Table of Contents





UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


RQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009


Or


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from  to





Commission File Number: 1-11988





SPECTRUM GROUP INTERNATIONAL, INC.


(Exact Name of Registrant as Specified in Its Charter)


Delaware(State of Incorporation)22-2365834(IRS Employer I.D. No.)
 1063 McGaw


Irvine, CA 92614





(Address of Principal Executive Offices) (Zip Code)


(949) 748-4800





Registrant’s Telephone Number, Including Area Code


Indicate by check mark whether the registrant (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 such filing requirements for the past 90 days. Yes. R No. o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes. o No. o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated fileroAccelerated fileroNon-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyR


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R


Number of shares outstanding of each of the issuer’s classes of common stock as of May 15, 2009 :


28,308,637 shares of Common Stock, $.01 par value per share.


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SPECTRUM GROUP INTERNATIONAL, INC.


FORM 10-Q


For the Quarter Ended March 31, 2009





Table of Contents


PagePart I.Financial InformationItem 1.Condensed Consolidated Financial Statements (UNAUDITED):Condensed Consolidated Balance Sheets as of March 31, 2009 and June 30, 20084Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2009 and 20085Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive Income (Loss) for the Nine Months Ended March 31, 20096Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2009 and 20087Notes to Condensed Consolidated Financial Statements8Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations26Item 3.Quantitative and Qualitative Disclosure About Market Risk34Item 4.Controls and Procedures34Part II.Other Information34Item 1.Legal Proceedings34Item 1A.Risk Factors34Item 2.Unregistered Sales of Equity Securities and Use of Proceeds34Item 3.Defaults Upon Senior Securities35Item 4.Submission of Matters to a Vote of Security Holders35Item 5.Other Information35Item 6.Exhibits35SignaturesExhibitsExhibits 31.1Certification of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002Exhibits 31.2Certification of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002Exhibits 32.1Chief Executive Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002Exhibits 32.2Chief Financial Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002


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Introductory Note


As previously disclosed, Spectrum Group International, Inc. ("SGI" or the "Company") undertook to file its quarterly reports on Form 10-Q for the fiscal year ended June 30, 2009, by June 30, 2012.  These reports had not previously been filed.





Set forth herein is the Company's Report on Form 10-Q for the quarter ended March 31, 2009.





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PART I—FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS





SPECTRUM GROUP INTERNATIONAL, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)


(Unaudited)


March 31, 2009June 30, 2008 (1)ASSETS(restated)Current assets:Cash and cash equivalents$17,830$35,860Restricted cash650——Short-term investments and marketable securities2,316—Receivables and secured loans, net — trading operations39,29825,874Accounts receivable and consignor advances, net — collectibles operations7,2127,014Litigation settlement receivable—5,975Inventory, net126,266130,653Deferred income taxes—189Prepaid expenses and other assets1,7094,355Total current assets195,281209,920Long-term inventory, net—297Property and equipment, net2,2271,767Real estate held for sale—1,640Goodwill6,5256,525Other purchased intangibles, net8,6808,673Other assets2,539108Income tax receivables1,1621,463Deferred tax assets753—Total assets$217,167$230,393LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable, customer deposits and consignor payables$27,080$29,570Liability on borrowed metals16,61318,789Accrued expenses, accrued compensation and other current liabilities22,76615,737Accrued litigation settlement6,55514,995Income taxes payable6,1122,232Line of credit48,90065,747Deferred tax liability1,821—Other current liabilities499454Total current liabilities130,346147,524Deferred and other long-term tax liabilities5451,704Total liabilities130,891149,228Minority interests9,5366,315Commitments, contingencies and subsequent events (notes 11 and 17)Stockholders’ equity:Preferred stock, $.01 par value, authorized 10,000 shares; issued and outstanding: none——Common stock, $.01 par value, authorized 40,000 shares; issued and outstanding: 28,297 and 28,209 at December 31, 2008 and June 30, 2008, respectively283282Additional paid-in capital232,978232,123Accumulated other comprehensive income5,85613,141Accumulated deficit(162,377)(170,696)Total stockholders’ equity76,74074,850Total liabilities and stockholders’ equity$217,167$230,393


______________________


(1) The Condensed Consolidated Balance Sheet as of June 30, 2008 has been derived from the audited consolidated financial statements included in the Company's 2008 Annual Report on Form 8-K, as restated.





See accompanying notes to Condensed Consolidated Financial Statements


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SPECTRUM GROUP INTERNATIONAL, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share data)


(Unaudited)


Three Months EndedNine Months EndedMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Revenues:Sales of precious metals$1,041,334$849,003$3,020,523$1,975,246Collectibles revenues:Sales of inventory33,25039,98197,709108,042Auction commissions earned3,9016,92712,99416,433Total revenue1,078,485895,9113,131,2262,099,721Cost of sales:Cost of precious metals sold1,027,211844,3612,983,6311,964,482Cost of collectibles sold31,42035,24991,90592,487Total cost of sales1,058,631879,6103,075,5362,056,969Gross profit19,85416,30155,69042,752Operating expenses:General and administrative8,3568,17721,71023,627Salaries and wages9,7666,12425,82715,491Depreciation and amortization4605111,3511,380Litigation settlement———9,020Total operating expenses18,58214,81248,88849,518Operating income (loss)1,2721,4896,802(6,766)Interest and other income (expense):Interest income1,5431,1293,8623,172Interest expense(432)(973)(1,892)(2,913)Other income (expense), net(375)5623592,097Unrealized gain (loss) on foreign currency1,769(813)4,740(2,439)Total interest, other income (expense), foreign currency gain (loss)2,505(95)7,069(83)Income (loss) before provision for income taxes and minority interests3,7771,39413,871(6,849)Provision for income taxes (income tax benefit)5203392,331660Minority interests1,1651983,221369Net income (loss)$2,092$857$8,319$(7,878)Basic and diluted income (loss) per share:Basic$0.07$0.03$0.27$(0.28)Diluted$0.07$0.03$0.26$(0.28)Weighted average shares outstandingBasic31,61628,13630,74828,136Diluted32,08928,38031,44828,136


See accompanying notes to Condensed Consolidated Financial Statements


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SPECTRUM GROUP INTERNATIONAL, INC.


CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)


(in thousands)


(Unaudited)


Common Stock in SharesCommon Stock in ($)Additional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal  Stockholders’ EquityComprehensive Income (Loss)Balance, June 30, 200828,209$282$232,123$13,141$(169,322)$76,224Restatement adjustments (note 1)————(1,374)(1,374)Balance,  June 30, 2008 (restated)28,209282232,12313,141(170,696)74,850Net income————8,3198,319$8,319Unrealized gain on marketable securities, net of tax———94—9494Change in cumulative foreign currency translation adjustment———(7,379)—(7,379)(7,379)Comprehensive income——————$1,034Issuance of stock for class action settlement77281,437——1,445Repurchase of stock issued for class action settlement(772)(8)(1,190)——(1,198)Taxes paid in exchange for cancellation of restricted shares——(98)——(98)Share based compensation——707——707Issuance of common stock for restricted stock grants881(1)———Balance, March 31, 200928,297$283$232,978$5,856$(162,377)$76,740





See accompanying notes to Condensed Consolidated Financial Statements.





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 SPECTRUM GROUP INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (Unaudited)


Nine Months EndedMarch 31, 2009March 31, 2008Cash flows from operating activities:Net income (loss)$8,319$(7,878)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:Depreciation and amortization1,3511,380Provision for bad debts69620Provision for inventory reserve1,142911Provision (benefit) for deferred taxes97(921)Stock based compensation707446Minority interests3,221369Gain on sale of marketable securities—(33)Changes in assets and liabilities:Accounts receivable and consignor advances(267)(4,955)Receivables and secured loans(12,899)(24,872)Litigation settlement receivable5,975(5,975)Inventory5,743(9,085)Prepaid expenses and other assets1,8012,167Accounts payable, accrued expenses and other liabilities1,65818,468Income taxes4,1171,341Accrued litigation settlement(6,995)14,995Net cash provided by (used in) operating activities14,039(13,022)Cash flows from investing activities:Capital expenditures for property and equipment(908)(558)Cash paid for acquisition, net of cash received(672)—Cash paid for other intangibles(39)—Purchases of short term investments(630)—Increase in restricted cash(650)—Purchases of marketable securities(1,473)—Net cash used in investing activities(4,372)(558)Cash flows from financing activities:Borrowings (repayments) under lines of credit, net(16,847)12,698Borrowings under notes payable—(2,350)Liability on borrowed metals(2,176)3,463Repurchase of shares issued for class action settlement(1,197)—Taxes paid on behalf of employees with respect to vesting of restricted shares(98)—Dividends paid to minority interests—(588)Net cash provided by (used in) financing activities(20,318)13,223Effects of exchange rates on cash(7,379)3,251Net increase (decrease) in cash and cash equivalents(18,030)2,894Cash and cash equivalents, beginning of period35,86021,168Cash and cash equivalents, end of period$17,830$24,062Supplemental disclosures of cash flow information:Cash paid during the period:Interest expense$1,467$2,820Income taxes$485$664


See accompanying notes to Condensed Consolidated Financial Statements


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SPECTRUM GROUP INTERNATIONAL, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation


The condensed consolidated financial statements reflect the financial condition, results of operations, and cash flows of Spectrum Group International, Inc. (the “Company” or “SGI”) and its subsidiaries, and were prepared utilizing accounting principles generally accepted in the United States (“U.S. GAAP”). The Company conducts its operations in two reportable segments: Trading and Collectibles. Each of these reportable segments represent an aggregation of various operating segments that meet the aggregation criteria set forth in Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”).


Unaudited Interim Financial Information


The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), and Condensed Consolidated Statements of Cash Flows for the periods presented in accordance with U.S. GAAP. Operating results for the three and nine months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2009 or for any other interim period during such year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report for the fiscal years ended June 30, 2009 and June 30, 2008 as filed on Forms 10-K and 8-K (the “2009 Annual Report” and the “ 2008 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2008 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2009 and 2008 Annual Reports.


The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions including inter-company profits and losses, and inter-company balances have been eliminated in consolidation.


The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of lower of cost or market estimates for inventory and allowances for doubtful accounts, impairment assessments of long-lived assets and intangibles, valuation reserve determinations on deferred tax assets, calculations of loss accruals and other complex contingent liabilities, and revenue recognition judgments. Significant estimates also include the Company's fair value determinations with respect to its financial instruments and precious metals materials. Actual results could materially differ from those estimates.


Business Segments


Trading Segment





The Company's trading business is conducted through A-Mark Precious Metals, Inc. (“A-Mark”) and its subsidiaries. A-Mark is a full-service precious metals trading company. Its products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain. The Company's trading-related services include financing, leasing, consignment, hedging and various customized financial programs. The Company owns 80% of A-Mark through its 80% ownership interest in Spectrum PMI, Inc. (“SPMI”), which owns all of the common stock of A-Mark. The remaining 20% of SPMI is owned by Auctentia, S.L. (“Auctentia”), a wholly owned subsidiary of Afinsa Bienes Tangibles, S.A. (“Afinsa”), which, together with Auctentia, owns approximately 66% of the Company's outstanding common stock at March 31, 2009 . Through its subsidiary Collateral Finance Corporation (“CFC”), a licensed California Finance Lender, A-Mark offers loans on precious metals and rare coins collateral to coin dealers, collectors and investors.





Collectibles Segment





The Company's collectibles business operates as an integrated network of global companies concentrating on numismatic (coins and currencies) and philatelic (stamps) materials, rare and fine vintage wine, antique arms and armor, and historical memorabilia (militaria).  Products are offered by way of auction or private treaty sales. The Company has offices and auction houses in North America, Europe and Asia. In addition to traditional live auctions, the Company also conducts Internet and telephone auctions.


European Operations





The European Operations (the “European Operations”) of the Company comprise nine European companies, each of which is wholly-owned by the Company. The European Operations are primarily engaged in the sale of philatelic materials by auction.





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Summary of Significant Accounting Policies


There have been no significant changes to the Company’s significant accounting policies during the nine months ended March 31, 2009 . See Footnote 2 of the Company’s consolidated financial statements included in the Company’s 2009 and 2008 Annual Reports for a comprehensive description of the Company’s significant accounting policies.


Restatements of Previously Issued Consolidated Financial Statements


The Company restated its 2008 consolidated balance sheet and statement of stockholders' equity in a previous filing on Form 10-K for the year ended June 30, 2009, which was filed on October 8, 2009.  The adjustment removed a $888,000 deferred tax liability that was reflected improperly therein. Such adjustment resulted in an increase to retained earnings as of June 30, 2007.  The Company also corrected an error in prior period financial statements by adjusting the opening balance sheet in a previous filing on Form 10-K for the year ended June 30, 2011, which was filed on September 23, 2011.  This error pertained to a $2.3 million overstatement of income tax receivable related to an overstatement in June 30, 2007 taxable loss.  The 2008 consolidated balance sheet and statement of stockholders' equity presented herein reflect these previously filed restatements.





