Escala Group (ESCL) - Description of business

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Company Description
OVERVIEWGreg Manning Auctions, Inc. (the "Company" or "GMAI") is a multi-category business-to-business and business-to-consumer collectibles auctioneer & merchant in the Americas, Asia and Europe. The Company combines traditional and electronic (Internet, interactive telephone, and live with simulcast Internet) capabilities to sell coins, stamps, sports trading cards & memorabilia, comic books & comic art, Hollywood & Rock `n Roll memorabilia, movie posters , affordable fine art, and un-mounted diamonds. Vertically integrated, the Company's offerings and distribution channels span the entire price range from low end to ultra-high end, its businesses include wholesale, retail and direct response sales, and it possesses a branded presence in all major sales channels both in the traditional and eCommerce worlds. On the Internet, GMAI offers products through two owned web sites and on GMAI branded pages on, a minority shareholder. GMAI generates income through the resale of goods purchased directly by the Company, and through auction from sellers and buyers.The Company believes that significant trends in the collectibles marketplace exist which will positively affect the Company's business. These trends include: 1) growth in the number of collectors and amount spent on collecting, both in the United States and globally; 2) increased interest in collecting, resulting in part from the advent of the Internet as a communications vehicle and marketplace opportunity, and; 3) increased use and acceptance of third party grading and certification, which facilitates "sight-unseen" sales, more standardized descriptions, and price "legitimization."The Company seeks to provide the highest quality service and personal attention to its clients. Its longevity in its core auction business selling rare stamps, stamp collections and stocks has enabled it to develop an international network of clients, both dealers and collectors, buyers and sellers, who use the Company's services on a consistent basis. These relations, coupled with the Company's quality reputation and extensive auction and marketing experience, have permitted it to expand beyond its core philatelic roots into other areas of the collectibles business, and to make opportunistic investments in, or acquisitions of, other collectibles companies, both domestically and in Europe and Asia.For purposes of competitive analysis and market positioning, the Company organizes its business into four units: collectibles auctions (both traditional and electronic); collectibles merchant/dealer; coin wholesaler; and direct response merchant. Each unit is described separately below. COLLECTIBLES AUCTIONEERGeneralThe Company conducts both traditional auctions featuring full electronic capabilities and Internet-only auctions. Its traditional auctions and Internet-only auctions are targeted to both collectors and dealers, and feature offerings spanning the modest to ultra-high end price spectrum. Based on its knowledge of the collectibles markets, the Company believes that it is one of the world's largest (measured by aggregate sales) auctioneers of stamps, and a leading auctioneer of rare coins and currency, comic books & comic art, and sports trading cards & memorabilia. Additionally, the Company believes that it possesses a significant market share as an auctioneer of other high-end collectibles. Traditional Auctions"Traditional auctions" are live, in-person auctions conducted by a licensed auctioneer. The Company holds several traditional auctions each year in a variety of venues, including strategically located hotels, and at major trade conferences and conventions. All traditional auctions are augmented by electronic catalogs and most are augmented by one or more forms of electronic bidding. Commissions are typically charged from the seller of 5% to 15% and from the buyer of 10% to 15%.The Company's traditional auctions are based on a "Full Service" auction model, where the Company takes physical possession of all items offered for sale in its auctions, inspects and describes all offerings, receives all sums due, remits sale proceeds to the seller, and professionally packs/ships items sold to the buyer. Additionally, the Company generally guarantees the genuineness of all items sold (subject to the terms of sale) and that each lot is "as described" in the auction catalog.In the Company's traditional auctions, prospective buyers place bids on each lot as presented in the order shown in the catalog at the time and date of the auction. Before the auction, prospective buyers may bid by lot as shown in the catalog and communicate such bids to the Company by mail, fax, telephone, or the Internet. At the auction, the auctioneer typically opens bidding at levels based on bids received prior to auction or a percentage of previously established reserve prices. The item offered is sold to the highest bidder, whether such bid was received before the auction or at the time of sale, and such high bidder must pay the hammer