**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





[X]
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      quarterly period ended March
      31, 2006





OR





r TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      transition period ________ to ________








**Commission
      file number 1-11988**








**ESCALA
      GROUP, INC.**


(Exact
      name of Registrant as specified in its Charter)








**Delaware** ****         **** **22-2365834**


(State
      or
      other jurisdiction of (I.R.S.
      Employer


incorporation
      or organization) Identification
      No.)








**623
      Fifth Avenue, 27** **th** **Floor**


**New
      York, New York** **10017**


(Address
      of principal executive offices) (Zip
      Code)








Registrant’s
      telephone number, including area code: **(212)-
      421-9400**





Check
      whether the Issuer (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 filing requirements for the past 90
      days.


**Yes** **X** **No
      _____**





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Securities Exchange Act of 1934).





**Yes** **X** **No
      _____**





Indicate
      by check mark whether is a shell company (as defined in Rule 176-2 of the
      Exchange Act)





**Yes** **No** **X** ****





As
      of May
      9, 2006, Issuer had 28,082,565 shares of its Common Stock
      outstanding.










1









**Escala
      Group, Inc.**


**(formerly
      Greg Manning Auctions Inc.)**





**Table
      of Contents**




**Page
      Number**








Item
      1.
      Condensed Consolidated Financial Statements (Unaudited)





Condensed
      Consolidated Balance Sheets at


June
      30,
      2005 and March 31, 2006 3





Condensed
      Consolidated Statements of Earnings for the


three
      and
      nine months ended March 31, 2006 and 2005                                                                                            
      4




Condensed
      Consolidated Statements of Stockholders’ Equity for the 5


nine
      months ended March 31, 2006





Condensed
      Consolidated Statements of Cash Flows for the 6


nine
      months ended March 31, 2006 and 2005





Condensed Consolidated
        Statement of Comprehensive
        Income 7




for
      the
      nine months ended March 31, 2006 and 2005





Notes
      to
      Condensed Consolidated Financial
      Statements 8





Item
      2.  Management’s
      Discussion and Analysis  of
      Financial Condition


and
      Results of
      Operations 26





Item
      3.
      Quantitative and Qualitative Disclosures About Market
      Risk 38





Item
      4.
      Controls and
      Procedures                                                                                                                                   39





**PART
      II.**  **OTHER
      INFORMATION**





Item
      1.  Legal
      Proceedings 40





Item
      2.  Changes
      in
      Securities 40





Item
      3.  Defaults
      Upon Senior
      Securities 40





Item
      4.  Submission
      of Matters to a Vote of Security
      Holders 40





Item
      5.  Other
      Information 40





Item
      6.  Exhibits
      and Reports on Form
      8-K 40





Signatures







2





**PART
                I: FINANCIAL INFORMATION****ESCALA
                GROUP, INC.****(Formerly
                Greg Manning Auctions, Inc.)****Condensed
                Consolidated Balance Sheets****(amounts
                in thousands except per share data)****March
                31,**
            
            **June
                30,****2006**
            
            **2005****Assets**
            
            **(unaudited)****Current
                Assets**Cash
                and Cash Equivalents
            
            $
            63,877
            
            $
            54,250Accounts
                Receivable, Net;Auctions
                and Trade
            
            
            26,088
            
            
            17,497Related
                Party
            
            
            7,894
            
            
            8,781Advances
                to Consignors
            
            
            5,577
            
            
            4,370Secured
                Loans
            
            
            6,300
            
            
            -Inventory
            
            
            95,037
            
            
            41,830Deferred
                Tax Asset
            
            
            2,329
            
            
            3,292Prepaid
                Expenses and Other
            
            
            1,776
            
            
            2,487**Total
                Current Assets**
            
            
            **208,878**
            
            
            **132,507**Property
                and Equipment, Net
            
            
            5,650
            
            
            3,295Goodwill,
                Net
            
            
            25,305
            
            
            9,427Other
                Purchased Intangibles, Net
            
            
            4,432
            
            
            1,937Marketable
                Securities
            
            
            94
            
            
            118Other
                Non-Current AssetsLoans
                Receivable Related Party, Net
            
            
            200
            
            
            400Inventory
            
            
            6,139
            
            
            6,166Deferred
                Tax Asset
            
            
            5,573
            
            
            3,662Other
            
            
            1,410
            
            
            938**Total
                Assets**
            
            **$**
            **257,681**
            
            **$**
            **158,450****Liabilities
                and Stockholders' Equity****Current
                Liabilities**Lines
                of Credit
            
            $
            37,500
            
            **$**
            **-**Liability
                on Borrowed Metals
            
            
            4,364
            
            
            -Notes
                Payable and Capital Leases
            
            
            1,147
            
            
            667Payable
                to Third Party Consignors
            
            
            5,923
            
            
            12,458Accounts
                Payable
            
            
            37,007
            
            
            14,011Accrued
                Expenses and Other Current Liabilities
            
            
            5,039
            
            
            2,654Income
                Taxes Payable
            
            
            11,280
            
            
            8,140**Total
                Current Liabilities**
            
            
            **102,260**
            
            
            **37,930**Notes
                Payable and Capital Leases - Long Term
            
            
            7,865
            
            
            9,181**Total
                Liabilities**
            
            
            **110,125**
            
            
            **47,111****Commitments
                and Contingencies**
            
            
            **-**
            
            
            **-****Minority
                Interest- Related Party**
            
            
            **4,867**
            
            
            **-****Stockholders’
                Equity**Preferred
                Stock, $.01 par value. Authorized10,000
                shares; none issued
            
            
            -
            
            
            -Common
                Stock, $.01 par value.Authorized:
                40,000 sharesIssued
                June 30, 2005 - 27,677 shares, Outstanding - 27,677 shares
            
            
            280
            
            
            276Issued
                March 31, 2006 - 28,050 shares, Outstanding - 28,050
                sharesAdditional
                paid in capital
            
            
            72,480
            
            
            70,245Accumulated
                Other Comprehensive Income
            
            
            1,052
            
            
            1,813Retained
                Earnings
            
            
            68,877
            
            
            39,005**Total
                Stockholders' Equity**
            
            
            **142,689**
            
            
            **111,339****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **257,681**
            
            **$**
            **158,450**See
                accompanying notes to condensed consolidated financial
                statements





3








**ESCALA
                GROUP, INC.****(Formerly
                Greg Manning Auctions, Inc.)****Condensed
                Consolidated Statements of Earnings****For
                the Three and Nine Months ended March 31,****(amounts
                in thousands except per share data)****(Unaudited)****Three
                Months ended**
            
            **Nine
                Months ended****March
                31,**
            
            **March
                31,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Operating
                revenues**Sales-
                trading
            
            $
            1,058,096
            
            $
            -
            
            $
            2,358,635
            
            $
            -Sales
                of inventory
            
            
            28,669
            
            
            25,185
            
            
            70,322
            
            
            76,167Sales
                of inventory - related party
            
            
            45,525
            
            
            26,027
            
            
            131,240
            
            
            75,144Commissions
                earned
            
            
            3,623
            
            
            4,500
            
            
            11,763
            
            
            11,431Total
                revenues
            
            
            1,135,913
            
            
            55,712
            
            
            2,571,960
            
            
            162,742**Cost
                of merchandise sold**Cost
                of sales - trading
            
            
            1,055,278
            
            
            -
            
            
            2,352,731
            
            
            -Cost
                of merchandise sold
            
            
            24,135
            
            
            23,168
            
            
            60,707
            
            
            70,595Cost
                of merchandise sold- related party
            
            
            27,248
            
            
            10,868
            
            
            74,517
            
            
            33,868Gross
                profit
            
            
            29,252
            
            
            21,676
            
            
            84,005
            
            
            58,279**Operating
                expenses**General
                and administrative
            
            
            6,298
            
            
            3,827
            
            
            18,248
            
            
            9,924Salaries
                and wages
            
            
            5,080
            
            
            3,101
            
            
            13,975
            
            
            9,569Depreciation
                and amortization
            
            
            543
            
            
            299
            
            
            1,507
            
            
            856Marketing
            
            
            741
            
            
            1,062
            
            
            2,580
            
            
            2,778Total
                operating expenses
            
            
            12,662
            
            
            8,289
            
            
            36,310
            
            
            23,127Operating
                income
            
            
            16,590
            
            
            13,387
            
            
            47,695
            
            
            35,152**Other
                income (expense)**Interest
                income
            
            
            694
            
            
            268
            
            
            1,592
            
            
            662Interest
                expense
            
            
            (816
            )
            
            (234
            )
            
            (1,614
            )
            
            (758
            )Other
            
            
            (107
            )
            
            (270
            )
            
            (148
            )
            
            (402
            )Earnings
                before income taxes
            
            
            16,361
            
            
            13,151
            
            
            47,525
            
            
            34,654**Provision
                for income taxes**
            
            
            5,769
            
            
            4,963
            
            
            17,410
            
            
            13,677**Minority
                interest- related party**
            
            
            148
            
            
            -
            
            
            243
            
            
            -**Net
                income**
            
            $
            10,444
            
            $
            8,188
            
            $
            29,872
            
            $
            20,977**Basic
                earnings per share:**Weighted
                average shares outstanding
            
            
            28,027
            
            
            27,438
            
            
            27,832
            
            
            27,393Basic
                earnings per share
            
            $
            0.37
            
            $
            0.30
            
            $
            1.07
            
            $
            0.77**Diluted
                earnings per share:**Weighted
                average shares outstanding
            
            
            29,167
            
            
            28,668
            
            
            29,014
            
            
            28,692Diluted
                earnings per share
            
            $
            0.36
            
            $
            0.29
            
            $
            1.03
            
            $
            0.73See
                accompanying notes to condensed consolidated financial
                statements








4








**ESCALA
                GROUP, INC.****(Formerly
                Greg Manning Auctions, Inc.)****Condensed
                Consolidated Statement of Stockholders' Equity and Comprehensive
                Income
                (Loss)****July
                1, 2005 to March 31, 2006****(amounts
                in thousands except per share data)****(Unaudited)****Accumulated****Additional**
            
            **Other**
            
            
            
            **Total****Common
                Stock**
            
            **Paid-
                In**
            
            **Comprehensive**
            
            **Retained**
            
            **Shareholders'****Shares**
            
            $
            
            Capital
            
            **Income
                (Loss)**
            
            **Earnings**
            
            **Equity**Balance,
                July 1, 2005
            
            
            27,677
            
            $
            276
            
            $
            70,245
            
            $
            1,813
            
            $
            39,005
            
            $
            111,339Exercise
                of stock options
            
            
            373
            
            
            4
            
            
            1,345
            
            
            
            
            
            
            
            
            1,349Translation
                adjustment
            
            
            
            
            
            
            
            
            
            
            
            (737
            )
            
            
            
            
            (737
            )Stock
                based compensation
            
            
            
            
            
            
            
            
            890
            
            
            
            
            
            
            
            
            890Unrealized
                loss from marketable securities
            
            
            
            
            
            
            
            
            
            
            
            (24
            )
            
            
            
            
            (24
            )Net
                Income- March 31, 2006
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,872
            
            
            29,872Balance,
                March 31, 2006
            
            
            28,050
            
            $
            280
            
            $
            72,480
            
            $
            1,052
            
            $
            68,877
            
            $
            142,689See
                accompanying notes to condensed consolidated financial
                statements








5








**ESCALA
                GROUP, INC.****(Formerly
                Greg Manning Auctions, Inc.)****Condensed
                Consolidated Statements of Cash Flows****For
                the Nine Months Ended March 31,****(amounts
                in thousands except per share data)****(Unaudited)****2006**
            
            **2005****Cash
                flows from operating activities:**Net
                Income
            
            $
            29,872
            
            $
            20,977Adjustments
                to reconcile net income to netcash
                from operating activities:Depreciation
                and amortization
            
            
            1,507
            
            
            856Provision
                for bad debts
            
            
            -
            
            
            (262
            )Provision
                for inventory reserve
            
            
            -
            
            
            350Options
                issued for services - related party
            
            
            -
            
            
            65Realized
                loss on sale of marketable securities
            
            
            -
            
            
            4Stock
                based compensation
            
            
            890
            
            
            -Deferred
                tax (benefit) provision
            
            
            (1,283)
            
            
            2,111Minority
                interest- related party
            
            
            264
            
            
            -Loss
                on disposal of assets
            
            
            (312
            )
            
            -(Increase)
                decrease in assets: (net of acquisition amounts)Accounts
                receivable - Trade
            
            
            1,824
            
            
            (3,521
            )Accounts
                receivable - Related Party
            
            
            887
            
            
            14,825Advances
                to consignors
            
            
            (835
            )
            
            -Secured
                Loans
            
            
            (6,300
            )
            
            -Inventory
            
            
            (4,283
            )
            
            (10,899
            )Prepaid
                expenses and deposits
            
            
            1,398
            
            
            (274
            )Other
                assets
            
            
            (472
            )
            
            (321
            )Increase
                (decrease) in liabilities: (net of acquisition amounts)Payable
                to third-party consignors
            
            
            (6,597
            )
            
            (1,074
            )Accounts
                payable
            
            
            16,600
            
            
            (1,955
            )Accrued
                expenses and other liabilities
            
            
            1,209
            
            
            (1,399
            )Advances
                payable - related party
            
            
            -
            
            
            (3,467
            )Income
                taxes payable
            
            
            3,140
            
            
            (383
            )Net
                cash provided by operating activities
            
            
            37,509
            
            
            15,633**Cash
                flows used in investing activities:**Capital
                expenditures for property and equipment
            
            
            (2,786
            )
            
            (2,243
            )Purchase
                of intangible assets
            
            
            -
            
            
            (644
            )Proceeds
                from sale of marketable securities and investments
            
            
            -
            
            
            146Proceeds
                from sale of assets
            
            
            135
            
            
            -Acquisition
                of subsidiaries, net of assets acquired
            
            
            (20,416
            )
            
            -Net
                cash used in investing activities
            
            
            (23,067
            )
            
            (2,741
            )**Cash
                flows used in financing activities:**Net
                repayment of notes payable
            
            
            (836
            )
            
            (2,000
            )Proceeds
                from issuance of loan payable
            
            
            -
            
            
            2,791Repayment
                of line of credit
            
            
            7,388
            
            
            -Repayment
                of loans payables
            
            
            -
            
            
            (77
            )Liability
                on borrowed metals, net
            
            
            (11,979
            )
            
            -Proceeds
                from demand notes payable - related partyProceeds
                from exercise of options
            
            
            1,349
            
            
            198Net
                cash (used in) provided by financing activities
            
            
            (4,078
            )
            
            912Effect
                of exchange rates
            
            
            (737
            )
            
            2,150**Net
                change in cash and cash equivalents**
            
            
            9,627
            
            
            15,954Cash
                and cash equivalents:Beginning
                of period
            
            
            54,250
            
            
            16,263End
                of period
            
            $
            63,877
            
            $
            32,217See
                accompanying notes to condensed consolidated financial
                statements





6







**ESCALA
                GROUP, INC.****(Formerly
                Greg Manning Auctions, Inc.)****Condensed
                Consolidated Statements of Comprehensive Income****For
                the Nine Months Ended March 31****(amounts
                in thousands except per share data)****(Unaudited)****2006**
            
            **2005**Net
                Income
            
            $
            29,872
            
            $
            20,977Other
                Comprehensive IncomeUnrealized
                gain (loss) on securities, net of tax
            
            
            (24
            )
            
            (6
            )Currency
                translation adjustment, net of tax
            
            
            (737
            )
            
            2,150$
            29,111
            
            $
            23,121See
                accompanying notes to condensed consolidated financial
                statements








7
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)





**(1)
      Description of Business**





***Description
      of Business***





Escala
      Group, Inc., formerly known as Greg Manning Auctions, Inc. (together with its
      subsidiaries, “Escala” or the “Company”), is a global integrated network of
      companies in the collectibles market with operations in North America, Europe
      and Asia as well as on the Internet. The Company operates through three sales
      platforms: auctions, merchant/dealer operations and trading; and in two
      segments: collectibles and trading.