Short-Term Investments and Marketable Securities


Short-term investments represent uninsured bank notes with maturities greater than 90 days held by the Company's European Operations. The Company's short-term investments are carried at the lower of cost or market.


The Company classifies and accounts for debt and equity securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company has classified all of its marketable securities as available for sale, thus securities are recorded at fair market value and any associated unrealized gain or loss, net of deferred tax, is included as a separate component of stockholder's equity, within accumulated other comprehensive income.


Fair Value Measurements


Effective July 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements”, which defines fair value for financial reporting. The Company has valued its assets and liabilities subject to fair value determination in accordance with the valuation hierarchy defined within SFAS 157. See further discussion in Note 16.





The FASB issued FASB Staff Position (“FSP”) No. 157-2 which delays for one year the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. This delay lapsed for the Company effective July 1, 2009.





Presentation of Certain Direct Costs and Cash Flows


During the quarter ended December 31, 2009, the Company began efforts to develop an improved company-wide financial consolidation. The new process streamlined the preparation of the Company's consolidated financial statements and provided greater visibility into its divisional and consolidated results of operations and financial position. The application of the new reporting process identified certain errors in classification in the Company's consolidated statements of operations.


During the quarter ended June 30, 2010, the Company discovered that the 2009 consolidated statement of cash flows incorrectly reported (1) the change in liability associated with borrowed metals used in trading operations within financing activities rather than operating activities and (2) unrealized foreign currency gain from the transaction adjustments of our European-denominated loans as effects of exchange rates on cash rather than as an adjustment to net income to arrive at cash flows from operations.  The need to adjust previously-reported amounts was identified principally as a result of the enhanced visibility provided by the new consolidation process. The Company reclassified only the previously-reported amounts presented in periodic reports beginning with the year ended June 30, 2010.  The Company has not reclassified such items in the accompanying condensed consolidated statements of cash flows for the six months ended December 31, 2008 and 2007 as such amounts are not material.


During the quarter ended September 30, 2010, management of the Company identified certain errors in classification of expenses reflected in the Company's consolidated statements of operations. Specifically, certain direct costs related to providing auction services and sales of collectible goods were improperly reflected as selling, general and administrative expenses and were reclassified to auction service expense and cost of collectibles sold, components of cost of sales. The need to adjust previously-reported amounts was identified principally as a result of the enhanced visibility provided by the detail of such related accounts. The Company reclassified only the previously-reported amounts presented in periodic reports beginning with the quarterly filing for the quarter ended September 30, 2010.  The Company has not reclassified such costs in the accompanying condensed consolidated statements of operations for the three and nine months ended March 31, 2009 and 2008 as such amounts are not material.


Comprehensive Income (Loss)


The components of our comprehensive income (loss) for the nine months ended March 31, 2009 and 2008 primarily include net income (loss), adjustments to stockholders’ equity for the foreign currency translation adjustments, and changes in net unrealized gain (loss) on available-for-sale securities. The foreign currency translation adjustment was due to exchange rate fluctuations in our foreign affiliates’ local currencies.


The following is our comprehensive income (loss) with the respective tax impacts for the nine month periods ending March 31, 2009 and 2008 :


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Nine Months Endedin thousandsMarch 31, 2009March 31, 2008Net income (loss)$8,319$(7,878)Other comprehensive income (loss), net of tax:Changes in unrealized gain (loss) on marketable securities, net of tax94(33)Foreign currency translation adjustment(7,379)8,443Comprehensive income (loss)$1,034$532





Foreign Currency Translation Gains (Losses)


The consolidated financial position and results of operations of the Company’s foreign subsidiaries are determined using local currencies as the functional currencies. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end.  Statements of operations accounts are translated at the average rate of exchange prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period-to-period are included in accumulated other comprehensive income, a component of stockholders’ equity. Gains and losses resulting from other foreign currency transactions are included in interest and other income (expense) in the condensed consolidated statements of operations.


For the three and nine months ended March 31, 2009 and 2008 , the Company recognized unrealized gains (losses) of $1.8 million and $4.7 million and $(0.8) million and $(2.4) million , respectively, on foreign currency in the condensed consolidated statements of operations in connection with the translation adjustments of Euro denominated loans totaling $26.0 million and $23.8 million at March 31, 2009 and 2008 , owed by SGI to certain of its subsidiaries included in its European Operations.


Income Taxes


The Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the provisions of SFAS  No. 109, Accounting for Income Taxes (“SFAS No. 109”). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits, the Company does not consider information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company's condensed consolidated financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits.


The Company records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. When assessing the need for valuation allowances, the Company considers future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.


Changes in recognized tax benefits and changes in valuation allowances could be material to the Company's results of operations for any period, but is not expected to be material to the Company's consolidated financial position.


On July 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. FIN 48 prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. The potential interest and/or penalties associated with an uncertain tax position are recorded in provision (benefit) for income taxes on the Condensed Consolidated Statement of Operations.


Earnings Per Share


Basic earnings per share does not include the effects of potentially dilutive stock options and other long-term incentive stock awards, and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects, in periods in which they have a dilutive effect, commitments to issue common stock and common stock issuable upon exercise of stock options for periods in which the options’ exercise price is lower than the Company's average share price for the period.


A reconciliation of shares used in calculating basic and diluted earnings per common shares follows. In computing diluted earnings per share for the three and nine months ended March 31, 2009 , the Company excluded options to purchase 598,075 and 370,700 shares of common stock and 37,500 stock appreciation rights (“SARS”), for both periods, where exercise prices were in excess of the quoted market price of the Company's common stock because inclusion would be anti-dilutive. In computing diluted earnings per share for the three months ended March 31, 2008 ,


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the Company excluded options to purchase 389,825 shares of common stock and 37,500 SARS, where exercise prices were in excess of the quoted market price of the Company's common stock because inclusion would be anti-dilutive.  Since the Company incurred a net loss for the nine months ended March 31, 2008, basic and diluted loss per share were the same because the inclusion of 1,050,717 potential common shares, related to 613,325 outstanding stock options, 399,892 restricted stock grants, and 37,500 SARs in the computation of net loss per share would have been anti-dilutive.  There is no dilutive effect of stock appreciation rights as such obligations are not settled and were out of the money at March 31, 2009 and 2008 .


