**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 December
      31, 2005





OR





[
      ]  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)








**GREG
      MANNING AUCTIONS, INC.**


(Former
      Name if Applicable)




**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 the registrant is a shell company (as defined in Rule
      176-2 of the Exchange Act)





**Yes___    
      No**X****





As
      of
      February 7, 2006, Issuer had 28,016,160 shares of its Common Stock
      outstanding.








1


**ESCALA
      GROUP, INC.**


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





**Table
      of Contents**


****




**Page
      Number**




**PART
      I.**  **FINANCIAL
      INFORMATION**





Item
      1.
      Condensed Consolidated Financial Statements (Unaudited)





Condensed
      Consolidated Balance Sheets at


December
      31, 2005 and June 30, 2005 3





Condensed
      Consolidated Statements of Earnings for three and


six
      months ended December 31, 2005 and 2004 4





Condensed
      Consolidated Statement of Stockholders’ Equity for the


six
      months ended December 31, 2005 5





Condensed
      Consolidated Statements of Cash Flows for the


six
      months ended December 31, 2005 and 2004 6





Condensed
      Consolidated Statements of Comprehensive Income


for
      the
      six months ended December 31, 2005 and 2004 7





Notes
      to
      Condensed Consolidated Financial Statements 8





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


and
      Results of Operations             29




Item
      3.
      Quantitative and Qualitative Disclosures About Market Risk 41





Item
      4.
      Controls and Procedures 42




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





Item
      1.  Legal
      Proceedings 43





Item
      2.  Changes
      in Securities 43





Item
      3.  Defaults
      Upon Senior Securities 43





Item
      4.  Submission
      of Matters to a Vote of Security Holders 43





Item
      5.  Other
      Information 43





Item
      6.  Exhibits
      and Reports on Form 8-K 43





Signatures 44







2



















**December
                  31,**
              
              **June
                  30,****2005**
              
              **2005****Assets**
              
              **(unaudited)**
              
              **(Audited)****Current
                  Assets**Cash
                  and Cash Equivalents
              
              $
              36,414
              
              $
              54,250Accounts
                  Receivable, Net;Auctions
                  and Trade
              
              
              26,251
              
              
              17,497Related
                  Party
              
              
              20,164
              
              
              8,781Advances
                  to Consignors
              
              
              5,452
              
              
              4,370Inventory
              
              
              94,507
              
              
              41,830Deferred
                  Tax Asset
              
              
              3,891
              
              
              3,292Prepaid
                  Expenses and Other
              
              
              2,166
              
              
              2,487**Total
                  Current Assets**
              
              
              **188,845**
              
              
              **132,507**Property
                  and Equipment, Net
              
              
              4,667
              
              
              3,295Goodwill,
                  Net
              
              
              25,255
              
              
              9,427Other
                  Purchased Intangibles, Net
              
              
              4,718
              
              
              1,937Marketable
                  Securities
              
              
              107
              
              
              118Other
                  Non-Current AssetsLoans
                  Receivable Related Party, Net
              
              
              400
              
              
              400Inventory
              
              
              5,547
              
              
              6,166Deferred
                  Tax Asset
              
              
              3,543
              
              
              3,662Other
              
              
              497
              
              
              938**Total
                  Assets**
              
              **$**
              **233,579**
              
              **$**
              **158,450****Liabilities
                  and Stockholders' Equity****Current
                  Liabilities**Lines
                  of Credit
              
              $
              26,415
              
              **$**
              **-**Liability
                  on Borrowed Metals
              
              
              3,678
              
              
              -Notes
                  Payable and Capital Leases
              
              
              1,152
              
              
              667Payable
                  to Third Party Consignors
              
              
              3,279
              
              
              12,458Accounts
                  Payable
              
              
              42,156
              
              
              14,011Accrued
                  Expenses and Other Current Liabilities
              
              
              3,198
              
              
              2,654Income
                  Taxes Payable
              
              
              7,973
              
              
              8,140**Total
                  Current Liabilities**
              
              
              **87,851**
              
              
              **37,930**Notes
                  Payable and Capital Leases - Long Term
              
              
              10,145
              
              
              9,181**Total
                  Liabilities**
              
              
              **97,996**
              
              
              **47,111****Commitments
                  and Contingencies**
              
              
              **-**
              
              
              **-****Minority
                  Interest- Related Party**
              
              
              **4,698**
              
              
              **-****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
              
              
              279
              
              
              276Issued
                  December 31, 2005 – 27,975 shares, Outstanding – 27,975
                  sharesAdditional
                  paid in capital
              
              
              71,954
              
              
              70,245Accumulated
                  Other Comprehensive Income
              
              
              219
              
              
              1,813Retained
                  Earnings
              
              
              58,433
              
              
              39,005**Total
                  Stockholders' Equity**
              
              
              **130,885**
              
              
              **111,339****Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **233,579**
              
              **$**
              **158,450**






3
















**Three
                  Months ended**
              **Six
                  Months ended****December
                  31,**
              
              **December
                  31,****2005**
              
              **2004**
              
              **2005**
              
              **2004****Operating
                  revenues**Sales-
                  trading
              
              $
              806,237
              
              $
              -
              
              $
              1,300,539
              
              $
              -Sales
                  of inventory
              
              
              21,298
              
              
              28,012
              
              
              41,653
              
              
              50,982Sales
                  of inventory - related party
              
              
              45,580
              
              
              27,499
              
              
              85,715
              
              
              49,117Commissions
                  earned
              
              
              3,936
              
              
              3,429
              
              
              8,140
              
              
              6,931Total
                  revenues
              
              
              877,051
              
              
              58,940
              
              
              1,436,047
              
              
              107,030**Cost
                  of merchandise sold**Cost
                  of sales - trading
              
              
              804,356
              
              
              -
              
              
              1,297,453
              
              
              -Cost
                  of merchandise sold
              
              
              18,920
              
              
              26,639
              
              
              36,572
              
              
              47,427Cost
                  of merchandise sold- related party
              
              
              26,445
              
              
              12,860
              
              
              47,269
              
              
              23,000Gross
                  profit
              
              
              27,330
              
              
              19,441
              
              
              54,753
              
              
              36,603**Operating
                  expenses**General
                  and administrative
              
              
              5,739
              
              
              2,439
              
              
              11,950
              
              
              6,097Salaries
                  and wages
              
              
              4,178
              
              
              3,152
              
              
              8,895
              
              
              6,468Depreciation
                  and amortization
              
              
              556
              
              
              281
              
              
              964
              
              
              557Marketing
              
              
              862
              
              
              917
              
              
              1,839
              
              
              1,716Total
                  operating expenses
              
              
              11,335
              
              
              6,789
              
              
              23,648
              
              
              14,838Operating
                  income
              
              
              15,995
              
              
              12,652
              
              
              31,105
              
              
              21,765**Other
                  income (expense)**Interest
                  income
              
              
              570
              
              
              132
              
              
              898
              
              
              394Interest
                  expense
              
              
              (459
              )
              
              (237
              )
              
              (798
              )
              
              (524
              )Other
              
              
              (4
              )
              
              (111
              )
              
              (41
              )
              