The
      Company’s auction subsidiaries are as follows: Ivy and Manning (formerly Mader)
      Philatelic Auctions, Greg Manning Galleries, Greg Martin Auctions, Greg Manning
      Nutmeg Auctions (d/b/a Nutmeg Stamp Sales), H.R. Harmer, Teletrade, North
      American Certified Trading (retail), Kensington Associates, Superior Sports
      Auctions, Bowers and Merena Auctions, Kingswood Coin Auctions, John Bull
      Auctions, Corinphila Auktionen, Heinrich Koehler Berliner Briefmarken-Auktionen,
      Heinrich Koehler Auktionshaus, Heinrich Koehler Briefmarkenhandel, Heinrich
      Koehler Verwaltungs, Auctentia Deutschland and Auctentia Subastas.





The
      Company’s merchant/dealer activities are conducted through Greg Manning Auctions
      and Central de Compras Coleccionables, S.L. of Madrid, which act as exclusive
      suppliers of philatelic material on a worldwide basis to Afinsa Bienes
      Tangibles, S.A. (“Afinsa”) of Madrid, Spain, pursuant to supply contracts.
      Afinsa is engaged, among other things, in commercial and trading activities
      involving tangible investment products, including philatelic material, in
      Europe. The Company also conducts merchant/dealer operations through Spectrum
      Numismatics International, one of the largest wholesalers of rare coins in
      the
      U.S.




At
      March
      31, 2006 and 2005, Afinsa and Auctentia, S.L., its wholly owned subsidiary
      (“Auctentia”), collectively beneficially owned approximately 67% and 69%,
      respectively, of the Company’s outstanding common stock.





As
      a
      result of transactions under the supply agreements, for the nine months ended
      March 31, 2006 and 2005, Afinsa was the Company’s significant customer in the
      collectibles segment, with revenues accounting for $131,240 or 62%, and $75,144
      or 46% of the collectibles revenues, respectively.





On
      July
      15, 2005, the Company and Auctentia acquired all of the issued and outstanding
      capital stock of PMI Precious Metals, Inc. (“PMI”), a metals trading company
      engaged primarily in the wholesale purchase and sale of gold, silver, platinum,
      and palladium. The Company’s trading operations are conducted through PMI. The
      Company’s trading segment also provides financing to certain of its coin and
      bullion dealers, generally secured by bullion, semi-numismatic and numismatic
      material (or a combination thereof) owned by the borrower. The Company funds
      its
      financing activities through its capital as well as through its $67.5 million
      in
      bank lines of credit within which the Company has an approved sub-limit for
      the
      financing of such loans.





***Basis
      of Presentation***





The
      consolidated financial statements of the Company include the accounts of its
      wholly owned and majority owned subsidiaries. All intercompany accounts and
      transactions have been eliminated in consolidation. Minority interest relates
      to
      the recent acquisition, see Note 2.




The
      accompanying condensed consolidated balance sheets as of March 31, 2006 and
      June
      30, 2005 and related condensed consolidated statements of earnings,
      stockholders’ equity, cash flows and comprehensive income for the nine months
      ended March 31, 2006 and 2005 have been prepared from the books and records
      maintained by the Company, in accordance with accounting principles generally
      accepted in the United States of America for interim financial information
      and
      with the instructions to Form 10-Q. Accordingly, they do not include all
      information and disclosures required by generally accepted accounting principles
      for complete financial statements. In the opinion of management, all
      adjustments, which are of a normal recurring nature, considered necessary for
      a
      fair presentation have been included. For further information, refer to the
      consolidated financial statements and disclosures thereto in the Company’s Form
      10-K for the year ended June 30, 2005 filed with the Securities and Exchange
      Commission. The results of operations for such periods are not necessarily
      indicative of the results expected for the full fiscal year or for any future
      period.







8
 ESCALA
            GROUP, INC.
 (Formerly
            Greg Manning Auctions Inc.)
 Notes
            to
            Condensed Consolidated Financial Statements
 (amounts
            in thousands except for per share data)








**(2)
      Acquisitions**





**A-Mark
      Precious Metals, Inc. and Subsidiaries**





On
      July
      15, 2005, the Company and its majority shareholder Auctentia acquired all of
      the
      issued and outstanding capital stock of PMI, an indirect subsidiary of A-Mark
      Financial Corporation. The buyer was Spectrum PMI, Inc., a newly formed
      acquisition entity owned 80% by Spectrum Numismatics International, Inc., a
      wholly-owned subsidiary of the Company, and 20% by Auctentia. PMI is a full
      service metals trading company.





Tangible
                and intangible assets acquired:Current
                assets
            
            $
            60,329Property
                and equipment
            
            
            35Goodwill
            
            
            11,848Other
                Intangible Assets- Non -compete
            
            
            2,000Total
                tangible and intangible assets acquired
            
            
            74,212Less
                current liabilities assumed
            
            
            53,062Total
                Purchase Price
            
            $
            21,150


The
      aggregate purchase price was approximately $21,150 including acquisition costs
      of approximately $390. The purchase price allocation of assets purchased less
      liability assumed was $9,302 based
      upon management’s preliminary estimate of the fair value at the date of
      acquisition pending the final valuation of the fair value of assets using an
      independent valuation. In accordance with SFAS 141, Business Combinations,
      the
      excess of the purchase price over the net assets acquired was assigned to
      goodwill.





The
      following un-audited pro forma consolidated results of operations for the period
      assumes the acquisition of the subsidiaries had occurred as of July 1, 2004,
      giving effect to purchase accounting adjustments. The pro forma data is for
      informational purposes only and may not necessarily reflect the results of
      operations had those companies been operated as part of the Company since July
      1, 2004.





**(Unaudited)****Nine
                Months ended****March
                31,****2006**
            
            **2005**Total
                revenues
            
            $
            2,683,417
            
            $
            2,136,304Net
                income
            
            
            29,885
            
            
            21,689Basic
                earnings (loss) per share - Proforma
            
            $
            1.07
            
            $
            0.79Diluted
                earnings (loss) per share - Proforma
            
            $
            1.03
            
            $
            0.76






9
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)


**Corinphila
      Auktionen**





Effective
      July 31, 2005, the Company, which had owned 65% of the equity interest in
      Corinphila Auktionen AG, purchased the remaining 35% equity interest in that
      company, or 4,970 shares, with the result that the Company now owns 100% of
      the
      outstanding share capital of Corinphila. The exercise price was 1.600.000 CHF (approximately
      U.S.$1,270,000), of which 1.000.000 CHF was paid on July 30, 2005 and 600.000
      CHF was paid on September 30, 2005. The sellers of the equity interest, Mr.
      Beato Vollenwieder and Mr. Martin Mader, are officers of Corinphila. The option
      to purchase this 35% interest, and the terms of such purchase, were set forth
      in
      a Share Purchase Agreement, dated September 19, 2002, between the sellers and
      Auctentia. Under the terms of the Share Purchase Agreement, Auctentia was able
      to designate the Company as the entity to exercise the option. In accordance
      with SFAS 141, the additional payment is recorded as goodwill. The results
      of
      this acquisition are not material.





**Greg
      Martin Auctions**





On
      October 14, 2005, the Company acquired the outstanding shares of Greg Martin
      Auctions, a specialty auction house based in San Francisco that features antique
      arms, armor, militaria and historical memorabilia with a focus on Western and
      Native American artifacts.





The
      aggregate purchase price was approximately $3.5 million payable in cash and
      notes. The purchase price allocation of assets purchased less liabilities
      assumed was $1,393 based
      upon management’s estimate of the fair value at the date of acquisition. In
      accordance with SFAS 141, Business Combinations, the excess of the purchase
      price over the net assets acquired was assigned to goodwill.





Tangible
                and intangible asset acquired:Current
                assets
            
            $
            1,061Property
                and equipment
            
            
            96Goodwill
            
            
            2,107Other
                Intangible Assets- Customer lists
            
            
            1,263Total
                tangible and intangible assets acquired
            
            
            4,527Less
                current liabilities assumed
            
            
            1,027Total
                Purchase Price
            
            $
            3,500





The
      results of operations of this acquisition are not material. ****





**Heinrich
      Koehler Berliner Briefmarken-Auktionen**





On
      January 9, 2006, the Company, which since September 2003 had owned 66.67% of
      the
      issued and outstanding equity interest of Heinrich Koehler Berliner
      Briefmarken-Auktionen, acquired the remaining 33.33% of such equity interest,
      with the result that the Company now owns 100% of the company. The aggregate
      purchase price was approximately $50. The sellers were Mr. Hans-Joachim Bull
      and
      Mr. Christian Burmeister. Mr. Burmeister is an officer of Koehler Berliner
      and
      Mr. Burmeister was until recently an employee of that company, and is expected
      to continue to perform services on a consulting basis. The results of this
      acquisition are not material.





**(3)
      Revenue Recognition**





The
      Company accounts for revenue recognition in accordance with Staff Accounting
      Bulletin No. 101 and No. 104, (“SAB No.’s 101/104”), which provides guidance on
      the recognition, presentation and disclosure of revenue in financial statements,
      and Emerging Issues Task Force (“EITF”) Issue No. 99-19 “Reporting Revenue Gross
      as a Principal vs. Net as an Agent” which provides guidance on the recognition
      of revenue gross as a principal versus net as an agent.





The
      Company derives revenues from three primary sources:







10
 ESCALA
            GROUP, INC.
 (Formerly
            Greg Manning Auctions Inc.)
 Notes
            to
            Condensed Consolidated Financial Statements
 (amounts
            in thousands except for per share data)










**(a)**
            **Merchant/Dealer
                Operations:**





Revenues
      from Merchant/Dealer Operations consist of revenues from the non-auction sale
      of
      inventory owned by the Company. These sales consist of sales by Spectrum, sales
      by the Company to Afinsa and other non-auction sales of owned inventory,
      including private treaty sales.





Revenue
      with respect to Merchant/Dealer Operations is recognized when the goods are
      delivered or released to the customer for acceptance or to a common carrier
      for
      delivery. Such amounts of revenue are recorded as sales of merchandise, net
      of
      returns. Sales returns have not been material.





**(b)**
            **Auction
                Revenue:**





Revenue
      is recognized when the collectibles are sold at auction and is represented
      by an
      auction commission received from the buyer and seller. Auction commissions
      represent a percentage of the hammer price at auction sales as paid by the
      buyer
      and the seller. Such amounts of revenue are recorded on a net basis as
      commission revenue.





The
      Company also sells its own inventory at auction. Revenue of owned inventory
      is
      recognized when sold at auction. Such amounts of revenue are recorded on a
      gross
      basis as sales of merchandise. Additionally, the Company is entitled to auction
      commissions paid by the buyer. Sales returns have not been
      material.





The
      Company does not provide any guarantee with respect to the authenticity of
      property offered for sale at auction. Each lot is sold as genuine and as
      described by the Company in the catalogue. When however, in the opinion of
      a
      competent authority mutually acceptable to the Company and the purchaser, a
      lot
      is declared otherwise, the purchase price will be refunded in full if the lot
      is
      returned to the Company within a specified period. In such event, the Company
      will return such lot to the consignor before a settlement payment has been
      made
      to such consignor for the lot in question. To date, returns have not been
      material. Large collections are generally sold on an “as is” basis.





**(c)**
            **Trading
                Operations:**





The
      Company’s trading operations are conducted through PMI. The Company records
      sales of precious metals upon shipment and transfer of title. The Company
      records revenues from its metal assaying and melting services after the related
      services are completed. Financing revenue is recorded over the terms of the
      receivable and consists of interest and related fees.





**(4)
      Accounts Receivable**





Receivables
      consist of the following:





March
                31,
            
            June
                30,2006
            
            2005*Collectibles:*Auction
                and trade
            
            $
            19,217
            
            $
            17,854*Trading:*Customer
                trade receivables
            
            
            3,443
            
            
            -Wholesale
                trade advances
            
            
            3,566
            
            
            -Due
                from brokers and other
            
            
            377
            
            
            -26,603
            
            
            17,854Allowance
                for doubtful accounts
            
            
            (515
            )
            
            (357
            )$
            26,088
            
            $
            17,497






11
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)





***Receivables
      from sale of collectibles***





Accounts
      receivable consists of auction or trade receivables and consignor
      advances.





Auction
      or trade receivables represent sales made to customers for which short-term
      credit extensions are granted, which generally are not extended beyond 90 days.





Advances
      to consignors represent advance payments, or loans, to the consignor prior
      to
      the auction sale, collateralized by the items received and held by the Company
      for the auction sale and the proceeds from such sale. Interest on such amounts
      is generally charged at an annual rate of 12%. Such advances generally are
      not
      outstanding for more than six months from the date of the note.





***Receivables
      from trading operations***





Customer
      trade receivables from trading represent short-term, non-interest bearing
      amounts due from metal sales and is generally secured by the related metals
      stored with the Company, a security interest, or by a letter of credit issued
      on
      behalf of the customer. Advances on refined materials represent metals advanced
      to customers, secured by unrefined materials received from the customer. These
      advances are limited to a portion of the unrefined materials received. Wholesale
      trade advances are unsecured, short-term, non-interest bearing advances made
      to
      wholesale metals dealers and government mints. The Company periodically extends
      short-term credit through the issuance of notes receivable to pre-approved
      customers at interest rates determined on a customer-by-customer basis. Due
      from
      brokers and other principally consists of amounts due from brokers related
      to
      commodity hedging transactions (see Note 8).





As
      of
      March 31, 2006 and June 30, 2005, the allowance for doubtful accounts included
      in auction and trading receivables was approximately $515 and $357,
      respectively.





***Secured
      Loans***





CFC,
      the
      financing business, operating within the trading segment, makes secured loans
      at
      loan to value ratios (principal loan amount divided by the “liquidation value”
of the collateral) of 50% to 90%. These loans are predominantly variable
      interest rate loans, with maturities from six to twelve months. At March 31,
      2006, $6,300 was outstanding.





**(5)**  **Inventories**


Inventories
                as of March 31, 2006 consisted of the following:**Current**
            
            **Non-current**
            
            **Total**Precious
                Metals
            
            $
            54,311
            
            
            
            
            $
            54,311Stamps
            
            
            28,307
            
            
            6,139
            
            
            34,446Coins
            
            
            11,814
            
            
            -
            
            
            11,814Arts
                and Antiques
            
            
            326
            
            
            -
            
            
            326Sports
                Collectibles
            
            
            279
            
            
            -
            
            
            279$
            95,037
            
            $
            6,139
            
            $
            101,176Inventories
                as of June 30, 2005 consisted of the following:




**Current**
              
              **Non-current**
              
              **Total**Stamps
              
              $
              26,686
              
              
              6,166
              
              $
              32,852Coins
              
              
              13,859
              
              
              -
              
              
              13,859Sports
                  Collectibles
              
              
              1,285
              
              
              -
              
              
              1,285$
              41,830
              
              $
              6,166
              
              $
              47,996




12
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)






The
      above
      inventory amounts reflect net realizable (LCM) allowances of approximately
      $2,934 and $2,472 at March 31, 2006 and June 30, 2005, respectively. The
      non-current inventory represents an estimate of inventory for which there is
      a
      specific plan in place for their sale beyond one year after purchase. The
      classification as long-term is based on the expected period in which the Company
      expects to sell this inventory, if greater than a year from the balance sheet
      date. Once the selling period is identified, the non-current amounts are
      classified to current.