A reconciliation of basic and diluted shares is as follows:


Three Months EndedNine Months Endedin thousandsMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Basic weighted average shares outstanding (1)(2)31,61628,13630,74828,136Effect of common stock equivalents — stock options and stock issuable under employee compensation plans473244700—Diluted weighted average shares outstanding32,08928,38031,44828,136





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|(1) | Basic weighted average shares, for the three and nine months endedMarch 31, 2009and 2008 include the effect of vested but unissued restricted stock grants.




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|(2) | Basic weighted average shares, for the three and nine months endedMarch 31, 2009and 2008 include the effect of 3,277,777 shares issuable pursuant to the securities class action and shareholder derivative litigation settlement as of the date the settlement agreement was executed. See further discussion in the Legal Proceedings section of the Company's 2009 Annual Report, and in Note 15 to the Notes to the Consolidated Financial Statements in its 2009 Annual Report.

Recent Accounting Pronouncements





In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”), which is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. This standard is a revision to the FASB issued Statement No. 141, Business Combinations (“SFAS No. 141”). The revised statement requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The impact upon adoption and its effects on future periods will depend on the nature and significance of business combinations subject to this Statement.


In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies . This FSP requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated.  If fair value cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS No. 5, Accounting for Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. Further, the FASB removed the subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS No. 14(R). The requirements of this FSP carry forward without significant revision the guidance on contingencies of SFAS No. 141, Business Combinations , which was superseded by SFAS No. 141(R) (see previous paragraph). The FSP also eliminates the requirement to disclose an estimate of the range of possible outcomes of recognized contingencies at the acquisition date.  For unrecognized contingencies, the FASB requires that entities include only the disclosures required by SFAS No. 5. This FSP will be adopted effective July 1, 2009. The impact upon adoption and its effects on future periods will depend on the nature and significance of business combinations subject to this Statement.


In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160 requires that non-controlling (minority) interests be reported as a component of equity, that net income attributable to the parent and to the non-controlling interest be separately identified in the income statement, that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS No. 160 is an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements and related interpretations. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial position or results of operations.


In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS No. 161”), which expands the disclosure requirements in SFAS No. 133, Accounting for  Derivative Instruments and Hedging Activities . SFAS No. 161’s disclosure provisions apply to all entities with derivative instruments subject to SFAS No. 133 and its related interpretations. The provisions also apply to related hedged items, bifurcated derivatives, and non-derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS No. 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. Such disclosures, as well as existing SFAS No. 133 required disclosures, generally will need to be presented for every annual and interim reporting period. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The adoption of this statement is not expected to


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have a material impact on the Company’s consolidated financial position or results of operations.


In May 2009, the FASB issued SFAS No. 165, Subsequent Events . This Statement sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This Statement is effective for interim and annual periods ending after June 15, 2009. This Statement is not expected to have a material impact on the Company's consolidated results of operations or financial position other than requiring additional disclosures.


In June 2009, the FASB Issued SFAS No. 166, Accounting for Transfers of Financial Assets (“SFAS No. 166”).  SFAS No. 166 amends SFAS No. 140 by removing the exemption from consolidation for Qualifying Special Purpose Entities (“QSPEs”). This Statement also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The Company will adopt this Statement for interim and annual reporting periods beginning on July 1, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial position or results of operations.


In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) , (“SFAS 167”). SFAS 167 amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial position or results of operations.








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|2. | CUSTOMER CONCENTRATIONS

Customers providing 10 percent or more of the Company's Trading segment revenues for the three and nine months ended March 31, 2009 and 2008 are listed below:


Three months endedNine Months EndedMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008in thousandsin $’sas a %in $’sas a %in $’sas a %in $’sas a %Total Trading segment revenue$1,041,334100.0%$849,003100.0%$3,020,523100.0%$1,975,246100.0%Trading segment customer concentrationsCustomer A$271,39326.1%$148,19917.5%$647,26921.4%$296,09615.0%Customer B130,63612.5%2,2000.3%156,2525.2%2,2560.1%Total$402,02938.6%$150,39917.7%$803,52126.6%$298,35215.1%


Customers providing 10 percent or more of the Company's Trading segment's accounts receivable, excluding $15.2 million and $10.1 million secured loans, as of March 31, 2009 and June 30, 2008 , respectively, are listed below:


March 31, 2009June 30, 2008in thousandsin $’sas a %in $’sas a %Trading segment accounts receivable$22,073100.0%$7,835100.0%Trading segment customer concentrationsCustomer C$3,63216.5%$——%Customer D——1,82123.2Customer E——1,79822.9Total$3,63216.5%$3,61946.1%


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Customers providing 10 percent or more of the Company's Trading segment's secured loans as of March 31, 2009 and June 30, 2008 , respectively, are listed below:


March 31, 2009June 30, 2008in thousandsin $’sas a %in $’sas a %Trading segment secured loans$15,244100.0%$10,135100.0%Trading segment customer concentrationsCustomer F$1,75811.5%$2,00019.7%Customer G1,74511.41,75017.3Customer H1,57110.31,0009.9Customer I1,4029.21,46314.4Total$6,47642.5%$6,21361.3%


The loss of any of the above customers of the Trading segment could have a material adverse effect on the operations of the Company.  For the three and nine months ended March 31, 2009 and 2008 and as of March 31, 2009 and June 30, 2008 , the Collectibles segment had no reportable concentrations.





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|3. | RECEIVABLES

Receivables and secured loans from the Company's trading segment consist of the following as of March 31, 2009 and June 30, 2008 :


in thousandsMarch 31, 2009June 30, 2008Customer trade receivables$84$3,972Wholesale trade advances11,7833,540Secured loans15,24410,135Due from brokers and other10,206323Subtotal37,31717,970Less: allowance for doubtful accounts(55)(30)Subtotal37,26217,940Derivative assets — futures contracts—6,336Derivative assets — open purchase and sales commitments2,0361,598Receivables and secured loans, net — trading operations$39,298$25,874


Customer trade receivables represent short-term, non-interest bearing amounts due from metal sales and are generally secured by the related metals stored with the Company, a letter of credit issued on behalf of the customer, or other secured interests in assets of the customer.


Wholesale trade advances represent advances of refined materials to customers, secured by unrefined materials received from the customer. These advances are limited to a portion of the unrefined materials received. These advances are unsecured, short-term, non-interest bearing advances made to wholesale metals dealers and government mints.


Secured loans represent short term loans made to customers of CFC. Loans are fully secured by bullion, numismatic and semi-numismatic material which are held in safekeeping by CFC. As of March 31, 2009 and June 30, 2008 , the loans carried an average effective interest rate of 9.7% and 10.1% , respectively. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts.