price, the applicable buyer's premium, and all applicable sales taxes. Additionally, buyers pay a shipping and handling fee if they do not accept delivery of the items at the place of the auction.The auctioneer regulates the bidding and reserves the right to refuse any bid believed by him/her not to be made in good faith.Costs involved in conducting a traditional auction include, among other things, the cost of inspecting, describing and storing the items to be offered for sale, catalog creation, printing and mailing, insurance, transportation, auction advertising, auction venue site rental fees, security, temporary personnel and expenses of certain additional auction-related accounting and shipping functions. Internet AuctionsIn October 1998, the Company acquired Teletrade, Inc. and entered the online auction market. Since that time, the Company has expanded its online offerings and presence, improved its technologies, and created new proprietary Internet auction technologies. Currently, the Company's only owned online auction web site is Internet auction capability is being added to the Company's web site, and the Company offers via auction Company owned collectibles and collectibles consigned to it by others on at pursuant to an agreement with Auctions LLC, a wholly owned subsidiary of, Inc.Consistent with the Company's Full Service traditional auction business model and its commitment to customer service, the Company's Internet auctions feature many of the same Full Service amenities as its traditional auctions. Specifically, unless otherwise noted in a particular sale's terms and conditions, the Company guarantees the genuineness of all items offered in its Internet auctions, describes the items, collects all sums due, remits the sale proceeds to the seller, and professionally packs/ships the items sold to the buyer. Additionally, because the buyer in an Internet auction has not had an opportunity to personally view the item offered, the Company also offers buyers a 100% Satisfaction Guaranty.The Company's Internet auction business model is distinct from the more common consumer-to-consumer model employed by Internet auctioneers such as eBay(R) and Yahoo(R) wherein the auctioneer creates and manages the bidding facility and the buyer and seller must work-out themselves the procedures for completing the transaction. The Company believes that its business-to-consumer, Full Service model provides it competitive advantages, distinguishes the Company from other Internet auctioneers, and permits the Company to sell mid-range to high-end, high value collectibles over the Internet.The Company charges sellers a commission for its Internet auction services of 5% to 15%. Buyers in its Internet auctions on the site are charged a commission of 10% to 15%; no commissions are charged winning bidders at the site.Costs involved in conducting the Company's Internet auctions include, among other things, the cost of inspecting, describing, imaging and storing the items to be offered for sale. Other costs include technology development and maintenance, computer and Internet hardware procurement and maintenance, advertising, and expenses of certain additional auction-related accounting and shipping functions.Auction Venues/Brands Traditional AuctionsThe Company conducts traditional auctions under two distinct brands: Greg Manning Auctions ("GMA") and Ivy & Mader Philatelic Auctions ("Ivy & Mader").The GMA brand was created in 1966 and has historically been used primarily for auctions of stamp collections and accumulations targeted to philatelic dealers. Commencing in 1998, the GMA brand was expanded and used for high-end business-to-business and business-to-consumer auctions of comic books & comic art, Hollywood & Rock 'n Roll memorabilia, movie posters, and sports trading cards & memorabilia.The Company created the Ivy & Mader brand in 1993 when it acquired the predecessor to Ivy & Mader Philatelic Auctions, Inc. Since that time, the Ivy & Mader brand has been used for high-end philatelic auctions of rare single stamps and collections targeted to individual collectors as well as dealers.During fiscal year 2000, 8 auctions were conducted under the GMA brand, and 3 auctions were conducted under the Ivy & Mader brand.The Company's traditional auctions are held in locations appropriate for the particular auction and all catalogs are available online. Internet AuctionsCurrently, the Company's only owned Internet auction venue is Internet auction functionality is being added to the Company's web site. Additionally, the Company offers via auction both Company-owned collectibles and fine items consigned to it by others on at pursuant to an agreement with Auctions LLC, a wholly owned subsidiary of, Inc.The Company offers coins, sports trading cards and un-mounted diamonds on, a minority shareholder of the Company, classifies the Company as a "Luminary Partner," and provides the Company branding on multiple Auctions(TM) pages, a special co-branded web page, and other benefits. The Company offers art, coins, comic books & art, un-mounted diamonds, Hollywood & Rock `n Roll