              (132
              )Earnings
                  before income taxes
              
              
              16,102
              
              
              12,436
              
              
              31,164
              
              
              21,503**Provision
                  for income taxes**
              
              
              5,921
              
              
              4,781
              
              
              11,641
              
              
              8,714**Minority
                  interest- related party**
              
              
              79
              
              
              -
              
              
              95
              
              
              -**Net
                  income**
              
              $
              10,102
              
              $
              7,655
              
              $
              19,428
              
              $
              12,789**Basic
                  earnings per share:**Weighted
                  average shares outstanding
              
              
              27,778
              
              
              27,389
              
              
              27,736
              
              
              27,363Basic
                  earnings per share
              
              $
              0.36
              
              $
              0.28
              
              $
              0.70
              
              $
              0.47**Diluted
                  earnings per share:**Weighted
                  average shares outstanding
              
              
              28,963
              
              
              28,760
              
              
              28,877
              
              
              28,695Diluted
                  earnings per share
              
              $
              0.35
              
              $
              0.27
              
              $
              0.67
              
              $
              0.45









4








**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
              
              
              298
              
              
              3
              
              
              984
              
              
              
              
              
              
              
              
              987Translation
                  adjustment
              
              
              
              
              
              
              
              
              
              
              
              (1,583
              )
              
              
              
              
              (1,583
              )Stock
                  based compensation
              
              
              
              
              
              
              
              
              725
              
              
              
              
              
              
              
              
              725Unrealized
                  loss from marketable securities
              
              
              
              
              
              
              
              
              
              
              
              (11
              )
              
              
              
              
              (11
              )Net
                  Income- December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,428
              
              
              19,428Balance,
                  December 31, 2005
              
              
              27,975
              
              $
              279
              
              $
              71,954
              
              $
              219
              
              $
              58,433
              
              $
              130,885











5




**2005**
                
                **2004****Cash
                    flows from operating activities:**Net
                    Income
                
                $
                19,428
                
                $
                12,789Adjustments
                    to reconcile net income to netcash
                    from operating activities:Depreciation
                    and amortization
                
                
                964
                
                
                557Options
                    issued for services - related party
                
                
                -
                
                
                65Stock
                    based compensation
                
                
                725
                
                
                -Deferred
                    tax (benefit) provision
                
                
                (815
                )
                
                1,425Minority
                    interest- related party
                
                
                95
                
                
                -(Increase)
                    decrease in assets: (net of acquisition amounts)Accounts
                    receivable - Trade
                
                
                1,661
                
                
                (1,664
                )Accounts
                    receivable - Related Party
                
                
                (11,383
                )
                
                19,679Advances
                    to consignors
                
                
                (710
                )
                
                (7,624
                )Inventory
                
                
                (3,161
                )
                
                (6,047
                )Prepaid
                    expenses and deposits
                
                
                808
                
                
                (546
                )Other
                    assets
                
                
                441
                
                
                (1,374
                )Increase
                    (decrease) in liabilities: (net of acquisition amounts)Payable
                    to third-party consignors
                
                
                (9,241
                )
                
                (3,965
                )Accounts
                    payable
                
                
                21,749
                
                
                3,513Accrued
                    expenses and other liabilities
                
                
                (632
                )
                
                (412
                )Advances
                    payable - related party
                
                
                -
                
                
                (3,467
                )Income
                    taxes payable
                
                
                (167
                )
                
                2,35519,762
                
                
                15,284**Cash
                    flows used in investing activities:**Capital
                    expenditures for property and equipment
                
                
                (1,723
                )
                
                (1,944
                )Purchase
                    of intangible assets
                
                
                -
                
                
                (450
                )Acquisition
                    of Greg Martin Auctions, net of assets acquired
                
                
                (3,512
                )
                
                -Acquistion
                    of A-Mark, net of assets acquired
                
                
                (14,981
                )
                
                -Acquisition
                    of Corinphilia
                
                
                (1,873
                )
                
                -(22,089
                )
                
                (2,394
                )**Cash
                    flows used in financing activities:**Net
                    repayment of notes payable
                
                
                1,449
                
                
                (2,500
                )Repayment
                    of line of credit
                
                
                (3,697
                )
                
                2,227Liability
                    on borrowed metals, net
                
                
                (12,665
                )
                
                -Proceeds
                    from exercise of options
                
                
                987
                
                
                88(13,926
                )
                
                (185
                )Effect
                    of exchange rates
                
                
                (1,583
                )
                
                2,821**Net
                    change in cash and cash equivalents**
                
                
                (17,836
                )
                
                15,526Cash
                    and cash equivalents:Beginning
                    of period
                
                
                54,250
                
                
                16,263End
                    of period
                
                $
                36,414
                
                $
                31,789


7











**2005**
              
              **2004**Net
                  Income
              
              $
              19,428
              
              $
              12,789Other
                  Comprehensive Income
              
              
              (11)
              
              
              105Unrealized
                  gain (loss) on securities, net of tax
              
              
              (1,583
              )
              
              3,158Currency
                  translation adjustment, net of tax
              
              $
              17,834
              
              $
              16,052











8





**(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 these sales
      platforms: auctions, merchant/dealer operations and trading, and in two
      segments, collectibles and trading.





The
      Company’s collectibles 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), Teletrade, Spectrum
      Numismatics International, North American Certified Trading, Kensington
      Associates, Superior Sports Auctions, Bowers and Merena Auctions, Kingswood
      Coin
      Auctions, Corinphila Auktionen, Heinrich Kohler Berliner Briefmarken-Auktionen,
      Heinrich Kohler Auktionshaus, Heinrich Kohler Briefmarkenhandel, Heinrich Kohler
      Verwaltungs, Auctentia Deutschland, Auctentia Subastas and Central de Compras
      Coleccionables, S.L (CdC).





On
      July
      15, 2005, the Company and Auctentia, S.L. (“Auctentia”), a subsidiary of Afinsa
      Bienes Tangibles, S.A. (“Afinsa”), acquired all of the issued and outstanding
      capital stock of A-Mark 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.





As
      a
      result of this acquisition, the Company now operates in "two
      segments-collectibles and trading".





At
      December 31, 2005 and 2004, Afinsa and Auctentia collectively beneficially
      owned
      approximately 67% and 69%, respectively, of the Company’s outstanding common
      stock.





The
      Company is a party to separate supply agreements with Afinsa, dated August
      1,
      2003, as amended, pursuant to which the Company and CdC act as exclusive
      suppliers of collectibles - primarily stamps and coins - for Afinsa on a
      worldwide basis, with Greg Manning Auctions, a division of Escala, acting in
      the
      United States and Hong Kong, and CdC acting in all other geographic locations.
      Afinsa is engaged, among other things, in commercial and trading activities
      involving tangible investment products throughout Europe. As amended, the supply
      agreements have a ten-year term, terminable by either party upon six months’
notice. In addition to paying the purchase price for the goods sold under the
      contracts, Afinsa pays to the Company an amount equal to 10% of the aggregate
      purchase price of all such goods sold. Transactions under the supply contracts
      are part of the Company’s merchant/dealer operations.





As
      a
      result of transactions under the supply agreements, for the six months ended
      December 31, 2005 and 2004, Afinsa was the Company’s significant customer in the
      collectibles segment, with revenues accounting for $85,715 or 63%, and $49,117
      or 46%, of the collectibles revenues, respectively.