The Company's derivative liabilities (see Note 9) represent the net fair value of the difference between market value and trade value at trade date for open metals purchases and sales contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled. The Company's derivative assets represent the net fair value of open metals forwards and futures contracts. The metals forwards and futures contracts are settled at the contract settlement date.


Accounts receivable and consignor advances from the Company's Collectibles segment consist of the following as of March 31, 2009 and June 30, 2008 :


in thousandsMarch 31, 2009June 30, 2008Auction and trade$7,494$7,505Less: allowance for doubtful accounts(282)(491)Accounts receivable and consignor advances, net — collectibles operations$7,212$7,014


The Company frequently extends trade credit in connection with its auction sales. The Company evaluates each customer's creditworthiness on


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a case-by-case basis. Generally, the customers that receive trade credit are established collectors and professional dealers that have regularly purchased property at the Company's auctions or whose reputation within the industry is known and respected by the Company. The Company makes judgments as to the ability to collect outstanding auction and consignor advances receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. The Company continuously monitors payments from its customers and maintains allowances for doubtful accounts for estimated losses in the period they become probable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of March 31, 2009 and June 30, 2008 is adequate. However, actual write-offs could exceed the recorded allowance.


Activity in the total allowance for doubtful accounts for the Trading and Collectible segments for the nine months ended March 31, 2009 and the year ended June 30, 2008 are as follows:


in thousandsMarch 31, 2009June 30, 2008Beginning balance$(521)$(509)Provision for loss(69)(66)Charge off to reserve204132Foreign currency exchange rate changes49(78)Ending balance$(337)$(521)





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|4. | INVENTORIES

The Trading segment's inventories primarily include bullion and bullion coins and are stated at published market values plus purchase premiums paid on acquisition of the metal. The amount of premium included in the inventories as of March 31, 2009 and June 30, 2008 totaled $723,000 and $719,000 , respectively.  Commemorative coins, which are not hedged, are included in inventory at the lower of cost or market totaled $2.2 million and $1.4 million , respectively. For the nine months ended March 31, 2009 and 2008 , the unrealized gains (loss) resulting from the difference between market value and cost of physical inventories totaled $0.0 million $2.9 million and $6.3 million , respectively.  These unrealized gains are included as a reduction of the cost of products sold in the accompanying condensed consolidated statements of operations. Such gains are generally offset by the results of hedging transactions, which have been reflected as a net gain on derivative instruments, which is a component of cost of products sold in the condensed consolidated statements of operations.


The Trading segment's inventories include amounts borrowed from various suppliers under ongoing agreements totaling $16.6 million as of March 31, 2009 and $18.8 million as of June 30, 2008 . A corresponding obligation related to metals borrowed is reflected on the condensed consolidated balance sheets. The Trading Segment also protects substantially all of its physical inventories from market risk through commodity hedge transactions (See Note 9).


The Trading segment 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 as of March 31, 2009 and June 30, 2008 totaled $15.9 million and $15.6 million , respectively. Such inventory is removed at the time the customer elects to price and purchase the metals, and the Company records a corresponding sale and receivable. 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 under an all-risk insurance policy with the Company as the loss-payee.


Inventories as of March 31, 2009 and June 30, 2008 consisted of the following:


in thousandsMarch 31, 2009June 30, 2008Trading segment inventory$97,243$96,401Less: provision for loss(104)(104)Trading, net$97,139$96,297Collectibles segment inventory$30,364$45,417Less: provision for loss(1,237)(10,764)Collectibles, net$29,127$34,653Total inventory, gross$127,607$141,818Less: provision for loss(1,341)(10,868)Net inventory126,266130,950Less: current inventory(126,266)(130,653)Long-term inventory, net$—$297


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Activity in the allowance for inventory loss reserves for the nine months ended March 31, 2009 are as follows:


in thousandsBalance, June 30, 2008$(10,868)Provision for loss(1,142)Charge off to reserve7,906Foreign currency exchange rate charges2,763Balance, March 31, 2009$(1,341)








5. GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS


The changes in the carrying values of goodwill by business segments for the nine months ended March 31, 2009 are described below:


in thousandsJune 30, 2008Additions andAdjustmentsImpairmentsMarch 31, 2009Trading$4,884$—$—$4,884Collectibles1,641——1,641$6,525$—$—$6,525


Cumulative goodwill impairment totaled $3.4 million as of March 31, 2009 and June 30, 2008 .


The carrying value of other purchased intangibles as of March 31, 2009 and June 30, 2008 is as described below:


March 31, 2009June 30, 2008in thousandsEstimated Useful Lives (Years)Gross Carrying AmountAccumulated AmortizationImpairmentNet Book ValueGross Carrying AmountAccumulated AmortizationImpairmentNet Book ValueTrademarksIndefinite$2,576$—$—$2,576$2,033$—$—$2,033Customer lists5 - 159,161(3,341)—5,8208,890(2,854)—6,036Non-compete and other4 - 152,358(2,074)—2842,260(1,656)—604Purchased intangibles subject to amortization11,519(5,415)—6,10411,150(4,510)—6,640$14,095$(5,415)$—$8,680$13,183$(4,510)$—$8,673





The Company's other purchased intangible assets are subject to amortization except for trademarks, which have an indefinite life. Amortization expense related to the Company's intangible assets for the three and nine months ended March 31, 2009 and 2008 were $0.3 million , $0.9 million , $0.4 million , and $1.0 million .


In December 2008, the Company purchased Ponterio & Associates for $792,000, of which $592,000 was paid in December 2008, and $200,000 was paid in December 2009. The Company entered into an earn-out agreement in connection with the purchase of Ponterio & Associates in which the Company was obligated to provide additional consideration, thus increasing the original purchase price, based on performance provisions of qualified earnings during the period from December 1, 2008 through November 30, 2009. The Company recorded purchased intangibles relating to this purchase totaling $854,000.


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As of March 31, 2009, estimated amortization expense on an annual basis for the succeeding five years is as follows (in thousands):


Periods ending June 30,Amount2009 (remaining 3 months)$3082010724201164620125762013524Thereafter3,326Total$6,104








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|6. | ACCOUNTS PAYABLE AND CONSIGNOR PAYABLES

Accounts payable consists of the following:


in thousandsMarch 31, 2009June 30, 2008Trade payable to customers and consignor payables$7,337$13,330Advances from customers13,9316,165Net liability on margin accounts4,8177,872Due to brokers—844Other accounts payable471828Derivative liabilities — futures contracts524—Derivative liabilities — forward contracts—531$27,080$29,570





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|7. | INCOME TAXES

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes.  Certain significant or unusual items are separately recognized in the quarter in the which they occur and can be a source of variability in the effective tax rates from quarter to quarter.