memorabilia, jewelry, movie posters, sports trading cards & memorabilia, and stamps in Auctions(TM).For its Auctions(TM), the Company created the brand Greg Manning Collectibles. All items offered by the Company on are listed under a Greg Manning Collectibles banner, and are further distinguished by: 1) a comprehensive description of the offering, detailing third party grading if applicable; 2) an estimated value; and 3) a high-quality image of the lot.Proprietary Auction Technology TouchBid(TM)"TouchBid(TM) " is a new, Company co-owned and developed, proprietary auction technology. Intended to bring live auctions to bidders all over the world, the TouchBid(TM) technology broadcasts through the telephone a live audio feed from the auction floor, and permits bidders to place bids using their telephones. The Company believes that "TouchBid" will offer material advantages over current technologies. Patents for the technology are being applied for, and intellectual property rights to the name "TouchBid" are being sought. MaxBid(TM)"MaxBid(TM) " is a Company owned and developed proprietary technology that enables absentee participants in an electronic auction to enter the highest amount they are willing to bid for a particular lot. The computer records the amount bid on each lot and during the auction, bids on behalf of the absentee bidder, entering bids up to the maximum amount authorized. Intellectual property rights to the name "MaxBid" are being sought. Interphonic(TM)"Interphonic(TM)" is a Company owned and developed telephone/Internet auction technology. Interphonic(TM)is the technology operating the Company's Internet/telephone auctions conducted on the Company's web site. The technology permits bidders to participate in electronic auctions either by touch-tone telephone or via the Internet. The Company has filed an application to register the name "Interphonic" with the United States Patent and Trademark office. The Company's application is pending.Auction Offerings ----------------- Traditional Auction Offerings PhilatelyPhilately, often referred to as stamp collecting, has grown in the United States and globally during the twentieth century. The hobby is increasing in popularity, due in part to the increased offerings from the United States Postal Service of popular interest issues. The Company believes, based on its knowledge of the market, that the combination of GMA with Ivy & Mader creates one of the world's largest combined philatelic auction houses, although there is limited publicly available data with respect to stamp auction sales, and provides a competitive advantage to the Company through the complementary nature of the two brands' targeted customer bases. In fiscal year 2000, the Company offered over 12,000 philatelic lots in its traditional auctions yielding over $14 million in aggregate sales. Comic BooksComic book and comic art collecting have recently experienced dramatic growth in popularity, stimulated in part by the introduction of third party grading and certification of comic books. Recognizing this trend, the Company aggressively pursued the comic book/art category during fiscal year 2000 and conducted two major traditional auctions of comic books/art. The Company believes it has established itself as the largest (measured by aggregate sales) rare comic book auctioneer and dealer in the world, although there is limited publicly available data with respect to comic book/art auctions. Hollywood & Rock `n Roll Memorabilia, Movie Posters and Sports Trading Cards & MemorabiliaDuring fiscal year 1999, the Company commenced expanding its collectibles product lines, adding Hollywood & Rock 'n Roll memorabilia, original movie posters & lobby cards, and sports trading cards & memorabilia to its offerings. In fiscal year 2000 the Company conducted 2 auctions of these collectibles, comprising over 900 lots each. Internet Auctions teletrade.comThe Company currently offers rare coins, sports trading cards, and un-mounted diamonds in its auctions. During fiscal year 2000, the Company held 145 coin auctions comprising approximately 1,000 lots each; 119 sports trading card auctions, comprising approximately 1,400 lots per week, and; one diamond auction each week comprising approximately 100 lots each. Company offers art, coins, comic books & art, un-mounted diamonds, Hollywood & Rock `n Roll memorabilia, movie posters, sports trading cards & memorabilia, stamps and other collectibles in Auctions, promoted on the web page. At fiscal year end, the Company was listing an average of 3,400 unique lots of consigned and owned collectibles on Auctions each month.Collectibles Auction CompetitionThe auction market, both traditional and Internet, for the collectibles offered by the Company is highly competitive and dynamic. With the exception of the low-end and consumer-to-consumer segments of the Internet auction market wherein eBay, Inc. has secured a dominant market position, no clear market leader exists. Traditional Auction CompetitorsAmong the Company's primary competitors in the domestic and worldwide philatelic auction business are Matthew Bennett, Inc., Charles Shreve Galleries, Inc., H.R. Harmer, and Robert A. Siegel Auction Galleries, Inc. In the sports trading card auction business, the Company's primary competitors are Mastro Fine Sports Auctions, Superior Galleries, Inc., Sports Trading Cards Plus, LLC, Collectors Universe, Inc. 