[ESCALA GROUP LOGO]
Matthew M. Walsh 623 Fifth Avenue, 27th Floor
Executive vice president and CFO New York, New York 10017
mwalsh@escalagroup.com PHONE 212-421-9400
www.escalagroup.com
May 25, 2006
VIA EDGAR
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Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549
Attention: Steven Jacobs, Accounting Branch Chief
Rachel Zablow, Staff Accountant
Re: Escala Group, Inc. (f/k/a Greg Manning Auctions, Inc.)
10-K for the year ended June 30, 2005
Form 10-Q for the quarter ended September 30, 2005
Form 10-Q for the quarter ended December 31, 2005
File No. 1-11988
Ladies and Gentlemen:
Escala Group, Inc. (the "Company" or "Escala") is providing its responses
to the comment from the staff of the Division of Corporation Finance (the
"Staff") of the Securities and Exchange Commission (the "SEC"), by letter dated
May 11, 2006.
Form 10-Q for the quarter ended September 30, 2005
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Form 10-Q for the quarter ended December 31, 2005
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Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations, pages 26 and 31
1. We have read your response to prior comment 2. Please note that EITF 00-21
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. However, it does
not provide guidance on the appropriate financial statement presentation
related to these revenue arrangements. In that regard, please confirm to us
that the 10% (in certain cases, 12%) sourcing fee represents less than 10%
of sales revenue for all periods presented or revise your statement of
earning in future filings to separately present these amounts. Please also
note that if you present revenues on a disaggregated basis the related cost
of revenues should also be presented on a disaggregated basis. Refer to
Rule 5-03 of Regulation S-X and SAB 101 as amended by SAB 104 for further
guidance.
Trusted By Serious Collectors ....Worldwide
NASDAQ symbol: ESCL
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Division of Corporate Finance
Page 2
First, I refer to you to the revised disclosure set forth in our Report on
Form 10-Q for the quarter ended March 31, 2006. On page 28 of that report,
we state:
In addition to receiving the purchase price for the material sold, the
Company receives a fee from Afinsa for the processing and handling of the
stamps. The fee is in the amount of 10% of the amount of the material sold.
The processing and handling services performed by the Company include the
following: a multi-level inspection and quality control check on every item
that is proposed to be supplied to Afinsa, ensuring that the material is in
the format and of the quality specified by Afinsa, maintaining a grading
system on suppliers, and preparing and maintaining back-up documentation
for all material supplied to Afinsa. The fee is calculated based on the
amount of each particular invoice and is included on such invoice. Revenue
is recognized upon shipment of the goods.
In addition to the 10% fee described above, pursuant to the supply contract
CdC receives a fee from Afinsa equal to 2% of the purchase price of all
material sold directly to Afinsa by GMA in the United States. This fee is
for services rendered to Afinsa by CdC after the material is shipped from
the United States. These additional services include further quality
verification, expertising and final processing of the material. This 2% fee
is invoiced separately to Afinsa and revenue is recognized upon final
shipment of the material to Afinsa.
In response to the Staff's comment, the table on the following page
compares the total revenue from the 10% and 2% fees to total revenues:
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Division of Corporate Finance
Page 3
Sourcing Fee Total
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to Afinsa Revenue % of total
------------ ---------- ----------
3 months ended June 30, 2003 696 29,827 2.3%
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12 months ended June 30, 2003 696 101,191 0.7%
3 months ended September 30, 2003 971 34,487 2.8%
3 months ended December 30, 2003 3,027 53,215 5.7%
3 months ended March 31, 2004 3,135 64,505 4.9%
3 months ended June 30, 2004 3,374 60,683 5.6%
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12 months ended June 30, 2004 10,507 212,890 4.9%
3 months ended September 30, 2004 2,273 48,090 4.7%
3 months ended December 30, 2004 3,018 58,940 5.1%
3 months ended March 31, 2005 2,603 55,712 4.7%
3 months ended June 30, 2005 4,668 77,572 6.0%
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12 months ended June 30, 2005 12,562 240,314 5.2%
3 months ended September 30, 2005 3,808 558,996 0.7%
3 months ended December 30, 2005 4,182 877,051 0.5%
3 months ended March 31, 2006 4,182 1,135,913 0.4%
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9 months ended March 31, 2006 12,173 2,571,960 0.5%
For all periods presented, the total sourcing fee to Afinsa was less than the
10% threshold for financial statement presentation. As such, the Company
believes that the current statement of earnings presentation is appropriate.
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Division of Corporate Finance
Page 4
2. In addition, to the extent the consideration received from Afinsa exceeds
the fair value of the stamps considering their condition and other factors,
the excess should be accounted for as a capital contribution. Please advise
us or revise your financial statements accordingly.
The Company believes the appropriate accounting treatment is to recognize
as revenue the entire consideration received from Afinsa for the value of
the philatelic materials supplied to Afinsa.
However, we point out that this is among the issues that the Board of
Directors of the Company has recently requested that its Audit Committee
independently investigate. This investigation is underway. If the Company's
position changes as a result of this investigation or otherwise, the
Company will inform the Staff promptly. In that regard, we point out that
our next financial filing is not due until on or about September 13, 2006
(Report on Form 10-K).
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The Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
o staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and
o the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Should you have any questions in regard to this response, please call me at
212-421-9400.
Very truly yours,
/s/ Matthew M. Walsh
Matthew M. Walsh
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