Income tax provision on continuing operations for the three months ended March 31, 2009 and 2008 consists of expense of $73,000 and $339,000 on earnings in tax jurisdictions outside the U.S. and $447,000 and $0 related to U.S. federal and state jurisdictions respectively.  Our effective rate was 13.8% and 24.3% for the three months ended March 31, 2009 and 2008 respectively.  Income tax provision on continuing operations for the nine months ended March 31, 2009 and 2008 consists of expense of $328,000 and $637,000 on earnings in tax jurisdictions outside the U.S. and $2,003,000 and $23,000 related to U.S. federal and state jurisdictions respectively.  Our effective rate was 16.8% and (9.6)% for the nine months ended March 31, 2009 and 2008 respectively.





The Company records a valuation allowance against our deferred tax assets to reduce the net carrying value to an amount which is believed  more likely than not to be realized. When the Company establishes or reduces the valuation allowance against our deferred tax assets, the provision for income taxes will increase or decrease, respectively, in the period such determination is made. The valuation allowance against deferred tax assets was $14.6 million and $14.1 million as of March 31, 2009 and June 30, 2008 , respectively.





The Company is currently under examination by the Internal Revenue Service (IRS) for the years ended June 30, 2004, 2005, 2006 and 2007. With few exceptions, either examinations have been completed by tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Company for the years through 2003. The Company's Spanish operations are also currently under examination. For our remaining foreign operations, either examinations have been completed by the tax authorities or the statute of limitations has expired for tax returns filed by the Company for the years through 2002.





As of March 31, 2009 , the Company had $26.1 million of unrecognized tax benefits and $0.4 million relating to interest and penalties. Of the total unrecognized tax benefits, $2.4 million would reduce our effective tax rate, if recognized. Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company accrued additional interest and penalties of $0.1 million and $0.1 million during the three and nine months ended March 31, 2009 . Final determination of a significant portion of the Company's global unrecognized tax benefits that will be effectively settled remains subject to ongoing examination by various taxing authorities, including the IRS. The Company is actively pursuing strategies to favorably settle or resolve these liabilities for unrecognized tax benefits. If the Company is successful in mitigating these liabilities, in whole or in part, the impact will be recorded as an adjustment to income tax expense in the period of settlement. The Company expects to resolve this issue within the next nine months; however the Company is unable to predict the outcome at this time.


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|8. | FINANCING AGREEMENTS

A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit of up to $100.0 million including a facility for letters of credit up to a maximum of $100.0 million .  A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The One Month LIBOR rate was approximately 0.5% and 2.5% as of March 31, 2009 and June 30, 2008 , respectively. Borrowings are due on demand and totaled $48.9 million and $65.7 million for lines of credit and $4.8 million and $4.8 million for letters of credit at March 31, 2009 and at June 30, 2008 , respectively.  Amounts borrowed under the Trading Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Trading Credit Facility are formula based and totaled $29.6 million and $32.0 million at March 31, 2009 and June 30, 2008 respectively.  The Trading Credit Facility also limits A-Mark's ability to pay dividends to SGI. The Trading Credit Facility is cancelable by written notice from the financial institutions.


A-Mark’s Trading Credit Facility has certain restrictive financial covenants which require it and SGI to maintain a minimum tangible net worth, as defined, of $12.5 million and $50.0 million , respectively. A-Mark’s and SGI’s tangible net worth as of March 31, 2009 were $31.8 million and $59.8 million , respectively. The Company's ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.


A-Mark 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 borrowed metals or cash. A-Mark's inventories included borrowed metals with market values totaling $16.6 million and $18.8 million as of March 31, 2009 and June 30, 2008 , respectively. Certain of these metals are secured by letters of credit issued under the Trading Credit Facility, which totaled $4.8 million and $4.8 million as of March 31, 2009 and June 30, 2008 , respectively.





Interest expense related to A-Mark’s borrowing arrangements totaled $0.4 million and $1.7 million and $1.0 million and $2.9 million for the three and nine months ended March 31, 2009 and 2008 , respectively.








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|9. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Company manages the value of certain specific assets and liabilities of its trading business, including trading inventories (see Note 4), by employing a variety of strategies. These strategies include the management of exposure to changes in the market values of the Company's trading inventories through the purchase and sale of a variety of derivative products such as metals 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 are linked to the prevailing price of the underlying precious metals. The Company's precious metals inventories are subject to market value changes, created by changes in the underlying commodity markets. Inventories purchased or borrowed by the Company are subject to price changes. Inventories borrowed 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 date the purchase or sale price is fixed (the "trade date") and the date the metal is received or delivered (the "settlement date"). The Company seeks to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.


The Company's policy is to substantially hedge its inventory position, net of open purchase and sales commitments that is subject to price risk. The Company regularly enters into metals 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.


Due to the nature of the Company's global hedging strategy, the Company is not using hedge accounting as defined under SFAS No. 133. Gains or losses resulting from the Company's futures and forward contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability (see Notes 4 and 6). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts.  Realized and unrealized net gains (losses) on derivative instruments in the consolidated statements of operations for the three and nine months ended March 31, 2009 and 2008 were $(8.2) million , $2.3 million , $(5.7) million , and $(19.6) million , respectively.


The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties 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.


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A summary of the market values of the Company’s physical inventory positions, purchase and sale commitments, and its outstanding forwards and futures contracts is as follows at March 31, 2009 and at June 30, 2008 : in thousandsMarch 31, 2009June 30, 2008Trading Inventory, net$97,139$96,297Less unhedgable inventory:Commemorative coins(2,201)(1,358)Inventory reserve104104Premium on metals position(723)(719)Subtotal94,31994,324Commitments at market:Open inventory purchase commitments175,543105,163Open inventory sale commitments(144,748)(49,900)Margin sale commitments(9,317)(18,714)Premiums on open commitment positions1,800—Inventory borrowed from suppliers(16,613)(18,789)Advances on industrial metals1,542385Inventory subject to price risk102,526112,469Inventory subject to derivative financial instruments:Precious metals forward contracts at market values7,28830,154Precious metals futures contracts at market values96,61382,431Total market value of derivative financial instruments103,901112,585Net inventory subject to price risk$(1,375)$(116)


At March 31, 2009 and June 30, 2008 , the Company had outstanding purchase and sale commitments arising in the normal course of business totaling $175.5 million and $105.2 million and $(144.7) million and $(49.9) million , respectively; purchase and sales commitments related to open forward and futures contracts totaling $7.3 million and $30.2 million and $96.6 million and $82.4 million , respectively. The Company uses forward contracts and futures contracts to protect its inventories from market exposure.