Inventories
      are stated at the lower of cost or market. In instances where bulk purchases
      are
      made, the cost allocation is based on the relative market values of the
      respective goods. The Company has agreements with certain suppliers to share
      the
      net profits or losses attributable to the sale of specific items of inventory.
      The Company reports the sale of this inventory as revenue because the Company
      purchases this inventory from the supplier and ultimately sells it to the end
      user. During this process the Company acts as the principal in these
      transactions; in other words, the Company takes title to the inventory and
      bears
      all the risks relating to loss, collections, delivery and returns. The Company,
      and not the supplier, determines the selling price to the end user.




Inventories
      of precious metals principally include bullion and bullion coins and are stated
      at published market values. The unrealized gain resulting from the difference
      between market value and cost of physical inventories at March 31, 2006 totaled
      $4,485, and is included as reduction of the cost of product sold in the
      accompanying statement of income. Such gains are generally offset by the results
      of hedging transactions, which have been reflected as net loss (gain) on
      commodity contracts in the consolidated statements of income for the nine months
      ended March 31, 2006.





Inventories
      of precious metals include amounts borrowed from various suppliers under ongoing
      agreements (see Note 8), totaling $4,364 at March 31, 2006. The Company also
      hedges substantially all of its physical inventories through commodity hedge
      transactions (see Note 12).





The
      Company periodically loans metals to customers on a short-term consignment
      basis, charging interest fees based on the value of the metal loaned.
      Inventories loaned under consignment arrangements to customers at March 31,
      2006
      totaled $3,099. Substantially all inventory loaned under consignment
      arrangements is secured by letters of credit issued by major financial
      institutions for the benefit of the Company or insured under an all-risk
      insurance policy with the Company as the loss-payee.





**(6)**  **Intangible Assets**





***Goodwill***





The
      changes in the carrying value of goodwill for the nine months ended March 31,
      2006 are as follows:





Balance-
                July 1, 2005
            
            $
            9,427Purchased
                Goodwill- A-Mark Precious Metals, Inc.
            
            
            11,848Purchased
                Goodwill- Corinphila Auktionen
            
            
            1,873Purchased
                Goodwill- Greg Martin Auctions
            
            
            2,107Purchased
                Goodwill- Heinrich Koehler Berliner Briefmarken-Auktionen
            
            
            50Balance
                - March 31, 2006
            
            $
            25,305





***Other
      Purchased Intangibles*** ****




13
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)





At
      March
      31, 2006, and June 30, 2005 acquired intangible assets were comprised of the
      following (in thousands):





**March
                31, 2006**EstimatedUseful
                Lives
            
            Gross
                Carrying
            
            Accumulated
            
            Net
                Book(Years)
            
            Amount
            
            Amortization
            
            ValueTrademarks
            
            
            5
                - 16
            
            $
            3,630
            
            $
            (2,486
            )
            $
            1,144Customer
                Lists
            
            
            3
                - 5
            
            
            3,245
            
            
            (1,604
            )
            
            1,641Non-Compete
                Agreement
            
            
            4
            
            
            2,000
            
            
            (353
            )
            
            1,647$
            8,875
            
            $
            (4,443
            )
            $
            4,432**June
                30, 2005**EstimatedUseful
                Lives
            
            
            Gross
                Carrying
            
            
            Accumulated
            
            
            Net
                Book(Years)
            
            
            Amount
            
            
            Amortization
            
            
            ValueTrademarks
            
            
            5
                - 16
            
            $
            3,630
            
            $
            (2,343
            )
            $
            1,287Customer
                Lists
            
            
            3
                - 5
            
            
            1,980
            
            
            (1,330
            )
            
            650$
            5,610
            
            $
            (3,673
            )
            $
            1,937




All
      of
      the Company's intangible assets are subject to amortization. Amortization
      expense for acquired intangible assets for the nine months ended March 31,
      2006
      and 2005 were approximately $768 and $248, respectively.





Estimated
      amortization expense on an annual basis for the succeeding five years is as
      follows:





For
                The Twelve Month Period EndedMarch
                31,Amount2006
            
            $
            1,1272007
            
            
            11132008
            
            
            10622009
            
            
            4912010
            
            
            190Thereafter
            
            
            449Total
            
            $
            4,432





**(7)**  **Marketable
      Securities**


Investments
                in available for sale marketable securities as of March 31, 2006
                and June
                30, 2005 are as follows:




14
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)






Cost
            
            Market
                Value
            
            Unrealized
                LossCommon
                Stock - March 31, 2006
            
            $
            135
            
            $
            94
            
            $
            41Common
                Stock - June 30, 2005
            
            $
            135
            
            $
            118
            
            $
            17





**(8)**  **Related
      Party-Transactions**





At
      March
      31, 2006 and 2005, Afinsa and Auctentia collectively beneficially owned
      approximately 67% and 69%, respectively, of the Company’s outstanding common
      stock. Carlos de Figueiredo, a director of Afinsa and the son of a 50%
      stockholder of Afinsa, is the First Vice Chairman of the Board of the Company
      and until January 2006, was a director of three of the Company’s European
      subsidiaries, including Central de Compras Coleccionables, S.L. (“CdC”). Antonio
      Martins da Cruz, a member of the Company’s Board of Directors, is International
      and Institutional Relations Manager of Afinsa.




Esteban
      Pérez, Chairman of the Board of Directors and an executive officer of the
      Company, was Chairman of the Board of Directors and Chief Executive Officer
      of
      Auctentia until December 2005, when he resigned from such positions. Ramón
      Egurbide, President of European Operations for the Company, was Managing
      Director of Auctentia until December 2005. .




Escala
      and its wholly owned subsidiary, CdC are parties to separate agreements with
      Afinsa, each dated August 1, 2003, pursuant to which Escala and CdC have agreed
      to act as exclusive suppliers of collectibles for Afinsa, on a worldwide basis
      (See Note 1.)




At
      March
      31, 2006 and June 30, 2005, the Company had outstanding accounts receivable
      balances from Afinsa of approximately $7,894 and $8,781, respectively, and
      such
      amounts are included in the accompanying Consolidated Balance Sheets as Accounts
      Receivable-related party. During the nine months ended March 31, 2006 and 2005,
      sales to Afinsa were approximately $131,240 and $75,144, respectively, and
      are
      included in the accompanying Consolidated Statements of Operations as Sales
      of
      Inventory - Related Party.





During
      the nine months ended March 31, 2006 and 2005, the Company also engaged in
      various transactions with entities affiliated with Greg Roberts, the President
      of our U.S. Coin Division.  For the nine months ended March 31, 2006 and
      2005, the Company paid to these entities for various goods and services the
      amounts of $102 and $30 respectively .





On
      October 1, 2004, CdC, a wholly-owned subsidiary of the company, entered into
      an
      agreement with Filatelia Soler, a Spanish company, to provide certain consulting
      and advisory services to CdC. The cost of these services is based on a per
      diem
      rate of €.750 (approximately $1). The estimated annual cost of the consulting
      agreement is $200. The services are provided primarily by an individual who
      is
      also a principal in a Spanish company, Filasyl, that provides philatelic
      materials to CdC. Purchases of philatelic material from Filasyl from July 1,
      2005 through March 31, 2006 were $19,399, or approximately 23% of total
      philatelic purchases during this period. Purchases of philatelic material from
      October 1, 2004 through March 31, 2005, were $4,843 or approximately 12% of
      total philatelic purchases during this period.





DooCollect,
      S.L., a subsidiary of Afinsa, acts as agent of CdC to sell material owned by
      CdC
      to third parties through various channels, including through the Internet.
      Sales
      through DooCollect in the nine months ended March 31, 2006 and March 31, 2005
      were $37 and $140, respectively.




CdC
      has
      sold and expects to continue to sell certain art inventory through an art
      gallery (known as Metta Gallery) operated by Mundimer, S.L. that is a subsidiary
      of Afinsa. Sales through the Metta Gallery in the nine months ended March 31,
      2006 and March 31, 2005 were $0 and $8 respectively.




15
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)





CdC
      also
      sells art material through Finarte Casa D’aste España, S.A. (Finarte), a
      subsidiary of Afinsa, which operates as an auction house. Sales of art through
      Finarte in the nine-month periods ended March 31, 2006 and 2005 were $0 and
      $40
      respectively.





The
      Company granted options to certain employees of Afinsa for services. For the
      nine months ended March 31, 2006 and 2005 such amounts were recorded at fair
      value, which amounted to $0 and $130, respectively.





Through
      December 31, 2005, when the lease terminated, the Company leased office space
      from Afinsa in Madrid, Spain, of approximately 2,700 square feet at an annual
      rental of approximately $139.





On
      June
      17, 2002, the Company entered into an amendment to the employment agreement
      with
      Mr. Greg Roberts, a director of the Company. In connection with the amendment,
      the Company made available to Mr. Roberts a non-interest bearing loan in the
      amount of $600. The loan is required to be repaid on an annual basis in three
      equal installments commencing February 18, 2006; provided that if Mr. Roberts
      is
      employed by the Company on the date that an installment is due, that installment
      payment will be forgiven, and that if his employment is terminated for death,
      disability, without cause or by Mr. Roberts with good reason (as defined),
      then
      the entire loan will be forgiven at the date of termination. If Mr. Robert’s
      employment terminates for cause or by Mr. Roberts without good reason, then
      the
      outstanding amount of the loan will accelerate and be due and payable within
      30
      days of termination. An aggregate of $600 has been disbursed under the loan
      agreement. During the quarter ended March 31, 2006, the first installment of
      $200 was forgiven and is included in salary expense. The current portion of
      $200
      is included in prepaid expenses and other at March 31, 2006.




Scott
      Rosenblum, a director of the Company, is a partner of the law firm Kramer,
      Levin, Naftalis & Frankel LLP, which provides legal services to the Company.
      Anthony L. Bongiovanni, Jr., who resigned as a director of the Company effective
      September 27, 2005, is president of Micro Strategies, Incorporated, which
      provides technological services to the Company.





On
      July
      1, 2004, one of the minority shareholders of Corinphila
      Auktionen made a
      loan to that company in the aggregate amount of $1,200. This loan bears interest
      at the rate of 4% per annum and is repayable on demand, upon six month’s notice.
      As of December 31, 2005 the loan balance was repaid as part of the acquisition
      (See Note 2 and 9).





The
      Company has engaged in certain transactions with Andrew Levitt, a former
      director of the Company’s Nutmeg subsidiary. For the nine-month period ended
      March 31, 2006, the Company earned commissions of $1 for the sale of inventory
      consigned by Levitt to the Company as contemplated by the acquisition agreement.
      For the nine-month period ended March 31, 2005, the Company paid Levitt finders’
fees of $38 and earned commissions of $320 for the sale of inventory consigned
      by Levitt to the Company. The Company purchased inventory from Levitt during
      that period totaling $140.





**(9)**
            **Debt-Trading
                Segment**





A-Mark
      Precious Metals, Inc. (“PMI”) has a borrowing facility (“Credit Facility”) with
      a group of financial institutions under an intercreditor agreement, which
      provides for lines of credit of up to $67,500, including a facility for letters
      of credit up to a maximum of $67,500 as of March 31, 2006. PMI routinely uses
      the Credit Facility to purchase metals from its suppliers and for operating
      cash
      flow purposes. Amounts under the Credit Facility bear interest based on London
      Interbank Offered Rate (“LIBOR”) plus a margin. Borrowings are due on demand and
      totaled $37,500 for lines of credit and $2,500 for letters of credit at March
      31, 2006. Amounts borrowed under the Credit Facility are secured by PMI’s
      receivables and inventories.





The
      Credit Facility contains certain restrictive financial covenants that require
      PMI and the Company to maintain a minimum level of tangible net worth, as
      defined, and a minimum ratio of tangible net worth to liabilities, among other
      items.




PMI
      also
      borrows metals from several of its suppliers under short-term agreements bearing
      interest at a designated rate. Amounts under these agreements are due at
      maturity and require repayment either in the form of metals borrowed or




16
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)






cash.
      PMI
      had net borrowed metals included in inventories with market values totaling
      $4,364 at March 31, 2006. Certain of these metals are secured by letters of
      credit issued under PMI’s Credit Facility, which totaled $2,500 at March 31,
      2006.




Interest
      expense related to PMI’s borrowing arrangements totaled $1,424 in the nine
      months ended March 31, 2006.





**(10)**
            **Notes
                Payable and Capital Leases**






The
              Company has an agreement with PNC Bank for a line of credit not to
              exceed
              $12,500, as amended in August 2005. Available borrowings are based
              on
              certain limitations as set forth in the agreement, and are reduced
              by any
              outstanding letters of credit. The loan is collaterized by accounts
              receivable, consignor advances and inventory. Borrowings under the
              line of
              credit bear interest at the “prime” rate; provided that the Company has
              the right, subject to certain conditions, to borrow at a rate equal
              to
              LIBOR plus 2.5% per annum. As amended, the facility expires on August
              31,
              2007. The agreement contains certain financial covenants; which include
              a
              limit on total debt and capital expenditures; debt to earnings before
              depreciation and amortization, interest, and taxes; fixed charge coverage;
              and minimum liquidity; as further defined in the debt agreement. For
              the
              quarter ended March 31, 2006, the Company was in breach of a financial
              covenant relating to a fixed charge ratio under the original 2004 loan
              agreement between Greg Manning Auctions and the bank. The Company has
              obtained a waiver from the bank of with respect to this breach;
              accordingly, the Company was not in default under the loan agreement
              as of
              such date. The Company characterizes this as a technical breach in
              that
              the covenant no longer aligned with the current business and structure
              of
              Escala. The amendment with the bank establishes revised covenant levels
              applicable to the Company’s current structure and also provides for a new
              covenant related to maintaining minimum net worth.
            $5,750
            $8,000On
                December 22, 2004, the Company obtained a mortgage from PNC Bank,
                N.A., to
                finance the purchase of its New Jersey operations. The mortgage provides
                for 59 principal payments of $7 with a final payment of $882 due
                on
                January 1, 2010. Under the financing agreements, the bank may call
                the
                mortgage loan at any time, in which case the mortgage loan will be
                due and
                payable one year and one day following the exercise of such call
                option.
                Further, if the Company terminates its line of credit with the bank,
                the
                mortgage loan will be payable one year and one day following such
                termination.
            1,203
            1,269On
                October 14, 2005, the Company obtained a note payable from the
                shareholders of Greg Martin Auctions to finance the acquisition of
                Greg
                Martin Auctions. The principal of $1,000 is due one year after the
                closing
                date and $1,000 two years after the closing date. The note bears
                an
                interest rate of 5% per annum, payable quarterly.
            2,000
            -On
                July 1, 2004, one of the minority shareholders ofCorinphila
                Auktionenmade a loan to that company in the aggregate amount of $1,200. This
                loan
                bore interest at the rate of 4% per annum and was repaid in full
                in
                September 2005.
            -
            506Other
            59
            73TotalNotesPayable
            9,012
            9,848Less:
              currentportion
            1,147
            667Notes
              Payable-Long
              Term Portion
            _______$7,865
            ________
                $9,181







**(11)**
            **Payable
                to Third Party Consigners**




Amounts
      payable to third party consigners represent amounts due the third party for
      the
      sale of their consigned inventory by the company.