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, Collectors Universe Inc.'s Bower's and Merena, and Superior. With respect to the Company's Hollywood Rock `n Roll memorabilia business, the Company's primary competitors are Butterfields & Butterfields Auctioneers, Inc., Sotheby's Holdings, Inc. and Christie's Inc. With respect to the Company's comic book business, the Company's primary competitor is Sotheby's Holdings, Inc. With respect to the Company's movie poster business, the Company's primary competitors are Ron Moore, Skinner, Inc., Butterfields & Butterfields Auctioneers, Inc., Sotheby's Holdings, Inc. and Christie's, Inc. Internet Auction CompetitorsA number of companies offer business-to-business and business-to-consumer auctions of collectibles, including eBay, Inc., Yahoo!, Inc.,, Inc., Interactive Collector, Inc. (d/b/a, Collectors Universe, Inc., and, Inc. Additionally, several companies host consumer-to-consumer auctions of collectibles. While the Company is not in the consumer-to-consumer auction business, these companies' services provide collectors the option to sell or buy their collectibles themselves; hence they may be deemed competitors since consumer-to-consumer auctions draw potential consignments from the Company's auctions. Consumer-to-consumer auction sites selling collectibles include: eBay, Inc., Yahoo!, Inc.,, Inc., FairMarket Network, Inc., The boxLot Company, eDeal Auction Network, and eHammer, LLC, among others. MERCHANT/DEALERGeneralIn order to complement and enhance the Company's auction business, the Company buys collectibles in its own name and resells them as a merchant/dealer.For a variety of reasons, some collectors require the immediate liquidation of their collections and cannot wait for an appropriate auction. Other collectors do not wish to sell by auction and prefer a negotiated, fixed price sale. In these instances, the Company uses its knowledge of the markets and product to make what the Company calls "opportunistic purchases." In most instances, collectibles purchased in this manner are resold within 180 days either in one of the Company's auctions or in a private treaty transaction. In other instances, either because the markets are not yet ripe or because the collection purchased is so large, it is most profitably sold over a period of time, the collectibles purchased are held in the Company's inventory and resold after 180 days.In addition to these "opportunistic buys," the Company continually searches the collectibles markets for favorable buying opportunities and buys individual pieces and collections to re-sell to a particular collector pursuant to a specific purchase request, to fill a need for one of its auctions to make that auction more attractive to the targeted audience, or to take advantage of what the Company believes is a favorable price and buying opportunity. In these circumstances, items purchased are generally resold in less than 180 days.The Company earns a profit or incurs a loss on the sale of owned inventory to the extent the sale price exceeds or is less than the purchase price paid by the Company. The Company intends to sell its owned inventory as quickly and efficiently as possible, thereby promoting a high level of inventory turnover and maintaining maximum liquidity.Merchant/Dealer Sales VenuesThe Company conducts its merchant/dealer business through four primary distribution channels: auctions, private sales, print advertisements (usually in collector specific publications), and Internet fixed-price sales on the web site and in's zShops(TM) web site. Private SalesIn a private sale, the Company contacts known collectors and sells specific, usually high or ultra-high end items, to such collectors at a privately negotiated price. When such sales are conducted of Company-owned items, the Company earns a profit based upon the sale price paid by the private buyer. The Company also conducts private sales of consigned items. In such instances, the Company earns a fee for its services. Generally, the fee is a percentage of the sale price however in some circumstances the Company will be paid a fixed, negotiated fee.Private treaty sales are typically settled more promptly than auction sales, with the buyer paying all or substantially all of the purchase price at the time of sale. In some circumstances, however, the buyer may receive extended payment terms. When this occurs, the Company and the seller will negotiate a settlement of the remaining amounts due the seller, which may or may not include a sharing of the credit risk or a deferral of a portion or all of the Company's fee until the Company has collected all of the outstanding balance from the buyer.A private treaty sale is attractive to some potential consignors because it provides an opportunity for a sale at a fixed price or at a price