Transactions
      under the supply agreements with Afinsa (a related party) have had a significant
      effect on the business, financial condition and results of operations of the
      Company.





***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 December 31, 2005
      and
      June 30, 2005 and related condensed consolidated statements of earnings,
      stockholders’ equity, cash flows and comprehensive income for the six months
      ended December 31, 2005 and 2004 have been prepared from the books and records
      maintained by the Company,


9












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.





**(2)**
            **Acquisitions**





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





On
      July
      15, 2005, the Company and its majority shareholder Afinsa 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
      liabilities 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 unaudited 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)****Six
                  Months ended****December
                  31,****2005**
              
              **2004**Total
                  revenues
              
              $
              1,547,504
              
              $
              1,457,480Net
                  income
              
              
              19,441
              
              
              13,307Basic
                  earnings (loss) per share – Proforma
              
              $
              0.70
              
              $
              0.49Diluted
                  earnings (loss) per share – Proforma
              
              $
              0.67
              
              $
              0.46





10








**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. Beat 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**





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 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.






Tangible
                  and intangible asset aquired: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 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:


11








**(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.





**(4)**
            **Accounts
                Receivable**





Receivables
      consist of the following:









12









December
                    31, 2005
              
              June
                    30, 2005*Collectibles:*Auction
                  and trade
              
              $
              12,907
              
              $
              17,854*Trading:*Customer
                  trade receivables
              
              
              3,463
              
              
              -Wholesale
                  trade advances
              
              
              9,172
              
              
              -Due
                  from brokers and other
              
              
              1,282
              
              
              -26,824
              
              
              17,854Allowance
                  for doubtful accounts
              
              
              (573
              )
              
              (357
              )$
              26,251
              
              $
              17,497




***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 are 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
      December 31, 2005 and June 30, 2005, the allowance for doubtful accounts
      included in auction and trading receivables was approximately $573 and $357,
      respectively.





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





Inventories
      as of December 31, 2005 consisted of the following:


13











**Current**
              
              **Non-current**
              
              **Total**Precious
                  Metals
              
              $
              45,801
              
              $
              -
              
              $
              45,801Stamps
              
              
              35,456
              
              
              5,547
              
              
              41,003Coins
              
              
              12,103
              
              
              -
              
              
              12,103Arts
                  and Antiques
              
              
              300
              
              
              -
              
              
              300Sports
                  Collectibles
              
              
              847
              
              
              -
              
              
              847$
              94,507
              
              $
              5,547
              
              $
              100,054Inventories
                  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




Inventories
      as of June 30, 2005 consisted of the following:




The
      above
      inventory amounts reflect net realizable (LCM) allowances of approximately
      $3,010 and $2,472 at December 31, 2005 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 December 31, 2005
      totaled $3,804, 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 six months
      ended December 31, 2005.





Inventories
      of precious metals include amounts borrowed from various suppliers under ongoing
      agreements (see Note 8), totaling $3,678 at December 31, 2005. 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 December
      31,
      2005 totaled $3,300. 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.







14




**(6)**
              Intangible
                  Assets


***Goodwill***





The
      changes in the carrying value of goodwill for the six months ended December
      31,
      2005 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
              
              
              2,107Balance
                  - December 31, 2005
              
              $
              25,255








***Other
      Purchased Intangibles***





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





December
      31, 2005


EstimatedUseful
                  Lives
              
              Gross
                  Carrying
              
              Accumulated
              
              Net
                  Book(Years)
              
              Amount
              
              Amortization
              
              ValueTrademarks
              
              
              5
                  - 16
              
              $
              3,630
              
              $
              (2,438
              )
              $
              1,192Customer
                  Lists
              
              
              3
                  - 5
              
              
              3,245
              
              
              (1,492
              )
              
              1,753Non-Compete
                  Agreement
              
              
              4
              
              
              2,000
              
              
              (227
              )
              
              1,773$
              8,875
              
              $
              (4,157
              )
              $
              4,718


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 six months ended December 31,
      2005 and 2004 were approximately $469 and $86, respectively.





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







15













(In
      thousands):




For
                  The Twelve Month Period EndedDecember
                  31,Amount2006
              
              $
              1,1342007
              
              
              11152008
              
              
              10862009
              
              
              6652010
              
              
              257Thereafter
              
              
              461Total
              
              $
              4,718




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




Investments
                  in available for sale marketable securities as of December 31,
                  2005 and
                  June 30, 2005 are as follows:Cost
              
              Market
                  Value
              
              Unrealized
                  LossCommon
                  Stock - December 31, 2005
              
              $
              135
              
              $
              107
              
              $
              28Common
                  Stock - June 30, 2005
              
              $
              135
              
              $
              118
              
              $
              17






The
      unrealized loss is classified as a separate component of stockholders’ equity,
      net of tax.





**(8)**
            **Related-party
                Transactions**





At
      December 31, 2005 and 2004, 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. 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.)




16











At
      December 31, 2005 and June 30, 2005, the Company had outstanding accounts
      receivable balances from Afinsa of approximately $20,164 and $8,781,
      respectively, and such amounts are included in the accompanying Consolidated
      Balance Sheets as Accounts Receivable-related party. During the six months
      ended
      December 31, 2005 and 2004, sales to Afinsa were approximately $85,715 and
      $49,117, respectively, and are included in the accompanying Consolidated
      Statements of Operations as Sales of Inventory - Related Party.





During
      the six months ended December 31, 2005 and 2004, the Company also engaged in
      various transactions with entities affiliated with Greg Roberts, the President
      of our U.S. Coin Division.  For the six months ended December 31, 2005 and
      2004, the Company paid to these entities for various goods and services the
      amounts of $93 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 December 31, 2005 were $13,783, or approximately 26% of total
      philatelic purchases during this period. Purchases of philatelic material from
      October 1, 2004 through December 31, 2004, were $3,000 or approximately 16%
      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 six months ended December 31, 2005 and December 31,
      2004 were $29 and $64, 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 six months ended December
      31,
      2005 and December 31, 2004 were $0 and $8 respectively.





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 six-month periods ended December 31, 2005 and 2004 were $0 and
      $35 respectively.





The
      Company granted options to certain employees of Afinsa for services. For the
      six
      months ended December 31, 2004 such amounts were recorded at fair value, which
      amounted to $0 and $130, respectively.





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





On
      June
      17, 2002, the Company entered into an amendment to the employment agreement
      with
      Mr. 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. The current portion of $200 is included in prepaid expenses and
      other
      at December 31, 2005.




Scott
      Rosenblum, a director of the Company, is a partner of the law firm Kramer,
      Levin, Naftalis & Frankel LLP, which provides legal and previously served as
      its Chief Technology Officer, 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.


17











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 six-month period ended
      December 31, 2005, the Company did not purchase any inventory from Levitt,
      did
      not pay Levitt any finders’ fees, and earned commissions of $1 for the sale of
      inventory consigned by Levitt to the Company as contemplated by the acquisition
      agreement. For the six-month period ended December 31, 2004, the Company paid
      Levitt finders’ fees of $1 and earned commissions of $6 for the sale of
      inventory consigned by Levitt to the Company. The Company purchased inventory
      from Levitt during that period totaling $89.