17
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)





**(12)**
            **Hedging
                Transactions -Trading**





The
      Company manages the value of certain specific assets and liabilities of its
      trading segment, including trading inventories, accounts receivable and accounts
      payable, by employing a variety of strategies. These strategies include
      diversification of risk exposures and hedging through the purchase or sale
      of
      positions in related financial instruments, including a variety of derivative
      products such as forwards and futures.





The
      Company’s trading inventories and purchase and sale transactions consist
      primarily of precious metal bearing products. The value of these assets and
      liabilities is linked to the prevailing price of the underlying precious metals
      and the interest component of the cost of carry. The Company’s precious metals
      inventories are subject to market value changes, created by changes in the
      underlying commodity markets. Inventories purchased by the Company outright
      are
      subject to price changes while inventories borrowed from third-party suppliers
      are not. These transactions are considered natural hedges, since changes in
      value of the metal held are offset by the obligation to return the metal to
      the
      supplier.





Open
      purchase and sale commitments are subject to changes in value between the time
      the purchase or sale price is fixed and metal is received or delivered. The
      Company seeks to minimize the effect of price changes of the underlying
      commodity through the use of financial instruments. The Company uses forward
      and
      futures contracts to manage the commodity price exposure arising from the
      existence of these assets and liabilities.





The
      Company’s policy is to remain substantially hedged, as to its inventory position
      and as to its purchase and sale commitments, at all times. The Company regularly
      enters into commodity forward and futures contracts with major financial
      institutions to hedge price changes that would cause changes in the value of
      its
      physical metals positions and purchase commitments and sale commitments. The
      Company has access to all of the precious metals markets, allowing it to place
      hedges. However, the Company also maintains relationships with major market
      makers in every major precious metals dealing center.





Financial
      instruments designated as fair value hedges under SFAS No. 133 are marked to
      market on a daily basis. The gain or loss from revaluing these instruments
      is
      reported as unrealized gain or loss on commodity contracts with the related
      unrealized amounts due from or to counter parties included in receivables from
      or payable to brokers, dealers and clearing organizations. Gains or losses
      resulting from the termination of hedge contracts are reported as realized
      gain
      or loss on commodity contracts.





Credit
      and position risk limits are set by the Company’s management. These limits
      include gross position limits for counter parties engaged in purchase and sales
      transactions with the Company. They also include collateral limits for different
      types of purchase and sale transactions that counter parties may engage in
      from
      time to time.





A
      summary
      of the market values of the Company’s physical inventory positions, purchase and
      sale commitments, and its outstanding forwards and futures contracts is as
      follows at March 31, 2006:




1.
              Inventories
                  at market value
              $
                  54,3112.
              Unhedged
                  inventory and numismatic inventory
              (242)3.
              Bullion
                  and bullion coin inventories at market
              54,0694.
              Open
                  inventory purchase commitments
              48,1435.
              Unhedgable
                  premium on metals positions
              (1,087)6.
              Open
                  inventory sale commitments
              (37,145)7.
              Margin
                  Sale Commitments
              (3,945)8.
              Inventories
                  under natural hedges:9.
              Inventory
                  borrowed from suppliers
              (4,364)10.
              Advances
                  on Industrial Metals
              68211.
              Advances
                  on Refined materials
              -12.
              Inventory
                  subject to price risk
              56,353
  13.
              Inventory
                  fair value hedge transactions offsettingprice
                  risk:14.
              Precious
                  metals forward contracts at market values
              59,38415.
              Precious
                  metals futures contracts at market values
              (2,795)16.
              Total
                  market value on inventory hedge transactions
              56,58917.
              Net
                  unhedged metals position at market
              $
                  (236)




18
 ESCALA
                  GROUP, INC.
 (Formerly
                  Greg Manning Auctions Inc.)
 Notes
                  to
                  Condensed Consolidated Financial Statements
 (amounts
                  in thousands except for per share
                  data)







The
      net
      gain or loss on commodity contracts includes amounts recorded on the Company’s
      outstanding commodity forwards and futures contracts and on open physical
      purchase and sale commitments. The Company records changes in the market value
      of its forwards and futures contracts as income or loss, the effect of which
      is
      to offset changes in market values of the underlying metals positions (see
      Note
      9). The underlying commodity contract value is treated as an off-balance-sheet
      item and not recorded in the financial statements.





Open
      forward contracts and purchase and sale commitments of inventories are marked
      to
      the current market value, with any difference between the market value and
      underlying contract value recorded as a gain or loss in the financial
      statements. In the cost of sales- trading, the Company recorded a net unrealized
      loss on open commodity and forward contracts and purchase and sale commitments
      of ($3,536) as of March 31, 2006 and a net realized loss on closed commodity
      contracts of ($4,942) for the nine months ended March 31, 2006.





The
      Company had outstanding purchase and sale commitments from the trading segment
      arising in the normal course of business totaling $48,143 and $37,145 at March
      31, 2006. The Company also had purchase and sale commitments related to open
      forward and futures contracts used in hedging its inventories totaling $59,384
      and ($2,795) at March 31, 2006.





**(13)**
            **Income
                Taxes**





Deferred
      tax attributes resulting from differences between financial accounting amounts
      and tax basis of assets and liabilities at March 31, 2006 and June 30, 2005
      are
      as follows:


March
                31,
            
            June
                30,2006
            
            2005Current
                assets and liabilitiesAllowance
                for doubtful accounts
            
            $
            159
            
            $
            89Inventory
                valuation reserve
            
            
            749
            
            
            945Inventory
                uniform capitalization
            
            
            957
            
            
            734Unrealized
                net gain/ (losses) on futures
            
            
            1,171
            
            
            -Lower
                of cost or market inventory adjustment
            
            
            (1,570
            )
            
            -Charitable
                contribution carryforward
            
            
            863
            
            
            1,524Net
                current deferred tax asset
            
            $
            2,329
            
            $
            3,292Non-current
                assets and liabilitiesGoodwill
                and intangible amortization and impairment
            
            $
            1,153
            
            $
            1,401Depreciation
            
            
            126
            
            
            65Net
                state operating and capital loss carry-forwards
            
            
            1,706
            
            
            1,668Charitable
                contribution carryforward
            
            
            2,591
            
            
            4,571Foreign
                tax credit carryforward
            
            
            1,495
            
            
            -Investments
                in equity-method investees
            
            
            210
            
            
            204Investments
                in marketable securities
            
            
            78
            
            
            677,359
            
            
            7,976Valuation
                allowance, provision for income taxes
            
            
            (1,786
            )
            
            (4,314
            )Net
                non-current deferred tax asset
            
            $
            5,573
            
            $
            3,662






19
 ESCALA
                GROUP, INC.
 (Formerly
                Greg Manning Auctions Inc.)
 Notes
                to
                Condensed Consolidated Financial Statements
 (amounts
                in thousands except for per share
                data)


The
      realization of the above deferred tax assets is dependent on generating
      sufficient taxable income in the future to offset the deductibility of temporary
      differences generating the deferred tax assets. During the nine months ended
      March 31, 2006, the Company continues to believe that it is more likely than
      not
      that the results of future operations will generate sufficient taxable income
      to
      realize certain deferred tax assets. However, the Company still believed
      uncertainty exists regarding the reliability of certain deferred tax assets,
      and
      accordingly established a valuation allowance, based on management's estimates,
      against these specific deferred tax assets.





During
      the fourth quarter of fiscal 2005, the Company made a charitable contribution
      of
      an art collection with a de minimis carrying value that had been held for
      investment purposes. The Company has obtained a final qualified appraisal of
      the
      collection, which concluded that it had a value of approximately $14.7 million,
      resulting in a charitable contribution deduction with a tax benefit of
      approximately $5.0 million. This charitable contribution deduction will be
      limited to 10% of the Company’s Federal taxable income (as computed with certain
      adjustments) each year and will expire in the year 2010 to the extent not
      utilized.





The
      provision for income taxes for the nine months ended March 31, 2006 and 2005
      consist of the following:





Income
                taxes for Nine MonthsMarch
                31,
            
            March
                31,2006
            
            2005Current
                tax expense
            
            $
            18,693
            
            $
            11,566Deferred
                tax expense
            
            
            1,245
            
            
            2,111Net
                change in valuation allowance
            
            
            (2,528
            )
            
            -$
            17,410
            
            $
            13,677The
                above is further comprised of the following:Current
                tax expenseFederal
            
            $
            408
            
            $
            8,387State
            
            
            270
            
            
            1,197Foreign
            
            
            18,015
            
            
            1,982$
            18,693
            
            $
            11,566Deferred
                tax expense - net of change in valuation allowanceFederal
            
            $
            (1,294)
            
            $
            1,362State
            
            
            11
            
            
            749$
            (1,283)
            
            $
            2,111





The
      Company has remaining available net operating loss carry forwards for state
      tax
      purposes of approximately $2,200 expiring at various times beginning in the
      fiscal years ending 2008 through 2012.





The
      Company provided for United States income taxes and foreign withholding taxes
      on
      a distribution of $11,730 from its Spanish subsidiary. The Company did not
      provide for United States income taxes and foreign withholding taxes on a
      cumulative total of $36,824 of undistributed earnings from foreign entities.
      Should the Company repatriate the undistributed foreign earnings, the Company
      would have to adjust the income tax provision in the period management
      determined that the Company would repatriate the earnings. Since the tax related
      to the $11,730 dividend is substantially reduced by a foreign tax credit, the
      net tax effect is minimal.





**(14)**
            **Earnings
                per common and common equivalent
                share**





The
      following table sets forth the computations of basic earnings per share and
      diluted earnings per share:





**Nine
                months ended****March
                31,****2006**
            
            **2005****BASIC
                EARNINGS PER SHARE:*********Numerator****:*Earnings
                available to common stockholders
            
            $
            29,872
            
            $
            20,977***Denominator****:*Weighted
                average common shares outstanding
            
            
            27,832
            
            
            27,393Net
                earnings per share - Basic
            
            $
            1.07
            
            $
            0.77**DILUTED
                EARNINGS PER SHARE:*********Numerator****:*Earnings
                available to common stockholders
            
            $
            29,872
            
            $
            20,977***Denominator****:*Weighted
                average common shares outstanding
            
            
            27,832
            
            
            27,393Effect
                of dilutive securities - stock options
            
            
            1,182
            
            
            1,299Weighted
                average common shares - assuming dilution
            
            
            29,014
            
            
            28,692Net
                earnings per share - Diluted
            
            $
            1.03
            
            $
            0.73






20
 ESCALA
            GROUP, INC.
 (Formerly
            Greg Manning Auctions Inc.)
 Notes
            to
            Condensed Consolidated Financial Statements
 (amounts
            in thousands except for per share data)







Common
      share equivalents consist of employee stock options using the treasury stock
      method. For the nine months ended March 31, 2006 and 2005, 0 and 658,500
      employee stock options, respectively, were excluded from the computation of
      diluted net income per share because the exercise price of these options was
      greater than the average market price of the Company’s common stock during the
      period, and therefore the effect is antidilutive.





**(15)**
            **Stock-Based
                Compensation**





In
      December 2004, the FASB issued SFAS 123(R) “Share Based Payments”. SFAS 123(R)
      eliminates the alternative to use the intrinsic value method of accounting
      that
      was provided in SFAS 123, which generally resulted in no compensation expense
      recorded in the financial statements related to the issuance of equity awards
      to
      employees. SFAS 123(R) requires that the cost resulting from all share based
      payment transactions be recognized in the financial statements. SFAS 123(R)
      establishes fair value as the measurement objective in accounting for share
      based payment arrangements and requires all companies to apply a fair value
      based measurement method in accounting for generally all share based payment
      transactions with employees.




On
      July
      1, 2005 (the first day of our 2006 fiscal year), the Company adopted SFAS
      123(R). The provisions of SFAS 123(R) became effective the first annual
      reporting period beginning after June 15, 2005. We adopted SFAS 123(R) using
      a
      modified prospective application, as permitted under SFAS 123(R). Accordingly,
      prior period amounts have not been restated. Under this application, we are
      required to record compensation expense for all awards granted after the date
      of
      adoption and for the unvested portion of previously granted awards that remain
      outstanding at the date of adoption.





On
      January 10, 2005, prior to the adoption of SFAS 123(R), the Compensation
      Committee of the Company’s Board of Directors approved the acceleration of the
      unvested portion of all options to purchase shares of the Company’s Common Stock
      awarded under the Company’s Stock Incentive Plan of 1997, as amended, having an
      exercise price greater than the closing price at December 31, 2004 of $12.40
      per
      share. This acceleration was effective as of December 31, 2004 and relates
      to
      312,500 options that were granted on June 30, 2004 to executive officers and
      directors of the Company. The new vest date applies to the unvested one-half
      of
      the shares in the original grants. The closing price of our common stock on
      December 31, 2004 was $12.37.





The
      acceleration of vesting of the out-of the-money options was undertaken primarily
      to eliminate any future compensation expense the Company would otherwise
      recognize in its income statement with respect to these options upon the
      implementation of SFAS 123(R). The future expense that was eliminated is
      approximately $2.0 million based on the fair value calculations using the Black
      Scholes methodology.





Prior
      to
      the Company's adoption of SFAS No. 123(R), SFAS No. 123 required that the
      Company provide pro forma information regarding net earnings and net earnings
      per common share as if compensation cost for the Company's stock based awards
      had been determined in accordance with the fair value method prescribed therein.
      The Company had previously adopted the disclosure portion of SFAS No. 148,
      "Accounting for Stock Based Compensation − Transition and Disclosure," requiring
      quarterly SFAS No. 123 pro forma disclosure. The pro forma charge for
      compensation cost related to stock based awards granted were recognized over
      the
      service period. For stock options, the service period represents the period
      of
      time between the date of grant and the date each option becomes exercisable
      without consideration of acceleration provisions (e.g., retirement, change
      of
      control, etc.).




The
      following table illustrates the effect on net earnings per common share as
      if
      the fair value method had been applied to all outstanding awards for the nine
      months ended March 31, 2005:





**Net
                income as reported**
            
            $
            20,977Deduct:Total
                stock-based employee compensation expensedetermined
                under fair value based method for allawards,
                net of related tax effects
            
            
            1,725**Pro
                forma net income**
            
            $
            19,252**Net
                income per share:**Basic
                earnings per share - as reported
            
            $
            0.77Basic
                earnings per share - proforma
            
            $
            0.70**Net
                income per share:**Diluted
                earnings per share - as reported
            
            $
            0.73Diluted
                earnings per share - proforma
            
            $
            0.67




21
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)





Beginning
      with our 2006 fiscal year, with the adoption of SFAS 123(R), we recorded stock
      based compensation expense for the cost of stock options. Stock based
      compensation expense for the nine months ended March 31, was $890. Stock based
      compensation expense for the year ended June 30, 2006 is expected to be
      approximately $1,293.





**(16)**
            **Segment
                Reporting**





The
      Company’s continuing operations are organized under two business segments -
      collectibles and trading.