The contract amounts of these forward and futures contracts and the open purchase and sale orders are not reflected in the accompanying Condensed Consolidated Balance Sheets. The difference between the market price of the underlying metal or contract and the trade amount is recorded at fair value. The Company’s open purchase and sales commitments generally settle within 2 business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at March 31, 2009 are scheduled to settle within 90 days.


The Company is exposed to the risk of failure of the counter parties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At March 31, 2009 , the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.





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|10. | MINORITY INTERESTS




Non-controlling interests include Auctentia’s 20% share in the net assets and income of A-Mark, and the outside partners' interests in the net


assets and income of the joint venture described below.





Winter Games Bullion Ventures, LLC


On March 28, 2008, A-Mark formed Winter Games Bullion Ventures, LLC (“WGBV”), a limited term joint venture, with an outside partner for the purpose of purchasing, marketing, and distributing 2010 Vancouver Winter Olympic Bullion and Commemorative Coins. A-Mark contributed $450,000 for a 50% ownership in the joint venture. The Company includes WGBV's financial position and results of operations in the condensed consolidated financial statements, since A-Mark is the primary beneficiary of WGBV, a variable interest entity ("VIE"). In determining that A-Mark is the primary beneficiary, the Company evaluated both qualitative and quantitative considerations of the VIE, including, among other things, its capital structure, terms of contracts between A-Mark and the VIE, which interests create or absorb variability, related party relationships and the design of the VIE.


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The Company's consolidated balance sheet includes the following minority interests as of March 31, 2009 and June 30, 2008 :


in thousandsMarch 31, 2009June 30, 2008Auctentia 20% interest in Spectrum PMI - (Spectrum PMI owns 100% of A-Mark Precious Metals)$8,461$5,820Winter Games Bullion Ventures, LLC 50% outside interest1,075495Total$9,536$6,315


The Company's consolidated statement of operations for the three and nine months ended March 31, 2009 and 2008 included the following minority interest in net income:


Three Months EndedNine Months Endedin thousandsMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Auctentia 20% interest in Spectrum PMI - (Spectrum PMI owns 100% of A-Mark Precious Metals)$1,049$198$2,641$369Winter Games Bullion Ventures, LLC 50% interest116—580—Total$1,165$198$3,221$369


The following table summarizes the balance sheet of WGBV:


in thousandsMarch 31, 2009June 30, 2008Cash$68$33Total Assets$2,515$1,726Members’ equity$2,150$988Total liabilities and members’ equity$2,515$1,726


The following table summarizes the statements of income of WGBV:


Three Months EndedNine Months Endedin thousandsMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Sales$3,705$—$39,369$—Cost of products sold3,172—37,534—Gross profit533—1,835—Operating and other expenses300—674—Net income$233$—$1,161$—





11. COMMITMENTS AND CONTINGENCIES


Refer to Note 14 to the Notes to Consolidated Financial Statements in the 2008 Annual Report filed on Form 8-K on June 30, 2009 (the “2008


Annual Report”) for information relating to minimum rental commitments under operating leases, consulting and employment contracts, and other commitments.





12. LITIGATION


Certain legal proceedings in which the Company is involved are discussed in Part I, Item 3 and in Note 16 to the Notes to the Consolidated Financial Statements in its 2011 Annual Report. There have been no material changes except as previously disclosed.








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|13. | STOCKHOLDERS’ EQUITY

Stock Option Plan


In 1997, the Company’s board of directors adopted and the Company's shareholders approved the 1997 Stock Incentive Plan, as amended (the “1997 plan”). Under the 1997 Plan, SGI has granted options and other equity awards as a means of attracting and retaining officers, employees, non-employee directors and consultants, to provide incentives to such persons, and to align the interests of such persons with the interests of stockholders by providing compensation based on the value of SGI's stock. Awards under the 1997 Plan may be granted in the form of non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units, dividend equivalent rights and other stock-based awards (which may include outright grants of shares). The 1997 Plan currently is administered by the Board of Directors, which may in


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its discretion select officers and other employees, directors (including non-employee directors) and consultants to SGI and its subsidiaries to receive grants of awards.


Under the 1997 Plan, the exercise price of options and base price of SARs may be set in the discretion of the Board, and stock options and SARs may have any term. The majority of the stock options granted through June 30, 2008 under the 1997 Plan have been granted with an exercise price equal to market value on the date of grant. The 1997 Plan limits the number of stock options and SARs that may be granted to any one employee to 550,000 in any year. The 1997 Plan will terminate when no shares remain available for issuance and no awards remain outstanding. At March 31, 2009 , there were 3,912,281 shares remaining available for future awards under the 1997 Plan.


Employee Stock Options.


During the three and nine months ended March 31, 2009 and 2008 , the Company recorded no expense in the consolidated statement of operations related to the vesting of previously issued employee stock options. The Company made no grants during the nine months ended March 31, 2009 and 2008 .


The following table summarizes the stock option activity for the nine months ended March 31, 2009 :


OptionsWeighted Average Exercise PriceIntrinsic Value (in thousands)Weighted Average per share Grant Date Fair ValueOutstanding at June 30, 2008613,325$6.14$114$4.69Granted through stock option plan————Exercised————Expired(9,000)9.571093.56Forfeited————Outstanding at March 31, 2009604,325$6.09$51.71Shares exercisable at March 31, 2009604,325$6.09$5$1.71


Following is a summary of the status of stock options outstanding at March 31, 2009 :


Options OutstandingOptions ExercisableExercise Price RangesNumber of Shares OutstandingWeighted Average Remaining Contractual LifeWeighted Average Exercise PriceNumber of Shares ExercisableWeighted Average Exercise PriceFromTo$1.00$5.00391,2504.25$2.28391,250$2.285.0110.0026,2004.768.9626,2008.9610.0115.00186,8755.2413.65186,87513.65604,3254.58$6.09604,325$6.09


The Company has issued restricted stock to certain members of management, key employees, and directors. During the nine months ended March 31, 2009 and 2008 , the Company granted 326,548 and 366,559 restricted shares at a weighted average issuance price of $2.73 and $2.66 , respectively. Such shares generally vest after 2 years from the date of grant. Total compensation expense recorded for restricted shares for the three and nine months ended March 31, 2009 and 2008 was $271,000 , $706,000 , $276,000 , and $343,000 respectively. The remaining compensation expense that will be recorded under restricted stock grants  totals $3.7 million .