**(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
      provided for lines of credit of up to $60,000, including a facility for letters
      of credit up to a maximum of $60,000 as of December 31, 2005. During January
      2006, the line of credit was increased to a maximum of $67, 500. 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 $26,415 for lines of credit and $2,500 for letters of credit
      at December 31, 2005. 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 cash.
      PMI had net borrowed metals included in inventories with market values totaling
      $3,678 at December 31, 2005. Certain of these metals are secured by letters
      of
      credit issued under PMI’s Credit Facility, which totaled $2,500 at December 31,
      2005.





Interest
      expense related to PMI’s borrowing arrangements totaled $624 in the six months
      ended December 31, 2005.


18













December
                31, 2005
            June
                30, 2005The 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 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. The credit line in place at
              June
              30, 2004 originally was to expire on May 27, 2005 but was extended
              until
              August 31, 2005. Subsequent to June 30, 2005, the line was amended
              to
              expire on August 31, 2007 and the line of credit increased to $12,500.
              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.
            $    
                8,000
            $    
                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.
            1,233
            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
            64
            73**Total
                Notes Payable**
            11,297
            9,848Less:
                current portion
            $1,152
            667**Notes
                Payable - Long-term Portion**
            $10,145
            $9,181




**(10)**
            **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.
 
 **(11)**
              **Hedging
                  Transactions -Trading**




19










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 December 31, 2005:


20







1.
              Inventories
                  at market value
              $
                  45,8012.
              Unhedged
                  inventory and numis. coin inventory
              (659)3.
              Bullion
                  and bullion coin inventories at market
              45,1424.
              Open
                  inventory purchase commitments
              86,6425.
              Unhedgable
                  premium on metals positions
              (807)6.
              Open
                  inventory sale commitments
              (75,803)7.
              Margin
                  Sale Commitments
              (3,132)8.
              Inventories
                  under natural hedges:9.
              Inventory
                  borrowed from suppliers
              (3,677)10.
              Advances
                  on Industrial Metals
              52611.
              Advances
                  on Refined materials
              -12.
              Inventory
                  subject to price risk
              48,89113.
              Inventory
                  fair value hedge transactions offsettingprice
                  risk:14.
              Precious
                  metals forward contracts at market values
              23,83015.
              Precious
                  metals futures contracts at market values
              25,07616.
              Total
                  market value on inventory hedge transactions
              48,90617.
              Net
                  unhedged metals position at market
              $
                  (15)






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 ($1,518) as of December 31, 2005 and a net realized loss on closed commodity
      contracts of ($2,448) for the six months ended December 31, 2005.





The
      Company had outstanding purchase and sale commitments from the trading segment
      arising in the normal course of business totaling $86,642 and $75,803 at
      December 31, 2005. The Company also had purchase and sale commitments related
      to
      open forward and futures contracts used in hedging its inventories totaling
      $23,830 and $25,076 at December 31, 2005.







**(12)**
            **Income
                Taxes**





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







21











December
                  31,
              
              June
                  30,2005
              
              2005Current
                  assets and liabilitiesAllowance
                  for doubtful accounts
              
              $
              158
              
              $
              89Inventory
                  valuation reserve
              
              
              821
              
              
              945Inventory
                  uniform capitalization
              
              
              957
              
              
              734Unrealized
                  net gain/ (losses) on futures
              
              
              303
              
              
              -Lower
                  of cost or market inventory adjustment
              
              
              (1,332
              )
              
              -Foreign
                  tax credit carryforward
              
              
              1,495
              
              
              -Charitable
                  contribution carryforward
              
              
              1,489
              
              
              1,524Net
                  current deferred tax asset
              
              $
              3,891
              
              $
              3,292Non-current
                  assets and liabilitiesGoodwill
                  and intangible amortization and impairment
              
              $
              1,173
              
              $
              1,401Depreciation
              
              
              103
              
              
              65Net
                  state operating and capital loss carry-forwards
              
              
              1,706
              
              
              1,668Charitable
                  contribution carryforward
              
              
              4,466
              
              
              4,571Investments
                  in equity-method investees
              
              
              209
              
              
              204Investments
                  in marketable securities
              
              
              73
              
              
              677,730
              
              
              7,976Valuation
                  allowance, provision for income taxes
              
              
              (4,187
              )
              
              (4,314
              )Net
                  non-current deferred tax asset
              
              $
              3,543
              
              $
              3,662






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 six months ended
      December 31, 2005, 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.





The
      provision for income taxes for the six months ended December 31, 2005 and 2004
      consist of the following:







22











Income
                  taxes for Six MonthsDecember
                  31,
              
              Decenber
                  31,2005
              
              2004Current
                  tax expense
              
              $
              12,456
              
              $
              7,289Deferred
                  tax expense
              
              
              (688
              )
              
              1,425Net
                  change in valuation allowance
              
              
              (127
              )
              
              -$
              11,641
              
              $
              8,714The
                  above is further comprised of the following:Current
                  tax expenseFederal
              
              $
              635
              
              $
              5,048State
              
              
              248
              
              
              807Foreign
              
              
              11,573
              
              
              1,434$
              12,456
              
              $
              7,289Deferred
                  tax expense - net of change in valuation allowanceFederal
              
              $
              (817
              )
              $
              1,036State
              
              
              2
              
              
              389$
              (815
              )
              $
              1,425





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 did provide for United States income taxes and foreign withholding
      taxes
      on a distribution of $12,000 from its Spanish subsidiary. The Company did not
      provide for United States income taxes and foreign withholding taxes on a
      cumulative total of $25,500 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 $12,000 dividend is substantially reduced by a foreign tax credit, the
      net tax effect is minimal.





**(13)**
            **Earnings
                per common and common equivalent
                share**





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









23







**Six
                  months ended****December
                  31,****2005**
              
              **2004****BASIC
                  EARNINGS PER SHARE:*********Numerator****:*Earnings
                  available to common stockholders
              
              $
              19,428
              
              $
              12,789***Denominator****:*Weighted
                  average common shares outstanding
              
              
              27,736
              
              
              27,363Net
                  earnings per share - Basic
              
              $
              0.70
              
              $
              0.47**DILUTED
                  EARNINGS PER SHARE:*********Numerator****:*Earnings
                  available to common stockholders
              
              $
              19,428
              
              $
              12,789***Denominator****:*Weighted
                  average common shares outstanding
              
              
              27,736
              
              
              27,363Effect
                  of dilutive securities - stock options
              
              
              1,141
              
              
              1,332Weighted
                  average common shares - assuming dilution
              
              
              28,877
              
              
              28,695Net
                  earnings per share - Diluted
              
              $
              0.67
              
              $
              0.45






Common
      share equivalents consist of employee stock options using the treasury stock
      method. For the six months ended December 31, 2005 and 2004, 0 and 313,500
      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.