The
      table
      below presents revenues for the Company’s operating segments, as well as a
      reconciliation of segment revenues to total revenues from operations for the
      nine months ended March 31, 2006 and 2005:





Nine
                Months EndedMarch
                31,2006
            
            2005Collectibles
            
            $
            213,325
            
            $
            162,742Trading
            
            
            2,358,635
            
            
            -Total
                segment revenues
            
            $
            2,571,960
            
            $
            162,742





The
      table
      below presents income before taxes for the Company’s operating segments, as well
      as a reconciliation of segment Income Before Taxes to Income from Continuing
      Operations Before Taxes for the nine months ended March 31, 2006 and
      2005:





Nine
                Months EndedMarch
                31,2006
            
            2005Collectibles
            
            $
            46,315
            
            $
            34,654Trading
            
            
            1,210
            
            
            -Segment
                income before taxes
            
            $
            47,525
            
            $
            34,654




The
      table
      below presents assets for the Company’s operating segments, as well as a
      reconciliation of segment assets to consolidated assets as of March 31, 2006
      and
      June 30, 2005




March
                31,
            
            June
                30,2006
            
            2005Collectibles
            
            $
            173,522
            
            $
            158,450Trading
            
            
            82,857
            
            
            -Total
                segment assets
            
            $
            256,379
            
            $
            158,450




22
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)









**(17)**
            **Other
                Major Customers (Excluding
                Afinsa)**





In
      its
      collectibles segment, the Company had no other major customers for the nine
      months ended March 31, 2006 and 2005, respectively.





In
      its
      trading segment, the Company had two customers that made up 38%- of revenues
      for
      that segment.





Major
      customers (other than Afinsa) are those that accounted for more than 10% of
      sales.





**(18)**
            **Commitments
                and Contingencies**





**Leases**





On
      August
      1, 2005, the Company executed an agreement to lease facilities in New York
      City.
      The term of the lease is three years. Annual rentals are approximately $210
      per
      year. On October 1, 2005, the Company executed an agreement to lease additional
      facilities in New York City. The term of the lease is 10 years. Annual rentals
      are approximately $400 per year for the first 5 1⁄2 years and $425 per year for
      the last 4 1⁄2 years.





On
      January 6, 2005, the Company executed an agreement to lease approximately 8,000
      square feet in Madrid, for approximately $268 per year. The term of the lease
      is
      15 years.





On
      January 6, 2006 the Company executed an agreement to lease 3,333 square feet
      of
      office space in Santa Monica, CA at a cost of $120 per year commencing May
      1,
      2006. The term of the lease is five years with annual increases in cost of
      3%.





On
      February 9, 2006, the Company executed a lease for approximately 20,000
      (initially 16,000) square feet of office space in Irvine, California. The term
      of the lease will commence after certain construction is completed, which is
      expected to occur by June 1, 2006. The lease has a five-year term, and provides
      for an initial base rent of approximately $345 per annum, increasing to $449
      in
      year two, $461 in year three, $473 in year four and $485 in the final year
      of
      the term.





**Employment
      Contracts**





During
      the quarter ended September 30, 2005, Escala entered into an agreement with
      Mr.
      Jose Miguel Herrero (the "Herrero Employment Agreement"), which provides for
      his
      services as President and Chief Executive Officer. The Herrero Employment
      Agreement has a term ending June 30, 2008. The agreement provides for an initial
      base salary of $500,000, with annual increases in each year of the term based
      on
      the percentage increase, if any, in the Consumer Price Index for the relevant
      fiscal year. Mr. Herrero will also receive a signing bonus of $690,000 (payable
      $200,000 immediately; $245,000 on June 30, 2006; and $245,000 on July 2, 2007
      and provided in each case that Mr. Herrero is employed on the date of payment)
      and be eligible for a retention bonus to be determined in accordance with the
      terms of his agreement, which bonus will not be less than $300,000. Mr. Herrero
      will also be eligible
      to receive an annual performance bonus equal to the lesser of 1% of the
      Company's pre-tax income or $400,000, subject to adjustment based on stock
      price
      performance, and a long-term incentive award payable in Escala stock and
      calculated based on the appreciation in the price of the Company's stock from
      July 1, 2005 to June 30, 2008, in each case pursuant to the terms of an
      incentive compensation program.





23
 ESCALA
            GROUP, INC.
 (Formerly
            Greg Manning Auctions Inc.)
 Notes
            to
            Condensed Consolidated Financial Statements
 (amounts
            in thousands except for per share data)








The
      agreement provides for Escala to reimburse Mr. Herrero for various expenses,
      including relocation and housing expenses, tuition expenses and car
      expenses.





In
      the
      event of termination for cause or without good reason, Mr. Herrero will be
      entitled to receive any accrued and unpaid salary, accrued vacation, any
      performance bonus not yet paid for any fiscal year ending prior to the
      termination date, and expense reimbursement ("accrued benefits"). In the event
      of termination with good reason (which includes a change of control) or without
      cause, Mr. Herrero will be entitled to receive accrued benefits, a lump-sum
      payment equal to 12 months' base salary, and a portion of the retention bonus,
      performance bonus and long-term incentive award as calculated under the terms
      of
      the Herrero Employment Agreement.





Under
      the
      agreement, Mr. Herrero cannot compete with the Company or solicit its employees
      during the term of employment. In addition, if Mr. Herrero's employment
      terminates, other than due to expiration of the agreement, the noncom petition
      and no solicitation restrictions continue through the later of 12 months after
      the termination of employment or the date upon which all severance payments
      cease.





Effective
      January 24, 2006, the Company and Greg Manning entered into an employment
      agreement (the “Manning Employment Agreement”), dated as of July 1, 2005,
      pursuant to which Mr. Manning will serve as President of the Company’s North
      American and Asian Philatelic Auction Division for a term commencing as of
      September 28, 2005 and ending June 30, 2008, subject to earlier termination
      as
      provided for under the Manning Employment Agreement. Under the terms of the
      Manning Employment Agreement, Mr. Manning’s initial base salary will be
      $500,000, which will increase to $550,000 for the second year of the term and
      $600,000 for the last year of the term. Mr. Manning is entitled to receive
      a
      standard bonus for $50,000 for each fiscal year during the term of his
      employment, and is eligible for a retention bonus to be determined in accordance
      with the terms of the Manning Employment Agreement. Mr. Manning will also be
      eligible to receive an annual performance bonus and a long-term incentive award
      pursuant to the terms of an incentive compensation program. The Manning
      Employment Agreement also provides for the Company to reimburse Mr. Manning
      for
      various expenses, and for the payment of certain amounts in the event of
      termination of employment under specified circumstances.





Upon
      the
      expiration of the term of the Manning Employment Agreement on June 30, 2008
      (and
      upon earlier termination in certain circumstances), Mr. Manning will serve
      as a
      consultant to the Company through June 30, 2018, subject to earlier termination
      under certain circumstances. During the period that Mr. Manning is providing
      consulting services to the Company, he will be entitled to receive consulting
      fees at an annual rate equal to 65% of the base salary in effect immediately
      prior to the termination of his employment.





The
      Manning Employment Agreement also contains provisions regarding confidentiality,
      non-solicitation, non-competition and non-disparagement.





In
      connection with the Manning Employment Agreement, the parties also entered
      into
      an Assignment and Use of Name Agreement, dated as of January 3, 2006, pursuant
      to which Mr. Manning confirmed the sale and assignment to the Company of all
      of
      his right, title and interest in and to the name and mark “Greg Manning”, for
      use by the Company as a corporate and trade name in connection with its
      business.





**(19)**
            **Geographic
                Information**





Geographic
      net sales based on customer location were as follows:




**Nine
                Monthsended****March
                31,**United
                States
            
            $
            2,445,542
            
            $
            82,682Asia
                Pacific
            
            
            1,425
            
            
            -Europe
            
            
            124,993
            
            
            80,060$
            2,571,960
            
            $
            162,742




24
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)




Net
      property, plant and equipment by geographic area was as follows:





**March
                31,**
            
            **June
                30,****2006**
            
            **2005**United
                States
            
            $
            2,424
            
            $
            2,369Spain
            
            
            2,957
            
            
            894Other
                Europe
            
            
            269
            
            
            32$
            5,650
            
            $
            3,295




**(20)**
            **Supplementary
                Cash Flow Information**





Following
      is a summary of supplementary cash flow information:




**Nine
                  Months****March
                  31,****(In
                  Thousands)****2006**
              
              **2005**Interest
                  paid
              
              $
              1,661
              
              $
              758Income
                  taxes paid
              
              
              15,553
              
              
              14,814


**(21)**  **New
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS No 154, “Accounting Changes and Error Corrections -a
      replacement of APB Opinion No 20 and SFAS No. 3.” This statement provided
      guidance on the accounting for and reporting of accounting changes and error
      corrections. It requires, unless impracticable, retrospective application for
      reporting a change in accounting principle, unless the newly adopted accounting
      principle specifies otherwise, and reporting of a correction of an error. The
      provision of the statement are effective for accounting changes and corrections
      of errors made in fiscal years beginning after December 15, 2005.





(See
      Note
      14 for a discussion of SFAS No. 123(R), “Share-Based Payments,” which was
      adopted by the company on July 1, 2005.)




**(22)**  **Subsequent
        Event**
 
 On
        May 9,
        2006, Spanish judicial authorities collected documents from Afinsa Bienes
        Tangibles, S.A. (Afinsa) of Madrid, Escala's 67% shareholder and major customer,
        comprising 62% of the collectibles revenue for the period ended March 31,
        2006.
        On the same day, Spanish authorities also collected documents at Escala offices
        in Madrid. As part of these searches, normal operations at these offices
        were
        suspended. The Company understands that the collection of documents was part
        of
        an investigation of Afinsa relating to possible tax evasion, money laundering,
        criminal insolvency and falsification of documents.
 
 The
        Company has also been advised that certain members of the board of directors
        of
        Afinsa, including Carlos de Figueiredo, an Afinsa representative on Escala's
        board, have been questioned by Spanish authorities.
  The
        Company has not been advised that it is the target of any investigation by
        Spanish authorities.
  The
        Company is undertaking to acquire all available information relating to these
        issues and intend to take all appropriate steps in response to
        them.
  The
        effect of these developments on the business and financial condition of Escala
        cannot be determined at this time. A significant portion of the Company’s
        collectibles revenue and gross profit are attributable to sales to Afinsa.
        Unless offset by increases in other areas of the Company’s business, a
        significant decrease in the level of sales to Afinsa, or the termination
        of the
        supply arrangements with Afinsa, would have a material adverse effect on
        the
        Company’s financial condition and results of operations.
  The
        Company is unable at this time to predict whether these developments will
        result
        in any kind of formal proceeding against the Company and is unable to assess
        the
        likelihood of a favorable or unfavorable outcome of any such action, or to
        estimate the amount of liability in the event of an unfavorable outcome.
        As
        such, no amounts have been recorded in the accompanying financial
        statements.


25
 ESCALA
              GROUP, INC.
 (Formerly
              Greg Manning Auctions Inc.)
 Notes
              to
              Condensed Consolidated Financial Statements
 (amounts
              in thousands except for per share data)


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.**





*This
      Report contains forward-looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
      1934, including, without limitation, statements regarding the Company’s
      expectations, beliefs, intentions or future strategies that are signified by
      the
      words “expects,” “anticipates,” “intends,” “believes,” or similar language. All
      forward-looking statements included in this document are based on information
      available to the Company on the date hereof, and the Company assumes no
      obligation to update any such forward-looking statements. Actual results could
      differ materially from those projected in the forward-looking statements. In
      evaluating the Company’s business, prospective investors should carefully
      consider the information set forth below, and in the Company’s Form 10-K, and
      other filings with the Securities and Exchange Commission in addition to the
      other information set forth herein. The Company cautions investors that its
      business and financial performance are subject to substantial risks and
      uncertainty.*




**Current
        Development**
 
 On
        May 9,
        2006, Spanish judicial authorities collected documents from Afinsa Bienes
        Tangibles, S.A. (Afinsa) of Madrid, Escala's 67% shareholder and major customer,
        comprising 62% of the collectibles revenue for the period ended March 31,
        2006.
        On the same day, Spanish authorities also collected documents at Escala offices
        in Madrid. As part of these searches, normal operations at these offices
        were
        suspended. The Company understands that the collection of documents was part
        of
        an investigation of Afinsa relating to possible tax evasion, money laundering,
        criminal insolvency and falsification of documents.
 
 The
        Company has also been advised that certain members of the board of directors
        of
        Afinsa, including Carlos de Figueiredo, an Afinsa representative on Escala's
        board, have been questioned by Spanish authorities.
  The
        Company has not been advised that it is the target of any investigation by
        Spanish authorities.
  The
        Company is undertaking to acquire all available information relating to these
        issues and intend to take all appropriate steps in response to
        them.
  The
        effect of these developments on the business and financial condition of Escala
        cannot be determined at this time. A significant portion of the Company’s
        collectibles revenue and gross profit are attributable to sales to Afinsa.
        Unless offset by increases in other areas of the Company’s business, a
        significant decrease in the level of sales to Afinsa, or the termination
        of the
        supply arrangements with Afinsa, would have a material adverse effect on
        the
        Company’s financial condition and results of operations.
  The
        Company is unable at this time to predict whether these developments will
        result
        in any kind of formal proceeding against the Company and is unable to assess
        the
        likelihood of a favorable or unfavorable outcome of any such action, or to
        estimate the amount of liability in the event of an unfavorable outcome.
        As
        such, no amounts have been recorded in the accompanying financial
        statements.


**Results
      of Operations** *(Amounts
      in thousands except as noted or per share information* ***)***





**General**





The
      Company’s continuing operations are organized under two business segments:
      collectibles and trading.





**For
                the Nine Months Ended March 31****(In
                Thousands, except for percentages)****March
                31,**
            
            **Percentages****2006**
            
            **2005**
            
            **2006**
            
            **2005****Aggregate
                Sales**
            
            $
            2,623,819
            
            $
            210,694
            
            
            100
            %
            
            100
            %***By
                Source:*****Trading**
            
            $
            2,358,635
            
            $
            -
            
            
            90
            %
            
            0
            %**Auction**
            
            
            82,344
            
            
            69,057
            
            
            3
            %
            
            33
            %**Merchant/Dealer**
            
            
            
            
            
            
            
            
            0
            %
            
            0
            %Sales
                of Inventory
            
            
            51,600
            
            
            66,493
            
            
            2
            %
            
            32
            %Related
                Party
            
            
            131,240
            
            
            75,144
            
            
            5
            %
            
            36
            %$
            2,623,819
            
            $
            210,694
            
            
            100
            %
            
            100
            %***By
                Collectible Type:***Precious
                Metals
            
            $
            2,358,635
            
            $
            -
            
            
            90
            %
            
            0
            %Philatelics
            
            
            173,054
            
            
            109,520
            
            
            7
            %
            
            52
            %Numismatics
            
            
            85,585
            
            
            100,790
            
            
            3
            %
            
            48
            %Sports
                Collectibles
            
            
            1,721
            
            
            384
            
            
            0
            %
            
            0
            %Art
                and Antiques
            
            
            4,688
            
            
            -
            
            
            0
            %
            
            0
            %Other
                Collectibles
            
            
            136
            
            
            
            
            
            0
            %$
            2,623,819
            
            $
            210,694
            
            
            100
            %
            
            100
            %





The
      Company’s aggregate sales are generated by the sale of property at auction, by
      private treaty and by sale of the Company’s inventory, including sales under the
      exclusive supply contracts between the Company and Afinsa Bienes Tangibles,
      S.A.
      (“Afinsa”), dated August 1, 2003, as amended. Afinsa and its wholly owned
      subsidiary Auctentia, S.L. (“Auctentia”), collectively beneficially own
      approximately 67% of the Company’s common stock.





26





Aggregate
      sales consist of the total proceeds realized from the sale of property and
      include the Company’s commissions when applicable. Property sold by the Company
      is either consigned by the owner of the property, or is owned by the Company
      directly.