controlled by the consignor rather than by bidders as is the case at public auction. Often, a private treaty sale can be consummated more quickly than a sale at auction, providing increased liquidity for the seller. For the Company, private treaty sales provide an opportunity to realize increased revenues because such sales involve less costs than auction sales, primarily because there are minimal expenses associated with such sales. Internet Retail SalesThe Company sells its owned inventory on two eCommerce web sites that offer the retail sale of items from each of the Company's collectibles categories. Those web sites are and gregmanning.comThe Company is developing the web site as a comprehensive resource for collectors' needs. The site will feature a retail sales gallery offering a selection of fine collectibles in each of the Company's principal collectibles categories. Prices range from $25 to over $100,000. Currently the site offers fixed priced collectibles from the Company's own inventory. In the future, the site will offer collectibles from all categories sold by the Company and collectibles consigned to the Company for retail sale by third parties.Items are offered with a stated sale price, and are purchased by "clicking" a buy button and proceeding to the Company's eCommerce sales facility where the name, address, ship to and other information necessary to complete the sale is gathered. The Company offers customers the option of paying by major credit card, check, or wire transfer. If by credit card, the Company's electronic systems process the transaction. If by check or wire transfer, the Company's Customer Service department assists in facilitating the transaction. In all circumstances, the merchandise is only shipped after the Company is paid in full or appropriate credit arrangements have been made. to an agreement with Auction LLC, a wholly owned subsidiary of, Inc., the Company lists agreed quantities of coins, stamps, sports trading cards, sports memorabilia, comic books, movie posters, Hollywood and Rock 'n Roll memorabilia, un-mounted diamonds, and other collectibles in's fixed price eCommerce selling venue, zShops(TM), a minority shareholder of the Company, classifies the Company as a "Luminary Partner" and provides the Company branding on multiple zShops(TM) pages, a special co-branded web page, and other benefits. All items offered by the Company in's zShops(TM) are listed under a Greg Manning Collectibles banner, and are further distinguished by: 1) a comprehensive description of the offering, with third party grading if applicable; 2) an estimated value; and 3) a high-quality image of the lot.The Company offers 1,850 unique lots each month of owned and consigned collectibles in's zShops(TM). Customers are given the option of paying for the items bought either by using's "1-Click"(R) payment system or the Company's electronic payment system. Additionally, for higher priced items, the Company offers purchasers the option of paying by check or wire transfer.Merchant/Dealer CompetitionCompetition among dealers and merchants of the collectibles sold by the Company is intense. The market is comprised of thousands of merchant/dealers, as well as individual collectors buying and selling directly through consumer-to-consumer Internet trading platforms and at collectibles shows and conventions. Most of these competitors, however, are small, privately owned companies, and no large dominant competitor exists. Additionally, most competitors are focused on a single collectible category and do not have a multi-category presence similar to the Company's.Among the Company's primary competitors in the domestic and worldwide philatelic merchant/dealer business are Mystic Stamp Company, Superior Galleries, and Regency Stamps, Ltd. The Company's principal coin competitors are Heritage Rare Coin Galleries, Inc. and Stack's Rare Coins. In the sports trading card & memorabilia business, the Company's primary competitors are Sports Cards Plus, Piedmont Cards and Goodwin & Company. With respect to the Company's Hollywood Rock `n Roll memorabilia business, the Company's primary competitors are Stars and Starifacts. The Company's principal comic book and comic art competitors are Metropolis, Pacific Comics Exchange, and Comic Heaven. With respect to the Company's movie poster business, the Company's primary competitors are Last Moving Picture Company and Cinema Icons. WHOLESALE COIN SALESIn February 2000, the Company acquired Spectrum Numismatics International, Inc. ("Spectrum"), one of the leading coin wholesalers in the United States. The Spectrum business complements the Company's auction and merchant/dealer businesses by providing a supply of favorably priced coin offerings for its auctions and fixed price sales venues.The majority of Spectrum's revenue is generated from wholesale sales of coins and from sales of coins to retailers and auction houses. Additionally, Spectrum sells directly to a limited number of select private collectors.Based on its knowledge of the market, Spectrum believes that it is one of the largest wholesalers of rare coins