**(14)**
            **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


24









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 six
      months ended December 31, 2004:




**Net
                  income as reported**
              
              $
              12,789Deduct:Total
                  stock-based employee compensation expensedetermined
                  under fair value based method for allawards,
                  net of related tax effects
              
              
              1,641**Pro
                  forma net income**
              
              $
              11,148**Net
                  income per share:**Basic
                  earnings per share - as reported
              
              $
              0.47Basic
                  earnings per share - proforma
              
              $
              0.40**Net
                  income per share:**Diluted
                  earnings per share - as reported
              
              $
              0.45Diluted
                  earnings per share - proforma
              
              $
              0.38




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 six months ended December 31, was $843. Stock
      based
      compensation expense for the year ended June 30, 2006 is expected to be
      approximately $1,293.





**(15)**
            **Segment
                Reporting**





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


25










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
      six
      months ended December 31, 2005 and 2004:




Six
                  Months EndedDecember
                  31,2005
              
              2004Collectibles
              
              $
              135,508
              
              $
              107,030Trading
              
              
              1,300,539
              
              
              -Total
                  segment revenues
              
              $
              1,436,047
              
              $
              107,030




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 six months ended December 31, 2005 and
      2004:




Six
                  Months EndedDecember
                  31,2005
              
              2004Collectibles
              
              $
              30,699
              
              $
              21,503Trading
              
              
              465
              
              
              -Segment
                  income before taxes
              
              $
              31,164
              
              $
              21,503




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




December
                  31,
              
              June
                  30,2005
              
              2005Collectibles
              
              $
              159,854
              
              $
              158,450Trading
              
              
              73,725
              
              
              -Total
                  segment assets
              
              $
              233,579
              
              $
              158,450




**(16)**
            **Other
                Major Customers (Excluding
                Afinsa)**





In
      its
      collectible segment, the Company had no other major customers for the six months
      ended December 31, 2005 and 2004, respectively.





In
      its
      trading segment, the Company had three customers that made up 51% of revenues
      for that segment.





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







26












**(17)**
            **Commitment
                and Contingencies**





**Leases**





The
      Company leases office facilities under a sub lease arrangement. The lease
      requires the payment of the related property taxes, insurance, maintenance
      and
      other costs for the leased property. Under the sublease arrangement, rent
      expense allocated to the Company for the six months ended December 31, 2005
      was
      $54.





Pursuant
      to the terms of the acquisition described in footnote 1, the company is leasing
      its premises from the former ultimate parent for approximately $10 per month.
      The Company can exit the premises at any time with 3 months.





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 additional 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/year for the last 4 1⁄2 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 $10 per month starting May 1,
      2006. The term of the lease is five years with annual increases in cost of
      3%.
      The company has given notice at its current location and anticipates moving
      on
      or before May 1, 2006.





**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.





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.


27










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.





**(18)**
            **Geographic
                Information**




Geographic
                  net sales based on customer location were as follows:**Six
                  Months ended****December
                  31,****2005**
              
              **2004**United
                  States
              
              $
              1,346,383
              
              $
              56,100Asia
                  Pacific
              
              
              1,159
              
              
              -Europe
              
              
              88,505
              
              
              50,930$
              1,436,047
              
              $
              107,030


Net
                  property, plant and equipment by geographic area was as
                  follows:**December
                  31,**
              
              **June
                  30,****2005**
              
              **2005**United
                  States
              
              $
              2,314
              
              $
              2,369Spain
              
              
              1,989
              
              
              894Other
                  Europe
              
              
              364
              
              
              32$
              4,667
              
              $
              3,295





28









**(19)**
            **Supplementary
                Cash Flow Information**





Following
      is a summary of supplementary cash flow information:




**Six
                  Months****December
                  31,****(In
                  Thousands)****2005**
              
              **2004**Interest
                  paid
              
              $
              798
              
              $
              234Income
                  taxes paid
              
              
              12,855
              
              
              7,829




**(20.)**  **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. The adopting
      of the statement is not expect to materially impact the Company’s consolidated
      financial statements.





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





(21)
            **Subsequent
                Events**





**Heinrich
      Kohler 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 Kohler 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 Kohler 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.








29


**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.*





**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 Six Months Ended December 31****(In
                  Thousands, except for percentages)****December
                  31,**
              
              **Percentages****2005**
              
              **2004**
              
              **2005**
              
              **2004****Aggregate
                  Sales**
              
              $
              1,471,176
              
              $
              136,007
              
              
              100
              %
              
              100
              %***By
                  Source:*****Trading**
              
              $
              1,300,539
              
              $
              -
              
              
              88
              %
              
              0
              %**Auction**
              
              
              54,583
              
              
              41,054
              
              
              4
              %
              
              30
              %**Merchant/Dealer**
              
              
              
              
              
              
              
              
              0
              %
              
              0
              %Sales
                  of Inventory
              
              
              30,339
              
              
              45,836
              
              
              2
              %
              
              34
              %Related
                  Party
              
              
              85,715
              
              
              49,117
              
              
              6
              %
              
              36
              %$
              1,471,176
              
              $
              136,007
              
              
              100
              %
              
              100
              %***By
                  Collectible Type:***Precious
                  Metals
              
              $
              1,300,539
              
              $
              -
              
              
              88
              %
              
              0
              %Philatelics
              
              
              110,465
              
              
              68,473
              
              
              8
              %
              
              50
              %Numismatics
              
              
              53,537
              
              
              67,469
              
              
              4
              %
              
              50
              %Sports
                  Collectibles
              
              
              1,845
              
              
              65
              
              
              0
              %
              
              0
              %Art
                  and Antiques
              
              
              4,654
              
              
              -
              
              
              0
              %
              
              0
              %Other
                  Collectibles
              
              
              136
              
              
              -
              
              
              0
              %
              
              0
              %$
              1,471,176
              
              $
              136,007
              
              
              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.





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.







30




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 six months ended
      December 31, 2005 and December 31, 2004. 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.





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 six months ended December 31, 2005. There
      is
      no assurance that such sales, revenues and gross profit will continue at this
      level (see “Issues and Uncertainties”, below).





Sales
      of
      philatelic material to Afinsa under the contracts are made via the fulfillment
      of purchase orders from Afinsa. The Company generally purchases, inspects,
      and
      processes the philatelic materials in a format specified by Afinsa. Currently,
      the prices for material sold by the Company to Afinsa under the contracts are
      based on Afinsa’s “bid” prices, which are generally determined with reference to
      prices for such material contained in catalogs that are used throughout the
      industry. In certain cases the Company obtains independent appraisals of such
      catalog prices. Although the actual percentage of catalog value varies based
      on
      the type of material involved and related supply and demand factors, the Company
      believes that in any given case, the percentage is substantially equivalent
      to
      what would be charged by a clearly independent party. In addition to receiving
      the purchase price for the material sold, the Company receives a 10% sourcing
      fee from Afinsa on all material sold for the consolidation and processing of
      the
      stamps. The Company believes that the delivery and payment terms with Afinsa
      do
      not differ materially from those that would be negotiated with other major
      customers in the industry. All transactions with Afinsa are “related party”
transactions under applicable Nasdaq listing standards.





