seventy-five (75%) of the restricted shares awarded to each of these officers (the "Performance-Based Shares") is contingent on the Company's achievement of a financial performance goal for fiscal 2010. If that goal is not achieved, all of those Performance-Based Shares will be forfeited and cancelled. On the other hand, if the Company achieves that fiscal 2010 financial performance goal, then
(i) one-third of the Performance-Based Shares of each officer will vest when it is determined that the performance goal was achieved, provided that the officer is still in the Company's service at the end of fiscal 2010, (ii) another one-third of those Shares will vest on June 30, 2011, provided the officer is still in the Company's service at that time, and (iii) the final one-third of those Shares will vest on June 30, 2012, provided the officer is still in the Company's service at that time, subject to acceleration of such vesting if an officer's service with the Company is terminated without cause.

(2) Time-Based Vesting. The vesting of the other 25% of the restricted shares (the "Time-Based Shares") granted to each of Messrs. McConnell and Hall is contingent on their continued service with the Company to July 31, 2010. In the case of Mr. Wallace, 25% of his restricted shares became vested on the date of grant.

Management determined the fair value of the 252,585 shares of restricted stock to be an aggregate amount of $1,028,000, based on the July 31, 2009 closing price of the Company's common stock of $4.07, of which $257,000 relates to time-based vesting and $771,000 relates to performance-based vesting. The Company began recording stock-based compensation expense for the time-based vesting shares over the requisite service period through July 31, 2010 or immediately for those grants that vested on the grant date. The $771,000 associated with the performance-based vesting will begin to be recorded as expense if, and when, it is determined that it is probable that the Company will achieve the fiscal 2010 financial performance goal. In the event that the financial performance for fiscal 2010 is achieved, approximately $471,000 of expense would be allocated to fiscal year 2010 as stock-based compensation expense, and the balance of approximately $300,000 would be allocated to fiscal years 2011 and 2012. In the event that expense is recognized for the performance-based vesting, and, if for any reason the award does not vest due to the financial performance goal not being met, any previously recognized expense would be reversed.

Deferred Tax Assets and Valuation Allowances. Through June 30, 2009, the Company has established a valuation allowance of $12,962,000 million that comprised a full valuation allowance against all deferred tax assets due to the uncertainty of realization. As of September 30, 2009, the Company has analyzed all positive and negative evidence and concluded that a full valuation allowance is necessary. To the extent that the Company earned taxable income in the first quarter of fiscal 2010, we have realized certain deferred tax assets such that the valuation allowance at September 30, 2009 was reduced to approximately $12,200,000. Assuming that we continue to generate taxable income in fiscal 2010 and we conclude that it is more likely than not that we will realize such deferred tax assets, it may no longer be necessary for us to maintain a valuation allowance against substantially all of our deferred tax assets. In that event, we may be able to record a tax benefit for fiscal 2010 that would have the effect of increasing our net income for the current fiscal year and decreasing the amount of the remaining valuation allowance.

Results of Continuing Operations - Three Months Ended September 30, 2009 and 2008

Net Revenues

Net revenues consist primarily of fees that we generate from the authentication . . .