in the United States (although there is no publicly available data to confirm this belief). Spectrum currently buys and sells, in the aggregate, over $8 million worth of coins monthly. DIRECT RESPONSE SALESEffective January 2000, the Company entered into agreements with Tristar Products, Inc. to create and mass-market high interest collectibles targeted to the beginning collector. Under the agreements, the Company created a subsidiary, Greg Manning Direct, Inc. ("GMD"), and is pursuing its direct response business through that entity.GMD will utilize television commercials and infomercials, print media, TV shopping channels, major retail chains and the Internet to sell and distribute its offerings. Sales operations commenced with the 50 State US Quarter Map and coin set. Future products will likely include other State Quarter offerings, as well stamp offerings with mass market appeal (such as Disney(R) character stamps), and sports memorabilia offerings. AUCTION POLICY & PROCEDURESUnless otherwise stated in the terms and conditions of a particular sale, each lot is sold as genuine and as described by the Company in the catalog or item description. However, when, 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, if the item is consigned to the Company, the Company will return the item to the consignor before a settlement payment has been made to such consignor. To date, returns have not been material. Large collections are generally sold on an "as is" basis.After an auction, purchasers must make arrangements to take possession of the items bought. The Company generally forwards the property to its buyer by mail unless other arrangements are requested. As agent of the consignor, the Company bills the buyer for property purchased, receives payment from the buyer, and remits to the consignor at the settlement date the consignor's portion of the buyer's payment, less consignor cash advances, if any, and commissions payable to the Company. The Company often releases property sold at auction to buyers - primarily dealers - before the Company receives payment, permitting such buyers to take immediate possession on an open credit account basis (within established credit limits) and to make payment generally within 30 days.Whether or not the Company has received payment from such well-established customers, it must pay the consignor and generally will do so no later than the contracted settlement date (generally 45 days after the sale of the consignor's property). In instances where the buyer has not paid as of settlement date, the Company assumes all risks of loss and responsibility of collection from the buyer.Extending credit to creditworthy buyers at auction is an important marketing tool for the Company because it allows buyers who may not have immediately available funds at time of auction the opportunity to settle at a later date. The Company will generally extend credit only to buyers who have done business with the Company in the past and have an established credit standing in the industry.When the Company does not grant credit to a buyer, under the standard terms and conditions of the Company's auction sales, it is not obligated to pay the consignor of the property if it has not been paid by the buyer. In such instances, the Company holds auctioned property until it receives payment from the buyer. If the buyer defaults on payment, the Company may cancel the sale and return the property to the owner, re-offer the property at another auction, or contact other bidders to negotiate a private sale. CLIENT SERVICES AND METHODS OF SALE FOR COLLECTIBLES OWNERSThe Company's business depends, in part, on its ability to attract owners of collectibles who desire to sell their property at auction or by private treaty. The Company seeks to provide the highest quality service to such owners, providing them with an efficient and secure means by which to sell their property. The Company's ability to provide quality service to its clients on a consistent basis has enabled it to develop long-standing relationships with many professional dealers and collectors and to develop a reputation in the industry for client service. The Company enjoys repeat business and receives a substantial amount of business as a result of referrals. In addition to its industry reputation, the Company relies on advertising in trade publications to promote its services to potential clients, such as professional dealers, collectors, and estate administrators.The Company is able to offer most clients several options for the sale of their property. An owner desiring to sell property may choose to: 1) consign it to the Company for sale at auction to the highest bidder; 2) place it with the Company under a private treaty for sale at a price negotiated by the Company with a buyer; or 3) sell it directly to the Company for a negotiated price. The Company has available to it a staff of experts who are knowledgeable in many areas of collectibles, and who are able to make reasonable estimates of the price at which an item may be expected to sell at auction or privately. The Company's experts can