***Three
      months ended December 31, 2005 compared with the three months ended December
      31,
      2004***




**Revenues**
              
              Three
                  Months Ended December 31, 2005
              
              Three
                  Months Ended December 31, 2004Cost
                  of
              
              
              
              
              
              
              
              Cost
                  ofGoods
              
              Gross
              
              Gross
              
              
              
              Goods
              
              Gross
              
              GrossRevenues
              
              Sold
              
              Profit
              
              Profit
                  %
              
              Revenues
              
              Sold
              
              Profit
              
              Profit
                  %Sales
                  of inventory
              
              $
              21,298
              
              $
              18,920
              
              $
              2,378
              
              
              11.2
              %
              $
              28,012
              
              $
              26,639
              
              $
              1,373
              
              
              4.9
              %Sales
                  of inventory- related party
              
              
              45,580
              
              
              26,445
              
              
              19,135
              
              
              42.0
              %
              
              27,499
              
              
              12,860
              
              
              14,639
              
              
              53.2
              %Auction
                  Commissions
              
              
              3,936
              
              
              -
              
              
              3,936
              
              
              100.0
              %
              
              3,429
              
              
              -
              
              
              3,429
              
              
              100.0
              %Collectibles
                  Revenues
              
              
              70,814
              
              
              45,365
              
              
              25,449
              
              
              35.9
              %
              
              58,940
              
              
              39,499
              
              
              19,441
              
              
              33.0
              %Trading
                  Revenues
              
              
              806,237
              
              
              804,356
              
              
              1,881
              
              
              0.2
              %
              
              -
              
              
              -
              
              
              -
              
              
              0.0
              %$
              877,051
              
              $
              849,721
              
              $
              27,330
              
              
              3.1
              %
              $
              58,940
              
              $
              39,499
              
              $
              19,441
              
              
              33.0
              %




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.







31




The
      Company recorded an increase in total revenues in the collectibles market of
      approximately $11,874 (20.1%), to approximately $70,814 for the three months
      ended December 31, 2005 from approximately $58,940 for the three months ended
      December 31, 2004.





Sales
      of
      Inventory - Related Party of $45,580 for the three months ended December 31,
      2005 was an increase of $18,081 (65.7%) from the $27,499 recorded for the three
      months ended December 31, 2004. 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
      three months ended December 31, 2005 and 2004, the total revenue in the
      collectibles market was approximately $70,814 and $58,940, respectively. Of
      these collectible segment totals, $66,878 and $55,511, respectively were from
      sales of owned inventory and approximately $3,936 and $3,429, 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 December 31, 2005 were approximately
      $806,237 due to increased demand and higher prices in the gold
      market.





***Gross
      Profit:***





Gross
      profit in the collectibles market increased approximately $6,008 (30.9%), to
      approximately $25,449 for the three months ended December 31, 2005 from
      approximately $19,441 for the three months ended December 31, 2004. The overall
      gross profit percentage increased from 33.0% for the three months ended December
      31, 2004 to 35.9% for the three months ended December 31, 2005. The increase
      in
      gross profit percentage was due to an increase in gross profit percentage in
      sales of inventory from 28.8% for the three months ended December 31, 2004
      to
      32.1% for the three months ended December 31, 2005. The increase of auction
      commissions of approximately $507 to $3,936 for the three month ended December
      31, 2005 from $3,429 for the three months ended December 31, 2004 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 53.2% to 42.0% for the three months ended
      December 31, 2005.





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 .2%. 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 based on the volatility of the price of metals, interest rates, and product
      mix.





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




Three
                  Months Ended
              
              Three
                  Months EndedDecember
                  31, 2005
              
              December
                  31, 2004Collectibles
              
              Trading
              
              Total
              
              Collectibles
              
              Trading
              
              TotalGeneral
                  & Administrative
              
              $
              5,099
              
              $
              640
              
              $
              5,739
              
              $
              2,439
              
              $
              -
              
              $
              2,439Salaries
                  and Wages
              
              
              3,647
              
              
              531
              
              
              4,178
              
              
              3,152
              
              
              -
              
              
              3,152Depreciation
                  and Amortization
              
              
              424
              
              
              132
              
              
              556
              
              
              281
              
              
              -
              
              
              281Marketing
              
              
              819
              
              
              43
              
              
              862
              
              
              917
              
              
              -
              
              
              917$
              9,989
              
              $
              1,346
              
              $
              11,335
              
              $
              6,789
              
              $
              -
              
              $
              6,789






32





The
      above
      chart details the operating expenses for the quarters ended December 31, 2005
      and 2004 by the two segments, collectibles and trading. As the trading segment
      is new to the Company in the current fiscal, the discussion to follow will
      primarily focus on the collectibles market





The
      Company’s operating expenses in the collectibles market increased approximately
      $3,200 (47.1%) during the three months ended December 31, 2005 as compared
      to
      the three months ended December 31, 2004.





General
      and administrative expenses in the collectibles market increased approximately
      $2,660 (109.0%) from $2,439 for the three months ended December 31, 2004 to
      $5,099. for the three months ended December 31, 2005. Auction expenses are
      included in general and administrative expenses and increased $175 (26.5%)
      from
      $660 for the three months ended December 31, 2004 to $835 for the three months
      ended December 31, 2005. The increase in auctions expense in the collectibles
      market was due primarily to the auctions expenses from Greg Martin Auctions,
      which was acquired during second quarter.





Exclusive
      of auction expenses, there was an increase in general and administrative
      expenses of approximately $2,485 (139.6%). The increase in general and
      administrative was generally due to (a) general and administrative expenses
      of
      newly acquired Greg Martin Auctions, (b)increases in legal and accounting fees
      related to the final implementation of 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 $495 (15.7%) for the three months ended
      December 31, 2005. The increase was due to a second 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 $98 (10.6%), to
      $819
      for the three months ended December 31, 2005 from $917 for the three months
      ended December 31, 2004. The major components of marketing expense are catalogs
      and auction advertising.





Depreciation
      and amortization in the collectibles market increased for the three months
      ended
      December 31, 2005 by approximately $143 (50.8%). The increase over prior quarter
      is due primarily to an increase in amortization of intangible assets due
      acquisitions made in the second quarter., in addition to an increase of
      approximately $14 per quarter for the depreciation of the building in West
      Caldwell, which was purchased on December 22, 2004.





Increased
      costs in the collectibles market for the three months ended December 31, 2005
      were offset by revenue and margin increases to increase total operating income
      in the collectibles segment by $2,808 to $15,460 for the three months ended
      December 31, 2005 from $12,652 for the three months ended December 31, 2004.
      Operating costs as a percentage of operating revenue increased to 14.1% for
      the
      three months ended December 31, 2005 from 11.5% for the three months ended
      December 31, 2004. As compared to aggregate sales in the collectibles segment,
      the operating costs were 11.3% for the three months ended December 31, 2005
      an
      increase from 9.5% for the three months ended December 31, 2004.





Operating
      expenses for the trading segment totaled $1,346 for the three months ended
      December 31, 2005. 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
      $110.





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




Total
      interest expense (net of interest income) for the three months ended December
      30, 2005 decreased approximately $216 from the three months ended December
      31,
      2004, from an expense of approximately $105 to income of $111.







33







In
      the
      collectibles segment, interest expense (net of interest income) for the three
      months ended December 31, 2005 decreased approximately $366 from the three
      months ended December 31, 2004 from an expense of approximately $ 105 to and
      income of approximately $261. Interest income in the collectibles segment
      increased by $217 for the three months ended December 31, 2005 over December
      31,
      2004.In addition, interest expense in the collectibles segment decrease by
      approximately $149. 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 December 31, 2005, the trading segment recorded interest income
      of
      approximately $221 and interest expense of approximately $371.