Total
      revenues included in the Consolidated Statements of Operations are comprised
      of
      (1) sales of inventory owned by the Company to Afinsa (a related party), under
      the exclusive supply contracts, (2) sales of inventory owned by the Company,
      exclusive of sales to Afinsa, and (3) the portion of sale proceeds from auction
      or private treaty that the Company is entitled to retain after remitting the
      sellers’ share, consisting primarily of commissions paid by sellers and buyers.
      Generally, the Company earns a commission from the sellers of 0% to 15% and
      a
      commission of 10% to 15% from the buyers.





Only
      revenues and not aggregate sales are included in the accompanying Consolidated
      Statements of Operations since aggregate sales are not recognized in accordance
      with accounting principles generally accepted in the United States of America.





The
      Company’s operating expenses consist of general and administrative expenses,
      salaries, and marketing and depreciation expenses for the nine months ended
      March 31, 2006 and March 31, 2005. General and administrative expenses are
      incurred to provide support and services to those employees, including the
      physical facilities and data processing. Marketing expenses are incurred to
      promote the services of the Company to sellers and buyers of collectibles
      through advertising and public relations, producing and distributing its auction
      catalogs and conducting auctions.





The
      Company is a party to separate supply agreements with Afinsa, dated August
      1,
      2003, as amended. Afinsa is engaged, among other things, in commercial and
      trading activities involving tangible investment products, including philatelic
      material, in Europe. The business purpose of these contracts is for the Company
      to act as exclusive suppliers of philatelic material for Afinsa on a worldwide
      basis, in exchange for which the Company receives the purchase price for all
      goods sold, as well as a sourcing fee on all material. Greg Manning Auctions,
      a
      division of Escala, acts under the contracts in the United States and Hong
      Kong,
      and CdC acts all other geographic locations. As amended, the supply agreements
      will terminate on August 1, 2013, unless sooner terminated by either party.
      Sales of philatelic material to Afinsa under the agreements are made via the
      fulfillment of purchase orders from Afinsa. In order to meet the philatelic
      requirements of Afinsa under the agreements, the Company has developed
      relationships with networks of suppliers in the United States and Europe.





In
      addition to receiving the purchase price for the material sold, the Company
      receives a fee from Afinsa for the processing and handling of the stamps. The
      fee is in the amount of 10% of the amount of the material sold. The processing
      and handling services performed by the Company include the following: a
      multi-level inspection and quality control check on every item that is proposed
      to be supplied to Afinsa, ensuring that the material is in the format and of
      the
      quality specified by Afinsa, maintaining a grading system on suppliers, and
      preparing and maintaining back-up documentation for all material supplied to
      Afinsa. The fee is calculated based on the amount of each particular invoice
      and
      is included on such invoice. Revenue is recognized upon shipment of the goods.





In
      addition to the 10% fee described above, pursuant to the supply contract CdC
      receives a fee from Afinsa equal to 2% of the purchase price of all material
      sold directly to Afinsa by GMA in the United States. This fee is for services
      rendered to Afinsa by CdC after the material is shipped from the United States.
      These additional services include further quality verification, expertising
      and
      final processing of the material. This 2% fee is invoiced separately to Afinsa
      and revenue is recognized upon final shipment of the material to
      Afinsa.





All
      transactions with Afinsa are “related party” transactions under applicable
      Nasdaq listing standards and, as such, are approved by the Audit Committee
      of
      the Board of Directors.





Sales
      of
      inventory to Afinsa (a related party) under the exclusive supply contracts
      represented a significant portion of the Company’s aggregate sales, revenue and
      gross profit for the nine months ended March 31, 2006. There
      is
      no assurance that such sales, revenues and gross profit will continue at this
      level (see “Issues and Uncertainties”, below).





27








***Three
      months ended March 31, 2006 compared with the three months ended March 31,
      2005***


**Revenues**
            
            Three
                Months Ended March 31, 2006
            
            Three
                Months Ended March 31, 2005Cost
                of
            
            
            
            
            
            
            
            Cost
                ofGoods
            
            Gross
            
            Gross
            
            
            
            Goods
            
            Gross
            
            GrossRevenues
            
            Sold
            
            Profit
            
            Profit
                %
            
            Revenues
            
            Sold
            
            Profit
            
            Profit
                %Sales
                of inventory
            
            $
            28,669
            
            $
            24,135
            
            $
            4,534
            
            
            15.8
            %
            $
            25,185
            
            $
            23,168
            
            $
            2,017
            
            
            8.0
            %Sales
                of inventory- related party
            
            
            45,525
            
            
            27,248
            
            
            18,277
            
            
            40.1
            %
            
            26,027
            
            
            10,868
            
            
            15,159
            
            
            58.2
            %Auction
                Commissions
            
            
            3,623
            
            
            -
            
            
            3,623
            
            
            100.0
            %
            
            4,500
            
            
            -
            
            
            4,500
            
            
            100.0
            %Collectibles
                Revenues
            
            
            77,817
            
            
            51,383
            
            
            26,434
            
            
            34.0
            %
            
            55,712
            
            
            34,036
            
            
            21,676
            
            
            38.9
            %Trading
                Revenues
            
            
            1,058,096
            
            
            1,055,278
            
            
            2,818
            
            
            0.3
            %
            
            -
            
            
            -
            
            
            -
            
            
            0.0
            %$
            1,135,913
            
            $
            1,106,661
            
            $
            29,252
            
            
            2.6
            %
            $
            55,712
            
            $
            34,036
            
            $
            21,676
            
            
            38.9
            %





The
      above
      chart details the revenues and gross profit by the two segments, collectibles
      and trading. As the trading segment is new to the Company in the current
      quarter, the discussion to follow will primarily focus on the collectibles
      market.





The
      Company recorded an increase in total revenues in the collectibles market of
      approximately $22,105 (39.7%), to approximately $77,817 for the three months
      ended March 31, 2006 from approximately $55,712 for the three months ended
      March
      31, 2005.





Sales
      of
      Inventory - Related Party of $45,525 for the three months ended March 31, 2006
      was an increase of $19,498 (74.9%) from the $26,027 recorded for the three
      months ended March 31, 2005. The increase was attributable to higher demand
      under our exclusive supply contract with Afinsa. The revenue attributable to
      transactions under the exclusive supply contracts with Afinsa includes the
      10%
      fee (in certain cases, 12%) provided for under the contracts.





For
      the
      three months ended March 31, 2006 and 2005, the total revenue in the
      collectibles market was approximately $77,817 and $55,712, respectively. Of
      these collectible segment totals, $74,194 and $51,212, respectively were from
      sales of owned inventory and approximately $3,623 and $4,500, respectively
      were
      from commissions resulting from sales of consigned materials.





The
      variation in any year in the composition of total revenues (as between revenues
      resulting from inventory sales and commissions resulting from consignment sales)
      is largely a function of availability, market demand and conditions.





Trading
      revenues for the three months ended March 31, 2006 were approximately $1,058,096
      due to increased demand and higher prices in the gold market.





***Gross
      Profit:***





Gross
      profit in the collectibles market increased approximately $4,758 (22.0%), to
      approximately $26,434 for the three months ended March 31, 2006 from
      approximately $21,676 for the three months ended March 31, 2005. The overall
      gross profit percentage decreased from 38.9% for the three months ended March
      31, 2005 to 34.0% for the three months ended March 31, 2006. The decrease in
      gross profit percentage was due to a decrease in gross profit percentage in
      sales of inventory from 33.5% for the three months ended March 31, 2005 to
      30.7%
      for the three months ended March 31, 2006. The decrease of auction commissions
      of approximately $877 to $3,623 for the three month ended March 31, 2006 from
      $4,500 for the three months ended March 31, 2005 also contributed to the overall
      decrease in gross profit percentage because the gross profit percentage on
      auction commissions is 100%. Gross profit percentage from sales to related
      party
      decreased from 58.2% to 40.1% for the three months ended March 31, 2006.




The gross profit percentage for sales to Afinsa (a related
      party) and others will vary depending on market demand, market conditions and
      buying opportunities relative to each type of product being sold, as well as
      on
      the proportion





28





of
      the
      revenue mix between sales of merchandise (where the gross profit will be less
      than 100%) and commissions earned (where there is no cost of goods sold and
      therefore where the gross profit percentage will be 100%.)





Gross
      profit percentage in the trading segment was approximately 0.3%. The gross
      margins in the trading business are dependant on the volatility of commodity
      prices and are generally less than 1%. Changes in gross margins in the future
      will be based on the volatility of the price of metals, interest rates, and
      product mix.





***Operating*** ***Expenses:***





Three
                Months Ended
            
            Three
                Months EndedMarch
                31, 2006
            
            March
                31, 2005Collectibles
            
            Trading
            
            Total
            
            Collectibles
            
            Trading
            
            TotalGeneral
                & Administrative
            
            $
            5,542
            
            $
            756
            
            $
            6,298
            
            $
            3,827
            
            $
            -
            
            $
            3,827Salaries
                and Wages
            
            
            4,296
            
            
            784
            
            
            5,080
            
            
            3,101
            
            
            -
            
            
            3,101Depreciation
                and Amortization
            
            
            411
            
            
            132
            
            
            543
            
            
            299
            
            
            -
            
            
            299Marketing
            
            
            748
            
            
            (7
            )
            
            741
            
            
            1,062
            
            
            -
            
            
            1,062$
            10,997
            
            $
            1,665
            
            $
            12,662
            
            $
            8,289
            
            $
            -
            
            $
            8,289





The
      above
      chart details the operating expenses for the quarters ended March 31, 2006
      and
      2005 by the two segments, collectibles and trading. As the trading segment
      is
      new to the Company in the current fiscal year, the discussion to follow will
      primarily focus on the collectibles market.





The
      Company’s operating expenses in the collectibles market increased approximately
      $2,708 (32.7%) during the three months ended March 31, 2006 as compared to
      the
      three months ended March 31, 2005.





General
      and administrative expenses in the collectibles market increased approximately
      $1,715 (44.8%) from $3,827 for the three months ended March 31, 2005 to $5,542
      for the three months ended March 31, 2006. Auction expenses are included in
      general and administrative expenses and decreased $23 (2.7%) from $840 for
      the
      three months ended March 31, 2005 to $817 for the three months ended March
      31,
      2006.





Exclusive
      of auction expenses, there was an increase in general and administrative
      expenses of approximately $1,738 (58.2%). The increase in general and
      administrative was generally due to (a) general and administrative expenses
      of
      newly acquired Greg Martin Auctions, (b) increase in legal and accounting fees
      related to the ongoing compliance with Sarbanes-Oxley requirements and other
      compliance and review matters and (c) expenses related to the Escala name change
      and the relocation of the Company’s corporate headquarters.




Salaries
      and wages increased approximately $1,195 (38.5%) for the three months ended
      March 31, 2006. The increase was due to a third quarter charge of $165 for
      stock
      based compensation as the Company implemented SFAS 123R effective July 1, 2005.
      The additional increase in salaries and wages was due to increases in executive
      compensation as a result of the negotiation of new employment contracts for
      key
      positions including the new president and CEO.





Marketing
      expenses in the collectibles market decreased approximately $314 (29.6%), to
      $748 for the three months ended March 31, 2006 from $1,062 for the three months
      ended March 31, 2005. The major components of marketing expense are catalogs
      and
      auction advertising.





Depreciation
      and amortization in the collectibles market increased for the three months
      ended
      March 31, 2006 by approximately $112 (37.5%). The increase over prior quarter
      is
      due primarily to an increase in amortization of intangible assets due to
      acquisitions made in the second quarter.




Increased
      costs in the collectibles market for the three months ended
      March 31, 2006 were offset by revenue and margin increases to increase total
      operating income in the collectibles segment by $2,050 to $15,437 for the three







29





months
      ended March 31, 2006 from $13,387 for the three months ended March 31, 2005.
      Operating costs as a percentage of operating revenue decreased to 14.1% for
      the
      three months ended March 31, 2006 from 14.8% for the three months ended March
      31, 2005. As compared to aggregate sales in the collectibles segment, the
      operating costs were 11.6% for the three months ended March 31, 2006 an increase
      from 11.1% for the three months ended March 31, 2005.





Operating
      expenses for the trading segment totaled $1,665 for the three months ended
      March
      31, 2006. The company is amortizing a non-compete agreement related to the
      acquisition totaling $2,000 that will be amortized over four years. Amortization
      expense relating to this contract in the current quarter totaled $100.





***Interest
      income and*** ***expense*** ***:***




Total
      interest expense (net of interest income) for the three months ended March
      31,
      2006 increased approximately $156 from the three months ended March 31, 2005,
      from an income of approximately $34 to expense of $122.





In
      the
      collectibles segment, an increase in interest expense (net of interest income)
      of approximately $257 for the three months ended March 31, 2006 added to the
      income of approximately $34 for the three months ended March 31, 2005, generated
      an income of approximately $291 for the quarter. Interest income in the
      collectibles segment increased by $111 for the three months ended March 31,
      2006
      over March 31, 2005. In addition, interest expense in the collectibles segment
      decreased by approximately $146. Interest expense decreased because of a
      reduction in debt since September 30, 2004. Specifically, since December 31,
      2004, the Company has paid off a loan in the amount of $4,000 from a privately
      held capital fund, as well as paid off a revolving credit agreement in the
      amount of $2,500 with Banco Santander Central Hispano, S.A.





For
      the
      quarter ended March 31, 2006, the trading segment recorded interest income
      of
      approximately $316 and interest expense of approximately $728.





***Provision
      for*** ***Income*** ***Taxes*** **:**





The
      Company’s effective tax rates for the three months ended March 31, 2006 and
      March 31, 2005 were approximately 35% and 38%, respectively. The rate is based
      on a blended rate consisting of U.S. Federal, state and foreign statutory income
      tax rates. Our effective tax rate could be adversely affected by several
      factors, many of which are outside of our control. The decrease in the effective
      tax rate is due primarily from increased incomes in Spain (where the effective
      tax rate is 35%). Therefore, the provision for foreign taxes increase $5,819
      from $548 for the three months ended March 31, 2005 to $6,367 for the three
      months ended March 31, 2006.





Our
      provision for income taxes represents our estimate of the full year’s tax rate
      based upon the expected taxable income taxed at the applicable jurisdiction.
      Our
      effective tax rate is directly affected by the relative proportions of revenue
      and income before taxes in the various domestic and international jurisdictions
      in which we operate. We are also subject to changing tax laws, regulations
      and
      interpretations in multiple jurisdictions in which we operate. Our effective
      tax
      rate can also be influenced by the tax effects of purchase accounting for
      acquisitions and non-recurring charges, which may cause fluctuations between
      reporting periods.





The
      Company’s provision for income taxes is primarily attributable to the
      collectibles segment.





***Net*** ***Income*** ***:***





The
      Company’s increase in gross profit of approximately $7,576 for the three months
      ended March 31, 2006, combined with the increase in operating expenses of
      $4,373, created a net gain of $3,203 in operating income. Net of taxes, the
      increase in gross profit minus the rise in operating expense resulted in an
      increase in net income of $2,256.