examine an owner's property and furnish a presale auction estimate, which represents the Company's opinion of the current value of the property based on recent selling prices of similar properties, and the quality, rarity, authenticity, physical condition and history of prior ownership of the subject item. These capabilities permit the Company to assist a client in deciding the appropriate method of sale.Generally, an owner desiring to use the Company's services to sell property at auction or by private treaty will deliver the property to the Company on a consignment basis, contracting with the Company to sell the property to the highest bidder. The Company and the consignor will enter into a written contract which sets forth the terms and conditions of the consignment with respect to settlement, commissions and cash advances, if any, and the determination of the authenticity of the property. Generally, the Company will hold consignment property until the next regularly scheduled auction sale, or if the sale is to be by private treaty, for no longer than six months. With respect to private treaty sales, if the consigned property is not sold within the agreed upon price parameters during such time, the Company will inform the owner of the situation and provide the owner with the following options: 1) continue for another period under a private treaty arrangement at the existing or at new price parameters; 2) consign the property for sale at the next auction; 3) sell the property outright to the Company at a price determined by the Company's experts; or 4) have the property returned.The Company's range of client services for owners of items to be auctioned includes making arrangements for the pick-up and transport of property (fully insured for loss or damage) to the Company's vault for storage and safe-keeping, and all matters relating to displaying and promoting the property to potential buyers. Certain aspects of these services are discussed in more detail in the following subsections. CONSIGNOR ADVANCESFrequently, an owner consigning property to the Company will request a cash advance at the time the property is delivered to the Company, prior to its ultimate sale at auction or otherwise. The cash advance is in the form of a self-liquidating secured loan, using the consigned property as collateral. The Company is a secured party with respect to the collateral, holds a security interest in the collateral and maintains possession of the collateral until it is sold.The ability to offer cash advances is often critical to the Company's ability to obtain consignments of desirable property. In the case of property sold at an auction, an owner may have to wait up to 45 days after the auction sale date for settlement and payment of the owner's portion of the sales proceeds. In many instances, an owner's motivation to consign property for sale may include a need for cash on an immediate basis. Offering cash advances allows the Company to attract owners who desire immediate liquidity while preserving the opportunity to sell at auction at the highest available price. The Company believes that its ability to make consignor advances on a consistent basis has enabled it to receive regular consignments of high value lots from professional dealers and private collectors.The amount of a cash advance generally does not exceed 50% of the Company's estimate of the value of the property when sold at auction. COMPUTERIZATION AND SECURITYThe Company maintains computerized tracking systems that are used to catalog and describe all of the property delivered to the Company. Property is stored in the Company's specialized vaults until it is sold or put on public exhibition, which in the case of property to be sold at auction is generally 21 days before auction.Tracking the consigned property aids in the prompt and efficient production of catalogs for auctions. Such catalogs are an important marketing tool for the Company to solicit business with both potential consignors and bidders. For potential consignors, the Company utilizes the catalogs from prior auction sales to demonstrate its expertise in presenting property to the bidders. For bidders, the Company utilizes the catalog as a direct solicitation and enticement for participation in a given auction. The Company believes that the computerization of the auction operations enables it to compete favorably with other auction houses in terms of service.The Company stores consigned property in high security vaults located at the West Caldwell headquarters and the Kingston, New York facility. The installed security system is rated by an alarm service company, and the Company believes that there is a significant level of protection of an owner's property from theft, fire and other causes of damage.In addition to the protection provided by the vaults, the Company provides insurance coverage for consigned property and the inventory of the Company. The Company maintains a policy with Lloyds of London that management believes provides adequate coverage for damage or loss while the property is stored at the Company's offices. The policy