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





The
      Company’s effective tax rates for the three months ended December 31, 2005 and
      December 31, 2004 were approximately 36.7% and 38.4%, 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 increase incomes in Spain (were the effective
      tax
      rates are 35%). Therefore, the provision for foreign taxes increased $4,710
      from
      $891 for the three months ended December 31, 2004 to $5,601 for the three months
      ended December 31, 2005.





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 $7,889 for the three months
      ended December 31, 2005 coupled with an increase in operating expenses of $4,546
      resulting in a net gain of $3,343 in operating income and net of taxes resulted
      in an increase in net income of $2,447.







34







***Six
      months ended December 31, 2005 compared with the six months ended December
      31,
      2004***








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.




**Revenues**
              
              Six
                  Months Ended December 31, 2005
              
              Six
                  Months Ended December 31, 2004Cost
                  of
              
              
              
              
              
              
              
              Cost
                  ofGoods
              
              Gross
              
              Gross
              
              
              
              Goods
              
              Gross
              
              GrossRevenues
              
              Sold
              
              Profit
              
              Profit
                  %
              
              Revenues
              
              Sold
              
              Profit
              
              Profit
                  %Sales
                  of inventory
              
              $
              41,653
              
              $
              36,572
              
              $
              5,081
              
              
              12.2
              %
              $
              50,982
              
              $
              47,427
              
              $
              3,555
              
              
              7.0
              %Sales
                  of inventory- related party
              
              
              85,715
              
              
              47,269
              
              
              38,446
              
              
              44.9
              %
              
              49,117
              
              
              23,000
              
              
              26,117
              
              
              53.2
              %Auction
                  Commissions
              
              
              8,140
              
              
              -
              
              
              8,140
              
              
              100.0
              %
              
              6,931
              
              
              -
              
              
              6,931
              
              
              100.0
              %Collectibles
                  Revenues
              
              
              135,508
              
              
              83,841
              
              
              51,667
              
              
              38.1
              %
              
              107,030
              
              
              70,427
              
              
              36,603
              
              
              34.2
              %Trading
                  Revenues
              
              
              1,300,539
              
              
              1,297,453
              
              
              3,086
              
              
              0.2
              %
              
              -
              
              
              -
              
              
              -
              
              
              0.0
              %$
              1,436,047
              
              $
              1,381,294
              
              $
              54,753
              
              
              3.8
              %
              $
              107,030
              
              $
              70,427
              
              $
              36,603
              
              
              34.2
              %


The
      Company recorded an increase in total revenues in the collectibles market of
      approximately $28,478 (26.6%), to approximately $135,508 for the six months
      ended December 31, 2005 from approximately $107,030 for the six months ended
      December 31, 2004.





Sales
      of
      Inventory - Related Party of $85,715 for the six months ended December 31,
      2005
      was an increase of $36,598 (74.5%) from the $49,117 recorded for the six months
      ended December 31, 2004. 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
      six months ended December 31, 2005 and 2004, the total revenue in the
      collectibles market was approximately $135,508 and $107,030, respectively.
      Of
      these collectible segment totals, $127,368 and $100,099, respectively were
      from
      sales of owned inventory and approximately $8,140 and $6,931, 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 23 weeks ended December 31, 2005 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 $15,064 (41.1%),
      to
      approximately $51,667 for the six months ended December 31, 2005 from
      approximately $36,603 for the six months ended December 31, 2004. The overall
      gross profit percentage increased from 34.2% for the six months ended December
      31, 2004 to 38.1% for the six months ended December 31, 2005. The increase
      in
      gross profit percentage was due to an increase in gross profit percentage in
      sales of inventory from 29.6% for the six months ended December 31, 2004 to
      34.1% for the six months ended December 31, 2005. The increase of auction
      commissions of approximately $1.209 (17.4%) to $8,140 for the six month ended
      December 31, 2005 from $6,931 for the six months ended December 31, 2004 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 53.2% to 44.9% for the six months ended
      December 31, 2005.


35





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 .2%. 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 based on the volatility of the price of metals, interest rates, and product
      mix.





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




Six
                  Months Ended
              
              Six
                  Months EndedDecember
                  31, 2005
              
              December
                  31, 2004Collectibles
              
              Trading
              
              Total
              
              Collectibles
              
              Trading
              
              TotalGeneral
                  & Administrative
              
              $
              10,781
              
              $
              1,169
              
              $
              11,950
              
              $
              6,097
              
              $
              -
              
              $
              6,097Salaries
                  and Wages
              
              
              7,979
              
              
              916
              
              
              8,895
              
              
              6,468
              
              
              -
              
              
              6,468Depreciation
                  and Amortization
              
              
              722
              
              
              242
              
              
              964
              
              
              557
              
              
              -
              
              
              557Marketing
              
              
              1,795
              
              
              44
              
              
              1,839
              
              
              1,716
              
              
              -
              
              
              1,716$
              21,277
              
              $
              2,371
              
              $
              23,648
              
              $
              14,838
              
              $
              -
              
              $
              14,838


The
      above
      chart details the operating expenses for the quarters ended December 31, 2005
      and 2004 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
      $6,439 (43.4%) during the six months ended December 31, 2005 as compared to
      the
      six months ended December 31, 2004.





General
      and administrative expenses in the collectibles market increased approximately
      $4,684 (76.8%) from $6,097  for
      the
      six months ended December 31, 2004 to $10,781 for the six months ended December
      31, 2005. Auction expenses are included in general and administrative expenses
      and increased $15 (.09%) from $1,614 for the six months ended December 31,
      2004
      to $1,629 for the six months ended December 31, 2005.





Exclusive
      of auction expenses, there was an increase in general and administrative of
      approximately $4,669 (104.1%). The increase in general and administrative was
      due primarily to increases in legal and accounting fees related to the final
      implementation of Sarbanes-Oxley requirements, expenses related to the Escala
      name change and move of corporate headquarters to New York City, and additional
      expenses related to acquisitions made in the six months ended December 31,
      2005.




Salaries
      and wages increased approximately $1,511 (23.4%) for the six months ended
      December 31, 2005. The increase was due to charges of $725 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 increased approximately $79 (4.6%), to
      $1,795 for the six months ended December 31, 2005 from $1,716 for the six months
      ended December 31, 2004. The increase 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 six months ended
      December 31, 2005 by approximately $165 (29.6%). The increase over prior period
      is due primarily to an increase in amortization of







36





intangible
      assets due acquisitions made in the second quarter, as well as an increase
      of
      approximately $14 per quarter for the depreciation of the building in West
      Caldwell, which was purchased on December 22, 2004.





Increased
      costs in the collectibles market for the six months ended December 31, 2005
      were
      offset by revenue and margin increases to increase total operating income in
      the
      collectibles segment by $8,625 to $30,390 for the six months ended December
      31,
      2005 from $21,765 for the six months ended December 31, 2004. Operating costs
      as
      a percentage of operating revenue increased to 15.7% for the six months ended
      December 31, 2005 from 13.9% for the six months ended December 31, 2004. As
      compared to aggregate sales in the collectibles segment, the operating costs
      were 12.5% for the six months ended December 31, 2005 an increase from 10.9%
      for
      the six months ended December 31, 2004.