30





**** ***Nine
      months ended March 31, 2006 compared with the nine months ended March 31,
      2005***





**Revenues**
            
            Nine
                Months Ended March 31, 2006
            
            Nine
                Months Ended March 31, 2005Cost
                of
            
            
            
            
            
            
            
            Cost
                ofGoods
            
            Gross
            
            Gross
            
            
            
            Goods
            
            Gross
            
            GrossRevenues
            
            Sold
            
            Profit
            
            Profit
                %
            
            Revenues
            
            Sold
            
            Profit
            
            Profit
                %Sales
                of inventory
            
            $
            70,322
            
            $
            60,707
            
            $
            9,615
            
            
            13.7
            %
            $
            76,167
            
            $
            70,595
            
            $
            5,572
            
            
            7.3
            %Sales
                of inventory- related party
            
            
            131,240
            
            
            74,517
            
            
            56,723
            
            
            43.2
            %
            
            75,144
            
            
            33,868
            
            
            41,276
            
            
            54.9
            %Auction
                Commissions
            
            
            11,763
            
            
            -
            
            
            11,763
            
            
            100.0
            %
            
            11,431
            
            
            -
            
            
            11,431
            
            
            100.0
            %Collectibles
                Revenues
            
            
            213,325
            
            
            135,224
            
            
            78,101
            
            
            36.6
            %
            
            162,742
            
            
            104,463
            
            
            58,279
            
            
            35.8
            %Trading
                Revenues
            
            
            2,358,635
            
            
            2,352,731
            
            
            5,904
            
            
            0.3
            %
            
            -
            
            
            -
            
            
            -
            
            
            0.0
            %$
            2,571,960
            
            $
            2,487,955
            
            $
            84,005
            
            
            3.3
            %
            $
            162,742
            
            $
            104,463
            
            $
            58,279
            
            
            35.8
            %




The
      above
      chart details the revenues and gross profit by the two segments: collectibles
      and trading. As the trading segment is new to the Company in the current fiscal
      year, the discussion to follow will primarily focus on the collectibles
      market.





The
      Company recorded an increase in total revenues in the collectibles market of
      approximately $50,583 (31.1%), to approximately $213,325 for the nine months
      ended March 31, 2006 from approximately $162,742 for the nine months ended
      March
      31, 2005.





Sales
      of
      Inventory - Related Party of $131,240 for the nine months ended March 31, 2006
      was an increase of $56,096 (74.7%) from the $75,144 recorded for the nine months
      ended March 31, 2005. The increase was attributable to higher demand under
      our
      exclusive supply contract with Afinsa. The revenue attributable to transactions
      under the exclusive supply contracts with Afinsa includes the 10% fee provided
      for under the contracts.





For
      the
      nine months ended March 31, 2006 and 2005, the total revenue in the collectibles
      market was approximately $213,325 and $162,742, respectively. Of these
      collectible segment totals, $201,562 and $151,311, respectively, were from
      sales
      of owned inventory and approximately $11,763 and $11,431, respectively were
      from
      commissions resulting from sales of consigned materials.





The
      variation in any year in the composition of total revenues (as between revenues
      resulting from inventory sales and commissions resulting from consignment sales)
      is largely a function of availability, market demand and conditions.





PMI,
      which conducts its business in the trading segment, was acquired on July 15,
      2005; therefore, the first quarter contains eleven weeks of trading revenues.
      Trading revenues for 36 weeks ended March 31, 2006 were approximately
      $1,300,539. Trading revenues for the period July 1-July 14, 2005 approximated
      $111,457. The first quarter includes the summer months, which is typically
      the
      weakest quarter in the trading segment.





***Gross
      Profit:***





Gross
      profit in the collectibles market increased approximately $19,822 (34.0%),
      to
      approximately $78,101 for the nine months ended March 31, 2006 from
      approximately $58,279 for the six months ended March 31, 2005. The overall
      gross
      profit percentage increased from 35.8% for the nine months ended March 31,
      2005
      to 36.6% for the nine months ended March 31, 2006. The increase in gross profit
      percentage was due to an increase in gross profit percentage in sales of
      inventory from 31.0% for the nine months ended March 31, 2005 to 32.9% for
      the
      nine months ended March 31, 2006. The increase of auction commissions of
      approximately $332 (3.0%) to $11,763 for the nine months ended March 31, 2006
      from $11,431 for the nine months ended March 31, 2005 also contributed to the
      overall increase in gross profit percentage because the gross profit percentage
      on auction commissions is 100%. Gross profit percentage from sales to related
      party decreased from 54.9% to 43.2% for the nine months ended March 31, 2006.







31








The
      gross
      profit percentage for sales to Afinsa (a related party) and others will vary
      depending on market demand, market conditions and buying opportunities relative
      to each type of product being sold, as well as on the proportion of the revenue
      mix between sales of merchandise (where the gross profit will be less than
      100%)
      and commissions earned (where there is no cost of goods sold and therefore
      where
      the gross profit percentage will be 100%.)





Gross
      profit percentage in the trading segment was approximately 0.3%. The gross
      margins in the trading business are dependant on the volatility of commodity
      prices and are generally less than 1.0%. Changes in gross margins in the future
      will be based on the volatility of the price of metals, interest rates, and
      product mix.





***Operating*** ***Expenses:***


Nine
                Months Ended
            
            Nine
                Months EndedMarch
                31, 2006
            
            March
                31, 2005Collectibles
            
            Trading
            
            Total
            
            Collectibles
            
            Trading
            
            TotalGeneral
                & Administrative
            
            $
            16,322
            
            $
            1,926
            
            $
            18,248
            
            $
            9,924
            
            $
            -
            
            $
            9,924Salaries
                and Wages
            
            
            12,275
            
            
            1,700
            
            
            13,975
            
            
            9,569
            
            
            -
            
            
            9,569Depreciation
                and Amortization
            
            
            1,133
            
            
            374
            
            
            1,507
            
            
            856
            
            
            -
            
            
            856Marketing
            
            
            2,544
            
            
            36
            
            
            2,580
            
            
            2,778
            
            
            -
            
            
            2,778$
            32,274
            
            $
            4,036
            
            $
            36,310
            
            $
            23,127
            
            $
            -
            
            $
            23,127





The
      above
      chart details the operating expenses for the quarters ended March 31, 2006
      and
      2005 by the two segments, collectibles and trading. As the trading segment
      is
      new to the Company in the current fiscal year, the discussion to follow will
      primarily focus on the collectibles market.





The
      Company’s operating expenses in the collectibles market increased approximately
      $9,147 (39.6%) during the nine months ended March 31, 2006 as compared to the
      nine months ended March 31, 2005.





General
      and administrative expenses in the collectibles market increased approximately
      $6,398 (64.5%) from $9,924  for
      the
      nine months ended March 31, 2005 to $16,322 for the nine months ended March
      31,
      2006. Auction expenses, included in general and administrative expenses,
      decreased $8 (.3%) from $2,454 for the nine months ended March 31, 2005 to
      $2,446 for the nine months ended March 31, 2006.





Exclusive
      of auction expenses, there was an increase in general and administrative
      expenses of approximately $6,406 (85.8%). The increase in general and
      administrative expenses was due primarily to increases in legal and accounting
      fees related to the final implementation of Sarbanes-Oxley requirements and
      other compliance matters, expenses related to the Escala name change and the
      move of corporate headquarters to New York City, and additional expenses related
      to acquisitions made in the nine months ended March 31, 2006.





Salaries
      and wages increased approximately $2,706 (28.3%) for the nine months ended
      March
      31, 2006. The increase was due to charges of $890 for stock-based compensation
      as the Company implemented SFAS 123R effective July 1, 2005. The additional
      increase in salaries and wages was due to increase in executive compensation
      as
      a result of the negotiation of new employment contracts for key positions
      including the new president and CEO.





Marketing
      expenses in the collectibles market decreased approximately $234 (8.4%) to
      $2,544 for the nine months ended March 31, 2006 from $2,778 for the nine months
      ended March 31, 2005. The decrease in marketing expenses was due primarily
      to
      promotion expenses related to the Escala name change. The other major components
      of marketing expense are catalogs and auction advertising.





Depreciation
      and amortization in the collectibles market increased for the nine months ended
      March 31, 2006 by approximately $277 (32.4%). The increase over the prior period
      is due primarily to an increase in amortization of intangible assets due
      acquisitions made in the second quarter.





32





Increased
      costs in the collectibles market for the nine months ended March 31, 2006 were
      offset by revenue and margin increases resulting in an increase in total
      operating income in the collectibles segment of $10,675 to $45,827 for the
      nine
      months ended March 31, 2006 from $35,152 for the nine months ended March 31,
      2005. Operating costs as a percentage of operating revenue increase to 15.1%
      for
      the nine months ended March 31, 2006 from 14.2% for the nine months ended March
      31, 2005. As compared to aggregate sales in the collectibles segment, the
      operating costs were 12.2% for the nine months ended March 31, 2006 an increase
      from 11.1% for the nine months ended March 31, 2005.





Operating
      expenses for the trading segment totaled $4,036 for March 31, 2006. Included
      in
      PMI’s nine-month expenses were one-time signing bonuses and bank fees totaling
      approximately $115 and consulting fees of $113 that stem from a twelve-month
      consulting agreement with a total value of $150. In addition, the company is
      amortizing a non-compete agreement related to the acquisition totaling $2,000
      that will be amortized over four years. Amortization expense relating to this
      contract in the current quarter totaled $100.





***Interest
      income and*** ***expense*** ***:***




Total
      interest expense (net of interest income) for the nine months ended March 31,
      2006 decreased approximately $74 from the nine months ended March 31, 2005,
      from
      an expense of approximately $96 to income of approximately $22.





In
      the
      collectibles segment, an increase in interest expense (net of interest income)
      of approximately $752 for the nine months ended March 31, 2006, added to the
      expense of approximately $96 for the nine months ended March 31, 2005, generated
      an income of approximately $656 for the nine-month period. Interest income
      in
      the collectibles segment increased by $278 for the nine months ended March
      31,
      2006 over March 31, 2005. In addition, interest expense decrease by $473.
      Interest expense has paid off a loan in the amount of $4,000 form a privately
      held capital fund, as well as, paid off a revolving credit agreement in the
      amount of $2,500 with Banco Santander Central Hispano, S.A.





***Provision
      for*** ***Income*** ***Taxes*** **:**





The
      Company’s effective tax rates for the nine months ended March 31, 2006 and March
      31, 2005 were approximately 36.6% and 39.5%, respectively. The rate is based
      on
      a blended rate consisting of U.S. Federal,


state
      and
      foreign statutory income tax rates. Our effective tax rate could be adversely
      affected by several factors, many of which are outside of the Company’s control.
      The decrease in the effective tax rate is due primarily from increased incomes
      in Spain (were the effective tax rates are 35%). Therefore, the provision for
      foreign taxes increased $14,463 from $1,982 for the nine months ended March
      31,
      2005 to $16,445 for the nine months ended March 31, 2006.





Our
      provision for income taxes represents our estimate of the full year’s tax rate
      based upon the expected taxable income taxed at the applicable jurisdiction.
      Our
      effective tax rate is directly affected by the relative proportions of revenue
      and income before taxes in the various domestic and international jurisdictions
      in which we operate. We are also subject to changing tax laws, regulations
      and
      interpretations in multiple jurisdictions in which we operate. Our effective
      tax
      rate can also be influenced by the tax effects of purchase accounting for
      acquisitions and non-recurring charges, which may cause fluctuations between
      reporting periods.





The
      Company’s provision for income taxes is primarily attributable to the
      collectibles segment.





***Net*** ***Income*** ***:***





The
      Company’s increase in gross profit of approximately $25,726 for the nine months
      ended March 31, 2006, coupled with an increase in operating expenses of $13,183
      resulting in a net gain of $12,543 in operating income and net of taxes resulted
      in an increase in net income of $8,895.





**Liquidity
      and Capital Resources**







33





At
      March
      31, 2006, the Company’s working capital position was approximately $109,512
      compared to approximately $94,577 as of June 30, 2005. The net increase of
      approximately $14,935 in working capital was largely due to an increase in
      inventory and trading accounts receivable of $53,207 and $14,591, respectively,
      offset by increases in short-term lines of credit of $37,500, increases in
      the
      liability on borrowed metals of $4,364 and increases in accounts payable of
      $22,996. All of these increases were primarily the result of the PMI acquisition
      as of July 15, 2005.





The
      Company used cash for investing activities for the nine months ended March
      31,
      2006 of approximately $23,329. This was primarily PMI acquisition as of July
      15,
      2005 and the Greg Martin Auctions acquisition as of October 14,
      2005.





The
      Company’s cash from financing activities decreased approximately $4,078 for the
      nine months ended March 31, 2006, primarily the result of an decrease of
      liabilities on borrowed metals.





The
      Company believes that the current cash position will provide the Company with
      the necessary funds to meet our operating and capital expenditure needs for
      the
      next twelve months.





**Contractual
      Obligations** .





Our
      contractual obligations related to non-cancelable operating and capital leases
      at March 31, 2006 were as follows:




**Payment
                due by period****Less
                than**
            **1
                to 3**
            **3
                to 5**
            **More
                than****Total**
            **1
                year**
            **years**
            **years**
            **5
                years**Lines
                of Credit
            43,250
            37,500
            5,750
            **-**
            **-**Liability
                on Borrowed Metals
            4,364
            4,364
            **-**
            **-**
            **-**Open
                inventory purchase commitments
            48,143
            48,143
            **-**
            **-**
            **-**Notes
                Payable
            2,000
            1,000
            1,000
            -
            -Mortgage
            1,203
            88
            1,115
            -
            -Capital
                Lease and Other Debt Obligations
            59
            59
            
            -
            -Operating
                Lease Obligations
            20,001
            2,665
            5,972
            4,391
            6,973Total
            119,020
            93,819
            13,837
            4,391
            6,973






**Critical
      Accounting Policies**





The
      critical accounting policies are described on pages 24 through 26 of the
      Company’s Annual Report on Form 10K for the year ended June 30, 2005. In the
      Company’s circumstances, management believes its “critical accounting policies”
are those, which encompass the use of estimates (because of inherent
      subjectivity), revenue recognition, allowance for doubtful accounts and sales
      returns, inventory valuation and classification and deferred tax valuation
      allowance.





**Issues
      and Uncertainties**





From
      time
      to time, information provided by the Company, including but not limited to
      statements in this report, or other statements made by or on behalf of the
      Company, may contain “forward-looking” information within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934. Such statements involve a number of risks and uncertainties. The
      Company’s actual results could differ materially from those discussed in the
      forward-looking statements. The cautionary statements set forth below identify
      important factors that could cause actual results to differ materially from
      those in any forward-looking statements made by or on behalf of the
      Company:





34








·
            Although
                the Company’s results of operations for the year ended June 30, 2005 and
                the quarter ended March 31, 2006 reflect a material improvement over
                the
                results of prior periods, a significant portion of the Company’s aggregate
                sales, revenue and gross profit for such periods was attributable
                to sales
                to Afinsa (a related party). There is no assurance that such sales,
                revenues and gross profit will continue at these levels. A decrease
                in the
                level of sales to Afinsa, or the termination of the supply agreements
                with
                Afinsa could have a material adverse effect on the Company. There
                is no
                minimum level of sales provided for under the supply agreements with
                Afinsa, and the agreements may be terminated upon six month’s notice by
                either party.





·
            Our
                recent acquisitions of companies, in particular those which operate
                outside the United States, have provided us with challenges in
                implementing the required processes and procedures in those operations.
                We, therefore, have devoted substantial time and have incurred, and
                will
                continue to incur, substantial costs to ensure ongoing
                compliance.





·
            In
                addition, in the course of our ongoing evaluation of internal controls
                over financial reporting, we have identified areas of our internal
                controls requiring improvement and are in the process of designing
                enhanced processes and controls to address those issues. As a result,
                we
                expect to incur additional expenses and diversion of management’s time,
                any of which could materially increase our operating expenses and
                accordingly reduce our net income or increase our net losses. And,
                we
                cannot be certain that our efforts will be effective or sufficient
                for us
                to issue reports in the future. Any such events could adversely affect
                our
                financial results and/or may result in a negative reaction in the
                stock
                market.