also provides what management believes is adequate coverage for damage or loss during the transportation of property from the customer to the Company's offices and from the Company's offices to an auction location. The Company maintains the flexibility to obtain higher limits for coverage as circumstances may require. RECENT EXPANSIONSpectrum Numismatics, InternationalEffective February 18, 2000, the Company acquired Spectrum Numismatics International ("Spectrum"). Founded in 1991, Spectrum has grown into one of the leading coin suppliers to coin retailers, coin dealers, coin auction houses, and eCommerce companies selling coins over the Internet. Spectrum's customers range from small dealers to very large, high-end clients, including both collectors and dealers.The Company believes that, with this acquisition, its sales will rank it in the top three in the collectibles categories of coins (although there is limited publicly available data with respect to sales).Greg Manning DirectEffective January 26, 2000, the Company formed Greg Manning Direct, Inc. ("GMD") to produce and market collectibles for the mass merchandising market. In connection with this transaction, the Company signed a management agreement with Tristar Products, Inc.("Tristar"), a privately owned Pennsylvania company with its principal offices in Parsippany, NJ. Under the agreement, Tristar manages the operations of GMD and bears all costs and expenses with respect to product creation, inventory and advertising. The Company is responsible for product sourcing, as well as new product development with a variety of collectibles, including art, coins, comic books & art, diamonds, Hollywood & Rock `n Roll memorabilia, movie posters, sports trading cards & memorabilia, and stamps.Effective May 2000, GMD purchased certain assets of Tristar for an amount not to exceed $12,000,000 payable in the Company's common stock over a specified period of,, Inc., a 48% owned investment of the Company, beneficially owns and operates, a Chinese language cybermall, auction web site and vertical portal in cellular telephones, electronics and collectibles. The cybermall, as of June 30, 2000, comprised 5,000+ merchant partners offering 100,000+ products and 300,000+ registered club members.Additionally, owns 65% of China Everbright Telecom-Land Network Limited, which owns 95% of Everbright Telecom-Land Ltd. ("EBT"), a retail cell phone distribution network with 180 retail stores and kiosks strategically located in China's 10 major urban centers., Inc. exclusively manages EBT. China Everbright Technology Limited, a Hong Kong listed public company (SEHK: 256), majority owned by the China Everbright Group, owns the remaining 35% of China Everbright Telecom-Land Network Limited. is converting the EBT stores into dual-purpose facilities: cell phone stores and Internet service centers where customers may pay for goods purchased online and receive delivery of electronically purchased items. Additionally, certain of the EBT stores will have publicly accessible computer terminals linked to the cybermall which customers may use to browse and shop on-line in the cybermall.In September, 2000, the Bureau of Internal Trade of the Peoples Republic of China appointed to build and manage a B2B trading platform and destination website for China's new and used automobile and auto parts distribution industry. Additionally, the Bureau designated the project a "Key Electronic Business Project of the China Bureau of Internal Trade.",, Inc., a 50% owned investment of the Company, is a joint venture between the Company and Afinsa Bienes Tangibles S.A., of Spain., Inc. is targeting the European and Latin American collectibles markets through is Internet auction portal This venture, still in its early development stage, intends to offer collectors and vendors a site to carry out business-to-business, business-to-consumer and consumer-to-consumer transactions, and is intended to be the largest search engine/operator of collectibles in Europe and Latin-America. As of June, 30, 2000, Afinsa owned 19% of and approximately 12% of GMAI. FUTURE PLANNED EXPANSIONThe Company continues to evaluate potential acquisition candidates in the collectibles industry and believes that acquisitions are potentially the most effective means to grow market share in its existing collectibles categories and to expand into certain new collectibles areas. REGULATORY MATTERSRegulation of the auction business varies from jurisdiction to jurisdiction, and to the best of management's knowledge and belief, the Company is in compliance with all material and significant regulations governing its business activities. EMPLOYEESThe Company presently has 76 full-time employees, including its President, Chief Executive Officer and Chairman of the Board, Greg Manning and Chief Financial Officer, James A. Smith. The Company also employs James Reiman as Executive Vice President of Strategic Development. The Company also hires persons on a temporary basis to assist in organizing its auctions and for other specialized purposes.

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