Operating
      expenses for the trading segment totaled $2,371 for December 31, 2005. Included
      in PMI’s six month expenses were one-time signing bonuses and bank fees totaling
      approximately $115 and consulting fees of $32 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 $110.





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




Total
      interest expense (net of interest income) for the six months ended December
      30,
      2005 decreased approximately $130 from the six months ended December 31, 2004,
      from an expense of approximately $130 to income of approximately $100.





In
      the
      collectibles segment, interest expense (net of interest income) for the six
      months ended December 31, 2005 decreased approximately $383 from the six months
      ended December 31, 2004 from an expense of approximately $130 to and income
      of
      approximately $253. Interest income in the collectibles segment decreased by
      $11
      for the six months ended December 31, 2005 over December 31, 2004. However,
      this
      decrease was offset by a decrease of interest expense in the collectibles
      segment of approximately $394. Interest expense decreased because of a reduction
      in debt since December 31, 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
      twenty-two weeks ended December 31, 2005, the trading segment recorded interest
      income of approximately $515 and interest expense of approximately
      $668.





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





The
      Company’s effective tax rates for the six months ended December 31, 2005 and
      December 31, 2004 were approximately 37.4% and 40.5%, 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 our control. The decrease in the effective
      tax rate is due primarily from increase incomes in Spain (were the effective
      tax
      rates are 35%). Therefore, the provision for foreign taxes increased $10,139
      from $1,434 for the six months ended December 31, 2004 to $for the six months
      ended December 31, 2005.





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*** ***:***







37


The
      Company’s increase in gross profit of approximately $18,150 for the six months
      ended December 31, 2005 coupled with an increase in operating expenses of $8,810
      resulting in a net gain of $9,340 in operating income and net of taxes resulted
      in an increase in net income of $6,639.





**Liquidity
      and Capital Resources**





At
      December 31, 2005, the Company’s working capital position was approximately
      $100,994, compared to approximately $94,577 as of June 30, 2005. The net
      increase of approximately $6,417 in working capital was largely due to an
      increase in inventory and trading accounts receivable of $61,431, respectively
      offset by increases in short-term lines of credit of $26,415, increases in
      the
      liability on borrowed metals of $3,678 and increases in accounts payable of
      $28,145. 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 six months ended December
      31,
      2005 of approximately $22,043. 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 $13,014 for the
      six months ended December 31, 2005, primarily the result of an increase 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 December 31, 2005 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
              34,415
              34,415
              **-**
              **-**
              **-**Liability
                  on Borrowed Metals
              3,678
              3,678
              **-**
              **-**
              **-**Open
                  inventory purchase commitments
              86,642
              86,642
              **-**
              **-**
              **-**Notes
                  Payable
              2,000
              1,000
              1,000
              -
              -Mortgage
              1,233
              88
              1,145
              -
              -Capital
                  Lease and Other Debt Obligations
              64
              64
              -
              -
              -Operating
                  Lease Obligations
              11,359
              1,206
              3,062
              2,250
              4,841Total
              139,391
              127,093
              5,207
              2,250
              4,841




**Critical
      Accounting Policies**





The
      critical accounting policies are described on pages 19 through 21 of the
      financial section of its 2004 annual report. In the circumstances of the
      Company’s, 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.


38


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:








·
            Although
                the Company’s results of operations for the year ended June 30, 2005 and
                the quarter ended December 31, 2005 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 obtained a qualified
                appraisal of the collection, which concluded that it had a value
                of
                approximately $21 million, resulting in a charitable contribution
                deduction with a tax benefit of approximately $7.1 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 has established
                a
                valuation allowance of approximately $2.6 million. In addition, although
                not required to do so, the Company has determined to seek additional
                verification of the value of the collection. As a result of this
                or other
                factors, the tax benefit to the Company may be
                adjusted.





·
            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 at the times, the Company may desire
                in
                the future. The inability to do so would have a material adverse
                effect on
                the Company.







39


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 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.





·
            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
                with respect to the integration of the 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.




40




·
            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 could


adversely
      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** .







41


**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 $775,000 for
      the period (assuming that all amounts available under such credit facilities
      -
      that is, $ 77,500,000- 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 six 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 $2.9 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 $700,000.





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 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.





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







42





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 December 31, 2005.




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 reconciliations, 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  December 31, 2005 was based, in part,
      upon our evaluation of the control issues identified, including the presence
      of
      adequate compensating controls.










43


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





The
      Annual Meeting of Shareholders was held on December 14, 2005 to elect three
      directors to serve for terms of three years and until their respective
      successors have been duly elected and qualified and to ratify the appointment
      of Amper,
      Politziner & Mattia P.C. as Escala’s independent public accountants for the
      fiscal year ending June 30, 2006.





Set
      forth
      below is information concerning the voting results of matters voted upon at
      the
      Annual Meeting:





1.
      The
      election of the following persons as directors to serve for terms of three
      years
      and until their respective successors have been duly elected and
      qualified.








Mark
      B.
      Segall For: 26,523,039 Withheld: 99,017


Gregory
      N. Roberts For: 25,897,054 Withheld: 725,002


Jose
      Miguel Herrero For: 26,062,905 Withheld: 559,151





2.
      The
      approval of the Greg Manning 2000 Plan Incentive Compensation
      Program:





For:
      22,582,562  Against:
      756,039 Abstain:
      12,468  Broker
      Non-Vote: 3,270,987





3.
      The
      approval of the Jose Miguel Herrero Incentive Compensation Program





For:
      22,578,122  Against:
      755,779 Abstain:
      17,158  Broker
      Non-Vote: 3,269,987





4.
      The
      ratification of the appointment of Amper, Politziner & Mattia P.C. as
      Escala’s independent registered public accountants for the fiscal year ending
      June 30, 2006.





For:
      26,588,388                
 Against:
      27,980                     
Abstain: 5,688








Item
      5.
      Other Information.





None





Item
      6.
      Exhibits and Reports on Form 8-K





(a)
      Exhibits







44







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 of Chief Executive Officer
                  *


32.2
            Section
                1350 Certification of Chief Financial Officer
                *








(b)
      Reports on Form 8-K





(1)
            Report
                on Form 8-K filed on October 3, 2005 relating to (a) the Employment
                Agreement between the Company and Jose Miguel Herrero, (b) the Lease
                between the Company and Fifth Avenue Building Company LLC, (c) the
                appointment of Jose Miguel Herrero as President and Chief Executive
                Officer of the Company, (d) the appointment of Greg Manning as President,
                North American and Asian Philatelic Auction Division of the Company,
                (e)
                the resignations of Anthony Bongiovanni and Emilio Ballester as directors
                of the Company, (f) the appointment of Antonio Martins da Cruz and
                Rafael
                delle Valle as directors of the Company, (g) the amendment of the
                Company’s Certificate of Incorporation to change its name to “Escala
                Group, Inc.”.








*
      Filed
      herewith








**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:
      February 8, 2006


/s/
      Jose Miguel Herrero


Jose
      Miguel Herrero


President
      and Chief Executive Officer







/s/
      Larry Crawford


Larry
      Crawford


Chief
      Financial Officer