·
            PMI’s
                precious metals inventories are subject to market value changes created
                by
                changes in the underlying commodity markets. In addition, open purchase
                and sale commitments are subject to changes in value between the
                time the
                purchase or sale is fixed and the time metal is delivered. PMI seeks
                to
                minimize the effect of price changes of the underlying commodity
                through
                the use of financial derivative instruments, such as forward and
                futures
                contracts. PMI’s policy is to remain substantially hedged as to its
                inventory position and as to its purchase and sale commitments, and
                PMI’s
                management monitors its hedged exposure daily. However, there can
                be no
                assurance that these hedging activities will be adequate to protect
                the
                Company against commodity price risks associated with PMI’s business
                activities.





·
            During
                the fourth quarter of fiscal 2005, the Company made a charitable
                contribution of an art collection with a de minimis carrying value
                that
                had been held for investment purposes. The Company has obtained a
                final
                qualified appraisal of the collection, which concluded that it had
                a value
                of approximately $14.7 million, resulting in a charitable contribution
                deduction with a tax benefit of approximately $5.0 million. This
                charitable contribution deduction will be limited to 10% of the Company’s
                Federal taxable income (as computed with certain adjustments) each
                year
                and will expire in the year 2010 to the extent not utilized. Because
                of
                the uncertainty of whether future Federal taxable income will be
                sufficient to realize the entire benefit, the Company continues to
                maintain a valuation allowance against this tax asset, which for
                the
                period ended March 31, 2006 was approximately $1.7 million.





·
            At
                times there may be a limited supply of collectibles available for
                sale by
                the Company. Such supply historically has varied from time to time.
                While
                the Company has not generally experienced a lack of collectibles
                that has
                prevented it from conducting appropriately sized auctions on an acceptable
                schedule, no assurance can be given that the Company will be able
                to
                obtain consignments of suitable quantities of collectibles in order
                to
                conduct auctions of the size and times the Company may desire in
                the
                future. The inability to do so would have a material adverse effect
                on the
                Company.





Furthermore,
      the popularity of collectibles could decline. This could affect the market
      value
      of inventory that the Company currently holds, including the inventory acquired
      under the inventory purchase agreement, or inventory it or its subsidiaries
      may
      acquire in the future.





·
            The
                business of selling stamps, coins, and other collectibles at auction
                and
                in retail sales is highly competitive. The Company competes with
                a number
                of auction houses and collectibles
                companies





35





throughout
      the North America, Europe and the rest of the world. While the Company believes
      that there is no dominant company in the stamp auction or collectibles business
      in which it operates, there can be no assurances that other companies with
      greater financial and other resources and name recognition will not enter the
      market. Among the Company’s primary competitors in the domestic and worldwide
      philatelic auction business are Matthew Bennett, Inc., Charles Shreve Galleries,
      Inc. and Robert A. Siegel Auction Galleries, Inc. In the sports trading card
      auction business, the Company’s primary competitors are Mastro Fine Sports
      Auctions, Sports Trading Cards Plus, LLC and Sales OnLine Direct, Inc. (d/b/a
      Rotman Auctions). The Company’s principal coin auction competitors are Heritage
      Rare Coin Galleries, Inc., Stacks Rare Coins, Superior Coin Galleries of Beverly
      Hills and American Numismatic Rarities, LLC. The Company’s largest competitors
      in the historic arms and armor businessare Rock Island Auction Company, James
      D.
      Julia, Little John’s Auction Services, Bonhams and Butterfields and Amoskeag.
      The principal competitors of A-mark are The Dillon Gage Group, ScotiaMocatta
      Ltd. and Coins And Things.





·
            Auctentia
                and Afinsa currently beneficially own approximately 67% of the issued
                and
                outstanding shares of the Company’s common stock. This represents a
                substantial dilution in the current voting power of non-Auctentia
                related
                stockholders of the Company. As a result, Auctentia and its affiliates
                are
                able to elect the entire board of directors of the Company. Auctentia
                and
                its affiliates also may be able to approve other actions as a stockholder
                without obtaining the votes of other stockholders of the Company
                or impede
                transactions that may be desirable for other stockholders. In addition,
                this concentration of ownership, which is not subject to any voting
                restrictions, could limit the price that investors might be willing
                to pay
                for the Company’s common stock.





·
            The
                Company and Auctentia have signed a registration rights agreement
                pursuant
                to which Auctentia may request that 18,435,886 shares of the Company’s
                common stock beneficially owned by it be registered by the Company
                at the
                Company’s expense. All such registerable Company common stock owned by
                Auctentia will be freely tradable immediately after any
                registration.





·
            The
                Company has acquired 13 businesses within the last two years, including
                eight in Europe and one in Hong Kong. Integration of these operations
                have
                presented and will continue to present challenges to management,
                including
                the integration of operations, product lines, technologies and personnel
                of the Company and its subsidiaries. These acquisitions also pose
                special
                risks, including possible unanticipated liabilities, unanticipated
                costs
                and diversion of management attention. In addition, there can be
                no
                assurance that the combined businesses will achieve increased sales
                levels, profitability, efficiencies or synergies, or result in increased
                earnings for the combined companies in any future period. The difficulties
                of combining the operations of Escala and the European subsidiaries
                are
                also complicated by the necessity of coordinating geographically
                separated
                organizations.





·
            The
                Company’s business will be adversely affected if use of the Internet by
                consumers, particularly purchasers of collectibles, does not continue
                to
                grow. A number of factors may inhibit consumers from using the Internet.
                These include inadequate network infrastructure, security concerns,
                inconsistent quality of service and a lack of cost-effective high-speed
                service. Even if Internet use grows, the Internet’s infrastructure may not
                be able to support the demands placed on it by this growth and its
                performance and reliability may decline. In addition, many web sites
                have
                experienced service interruptions as a result of outages and other
                delays
                occurring throughout the Internet infrastructure. If these outages
                or
                delays occur frequently in the future, use of the Internet, as well
                as use
                of our web sites, could grow more slowly or
                decline.





·
            Some
                local telephone carriers claim that the increasing popularity of
                the
                Internet has burdened the existing telecommunications infrastructure
                and
                that many areas with high Internet use are experiencing interruptions
                in
                telephone service. These carriers have petitioned the U.S. Federal
                Communications Commission to impose access fees on Internet service
                providers. If these access fees are imposed, the cost of communicating
                on
                the Internet could increase, and this could decrease the demand for
                our
                services and increase our cost of doing
                business.





36




·
              The
                    Company holds rights to various web domain names. Governmental
                    agencies
                    typically regulate domain names. These regulations are subject
                    to change.
                    The Company may not be able to acquire or maintain appropriate
                    domain
                    names in all countries in which it or its affiliates do business.
                    Furthermore, regulations governing domain names may not protect
                    the
                    Company’s trademarks and similar proprietary rights. The Company may
                    be
                    unable to prevent third parties from acquiring domain names that
                    are
                    similar to, infringe upon or diminish the value of its trademarks
                    and
                    other proprietary rights.





·
              Due
                  to difficulty anticipating levels or values of consignments at
                  any given
                  time, the stamp auction business is susceptible to significant
                  fluctuations in operating results and revenue shortfalls, which
                  could
                  adversely affect the Company’s business. In addition, the Company’s
                  operating results in the coin business are dependent upon product
                  availability over the short and long term, which cannot be predicted
                  with
                  any certainty. Future fluctuations in operating results or revenue
                  shortfalls of the Company couldadversely
                  affect the success of the Company. If revenue fails to offset operating
                  expenses in the future, the Company may be required to fund future
                  operations through the sale of additional common stock, which could
                  cause
                  the market price of its stock to decline, as well as have a dilutive
                  effect on the value of its common stock currently
                  outstanding.




·
            The
                market price of the Company’s common stock has fluctuated and may continue
                to fluctuate significantly due to a number of factors, some of which
                may
                be beyond the Company’s control, including: sales of the Company’s common
                stock by stockholders; actual or anticipated fluctuations in the
                Company’s
                operating results; the operating and stock price performance of other
                comparable companies; developments and publicity regarding the Company’s
                industry; and general economic
                conditions.





In
      addition, the stock market in general has experienced volatility that has often
      been unrelated to the operating performance of individual companies. These
      broad
      market fluctuations may adversely affect the trading price of the Company’s
      common stock, regardless of the Company’s actual performance, and could enhance
      the effect of any fluctuations that do relate to its operating
      results.




·
            The
                Company may be adversely affected by the costs and other effects
                associated with (i) legal and administrative cases and proceedings;
                (ii)
                settlements, investigations, claims and changes in those
                items;


and
      (iii)
      adoption of new, or changes in, accounting policies and practices and the
      application of such policies and practices.




·
            The
                Company’s future results of operations could be adversely affected by
                changes in accounting standards promulgated by the Financial Accounting
                Standards Board, the Securities and Exchange Commission, and the
                American
                Institute of Certified Public
                Accountants.





·
            Our
                effective tax rate could be adversely affected by several factors,
                many of
                which are outside of our control. Our effective tax rate is directly
                affected by the relative proportions of revenue and income before
                taxes in
                the various domestic and international jurisdictions in which we
                operate.
                We are also subject to changing tax laws, regulations and interpretations
                in multiple jurisdictions in which we operate. Our effective tax
                rate can
                also be influenced by the tax effects of purchase accounting for
                acquisitions and non-recurring charges, which may cause fluctuations
                between reporting periods.





**This
      list should not be considered an exhaustive statement of all potential risks
      and
      uncertainties** .







37







**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, investment risk, commodity price risk and other relevant market rate
      or
      price risks.





**Interest
      Rate Risks**





Interest
      rates on the Company’s credit facilities are market-based. (See Notes 9 &10
      to Notes to Consolidated Financial Statements.) Accordingly, the Company is
      exposed to certain interest rate risks caused by fluctuations in interest rates.
      If, for example, the LIBOR and the “prime” rates were to increase by 1% for any
      given year, our interest expense would increase by approximately $725,000 for
      the period (assuming that all amounts available under such credit facilities
      -
      that is, $ 72,500,000 - are drawn down). There can be no assurance that interest
      rates will not increase over the next fiscal year. However, because we do not
      believe that our exposure to interest rate risk is significant, we have not
      undertaken specific steps to reduce or eliminate this risk.





**Foreign
      Currency Risks**





Business
      transactions originating from our United States and Asian operations are
      denominated in U.S. dollars. Transactions from our European operations, which
      in
      fiscal 2005 accounted for approximately 6% of total net revenues, are
      denominated in Euros.





The
      average Euro to dollar exchange rate during the first nine months of fiscal
      2006
      was $1.20 U.S. dollar to $1.00 Euro. As a result of this exchange rate, the
      company enjoyed a favorable exchange rate advantage equal to $3.4 million in
      fiscal 2005. A 5% change in the Euro to dollar exchange rate would have had
      a
      effect on the company’s net profits in fiscal 2005 of $825,000.





The
      Company does not believe it is exposed to material foreign currency risks.
      As a
      result, we do not enter into any hedging activities to minimize such
      risk.





**Other
      Market Risks**





The
      Company maintains investments in equity instruments of public and privately
      held
      companies for business and strategic purposes. These investments are included
      in
      marketable securities and other long-term assets and are accounted for under
      the
      cost method when ownership is less than 20% and when the Company does not have
      the ability to exercise significant influence over operations. For these
      investments, the Company’s policy is to regularly review the assumptions
      underlying the operating performance and cash flow forecasts in assessing the
      carrying values. The Company identifies and records impairment losses on
      long-lived assets when events and circumstances indicate that such assets might
      be impaired.





In
      the
      first quarter of fiscal 2006, the Company and its majority shareholder Afinsa
      acquired all of the issued and outstanding capital stock of PMI. PMI is a metals
      trading company engaged primarily in the wholesale purchase and sale of precious
      metals, including gold, silver, platinum and palladium. PMI’s precious metals
      inventories are subject to market value changes created by changes in the
      underlying commodity markets, and open purchase and sale commitments are subject
      to changes in value between the time the purchase or sale is fixed and the
      time
      metal is delivered. PMI seeks to minimize the effect of price changes of the
      underlying commodity through the use of financial derivative instruments, such
      as forward and futures contracts. PMI’s policy is to remain substantially hedged
      as to its


inventory
      position and as to its purchase and sale commitments, and PMI’s management
      monitors its hedged exposure daily.





The
      Company historically has not experienced any significant commodity price
      risks.







38







The
      Company does not generally allow speculation in derivative instruments. We
      do
      not intend to use financial instruments for speculative purposes.





The
      Company will assess the significance of interest rate, exchange rate and other
      market risks on a periodic basis and will implement strategies to manage risk
      as
      appropriate.





**Item
      4. Controls and Procedures**





Under
      the
      supervision and with the participation of our management, including the Chief
      Executive Officer and Chief Financial Officer, we have evaluated the
      effectiveness of our disclosure controls and procedures as required by Exchange
      Act Rule 13a-15(b) as of the end of the period covered by this report. In
      designing and evaluating the disclosure controls and procedures, management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives, and management necessarily was required to apply its judgment in
      evaluating the cost-benefit relationship of possible controls and procedures.
      Based on the foregoing, our Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures were effective at the
      reasonable assurance level.




There
      have been no changes in our internal controls over financial reporting that
      have
      materially affected, or are reasonably likely to materially affect, our internal
      controls over financial reporting during the quarter ended March 31, 2006.




We
      are
      currently continuing our compliance effort for Section 404 of the Sarbanes-Oxley
      Act of 2002. This effort includes the documentation, testing and review of
      our
      internal controls under the direction of senior management. During the course
      of
      these activities, we have identified certain internal control issues which
      senior management believes need to be improved. As a result, we are evaluating
      and implementing improvements to our internal controls over financial reporting
      and will continue to do so. These improvements include further formalization
      of
      policies and procedures, improved segregation of duties, and improved
      information technology system controls. For all internal control issues
      identified, we believe we have adequate compensating controls in place, such
      as
      reviews and reconciliation, to mitigate the risk to our disclosure controls
      and
      procedures. Our Chief Executive Officer and Chief Financial Officer’s conclusion
      stated above, that our disclosure controls and procedures were effective at
      the
      reasonable assurance level as of March 31, 2006 was based, in part, upon our
      evaluation of the control issues identified, including the presence of adequate
      compensating controls.










39





ESCALA
      GROUP, INC.





**Part
      II - OTHER INFORMATION**





Item
      1.
      Legal Proceedings





None





Item
      2.
      Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
      Securities





None.





Item
      3.
      Defaults Upon Senior Securities





None





Item
      4.
      Submission of Matters to a Vote of Security Holders





None





Item
      5.
      Other Information.





None





Item
      6.
      Exhibits and Reports on Form 8-K





(a)
      Exhibits





31.1
            Exhibit
                Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                *


31.2
            Exhibit
                Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                *


32.1
        Section 1350
        Certification Chief
        Executive
 32.2 1350
        Certification Chief
        Financial


(b)
      Reports on Form 8-K





(i)
            Report
                on Form 8-K, dated December 30, 2005, relating to an increase in
                the
                Company’s credit facility for its trading operations to $62,500,000.


(ii)
            Report
                on Form 8-K, dated January 24, 2006, relating to the employment agreement
                between the Company and Greg
                Manning.


(iii)
            Report
                on Form 8-K, dated February 1, 2006, relating to an increase in the
                Company’s credit facility for its trading operations to
                $67,500,000.











*
      Filed
      herewith











40








**SIGNATURES**





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







ESCALA
      GROUP,
      INC.




Dated:
      May 9, 2006


/s/
      Jose Miguel
      Herrero


Jose
      Miguel Herrero


President
      and Chief Executive Officer






/s/
      Larry
      Crawford


Larry
      Crawford


Chief
      Financial Officer