The following table summarizes the restricted stock grant activity for the nine months ended March 31, 2009 :


SharesWeighted Average share price at grant dateOutstanding at June 30, 2008279,892$2.64Shares granted326,5482.73Shares issued(88,126)2.65Shares forfeited(34,920)2.18Outstanding at March 31, 2009483,3942.71Vested but unissued at March 31, 200916,578$2.61


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Stock Appreciation Rights.


The Company, from time to time, enters into separate share-based payment arrangements with certain key employees and executive officers. The number of shares to be received under these awards ultimately depends on the appreciation in the Company’s common stock over a specified period of time, generally three years. At the end of the stated appreciation period, the number of shares of common stock issued will be equal in value to the appreciation in the shares of the Company’s common stock, as measured from the stocks closing price on the date of grant to the average price in the last month of the third year of vesting. As of March 31, 2009 and as of June 30, 2008 , there were approximately 37,500 and 37,500 stock appreciation rights outstanding with an exercise price of $12.06 and $12.06 per share, respectively. At March 31, 2009 and at June 30, 2008 , there was no intrinsic value associated with these arrangements. The Company recorded the awards as a component of equity using the Black-Scholes valuation model. These awards are amortized on a straight-line basis over the vesting period. For the three and nine months ended March 31, 2009 and 2008 , the Company recognized pre-tax compensation expense related to these grants of $0 , $0 , $28,000 and $85,000 based on a weighted average risk free rate of 4.06% , a volatility factor of 253% and a weighted average expected life of 7 years. The remaining compensation expense that will be recorded in the future fiscal year totals $0 .


Certain Anti-Takeover Provisions


The Company’s Certificate of Incorporation and by-laws contain certain anti-takeover provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company without negotiating with its Board of Directors. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company’s securities. Certain of such provisions provide for a Board of Directors with staggered terms, allow the Company to issue preferred stock with rights senior to those of the common stock, or impose various procedural and other requirements which could make it more difficult for stockholders to effect certain corporate actions.


Issuance and Cancellation of Stock for Class Action Lawsuit


On January 14, 2009, the Company issued 772,430 shares of the Company’s common stock to plaintiff's counsel in connection with a class action lawsuit (Note 12).  The shares were cancelled and returned to the status of authorized but unissued shares.








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|    |                                   
|--- | ----------------------------------
|14. | SEGMENT AND GEOGRAPHIC INFORMATION

The Company's operations are organized under two business segments - Trading and Collectibles. See Note 16 on the Company's 2008 Annual Report for additional information about reportable segments.


Three Months EndedNine Months Endedin thousandsMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Revenue:Trading$1,041,334$849,003$3,020,523$1,975,246Collectibles:Numismatics30,16836,28887,17692,522Philatelic6,3859,58322,31829,423Militaria and other5981,0371,2092,530Total Collectibles37,15146,908110,703124,475Total revenue$1,078,485$895,911$3,131,226$2,099,721in thousandsThree Months EndedNine Months EndedMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Revenue by geographic region:United States$1,076,880$891,837$3,124,178$2,086,988Asia Pacific6985449112,016Europe9073,5306,13710,717Total revenue$1,078,485$895,911$3,131,226$2,099,721in thousandsThree Months EndedNine Months EndedMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Operating income (loss):Trading$7,851$1,852$20,459$4,411Collectibles(3,322)4,670(7,552)6,980Corporate expenses(3,257)(5,033)(6,105)(18,157)Operating income (loss)$1,272$1,489$6,802$(6,766)in thousandsThree Months EndedNine Months EndedMarch 31, 2009March 31, 2008March 31, 2009March 31, 2008Depreciation and amortization:Trading$250161$247178$747$741Collectibles210209264279604639Depreciation and amortization$460$511$1,351$1,380





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in thousandsMarch 31, 2009June 30, 2008Inventories by segment/geographic region:Trading:United States$97,137$96,297Collectibles:United States26,90429,576Europe2,0074,981Asia21896Total Collectibles29,12934,653Total inventories$126,266$130,950


in thousandsMarch 31, 2009June 30, 2008Total assets by segment/geographic region:(restated)Trading:United States$125,409$136,638Collectibles:United States68,37954,360Europe17,22228,772Asia2,4872,131Total Collectibles88,08885,263Corporate and other3,6708,492Total assets$217,167$230,393


in thousandsMarch 31, 2009June 30, 2008Total long-term assets by segment/geographic region:(restated)Trading:United States$10,343$11,808Collectibles:United States7,2915,325Europe2,083618Asia146154Total Collectibles9,5206,097Corporate and other2,0232,271Total long-term assets$21,886$20,176





15. OTHER COMPREHENSIVE INCOME





The components of accumulated comprehensive income consists of foreign currency translation gain (loss) and unrealized gain (loss) on marketable securities, net of tax.  The foreign currency translation gain relates to the Company's investment in its European and Asian subsidiaries and fluctuations in exchange rates between their local currencies and the U.S. dollar.  Foreign currency translation gains are offset by foreign currency translation losses on the condensed consolidated statements of operations (Note 1).





As of March 31, 2009 and June 30, 2008 , the components of accumulated other comprehensive income are as follows:


in thousandsMarch 31, 2009June 30, 2008Unrealized income on marketable securities, net of tax$45$(49)Foreign currency translation gain5,81113,190Accumulated other comprehensive income$5,856$13,141








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|    |                        
|--- | -----------------------
|16. | FAIR VALUE MEASUREMENTS

Valuation Hierarchy





SFAS No. 157, Fair Value Measurements (“SFAS No. 157”)  creates a single definition of fair value for financial reporting. The new rules associated with SFAS No. 157 state that valuation techniques consistent with the market approach, income approach and/or cost approach should be used to estimate fair value. Selection of a valuation technique, or multiple valuation techniques, depends on the nature of the asset or liability being valued, as well as the availability of data.





SFAS No. 157 had the following impact:





Defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value;





Established a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date;





Nullified the guidance in Emerging Issues Task Force Issue 02-3, Issues Involved in Accounting for Derivative Contracts Held for  Trading Purposes and Contracts Involved in Energy Trading and Risk  Management Activities , which required the deferral of profit at inception of a transaction involving a derivative financial instrument in the absence of observable data supporting the valuation technique;





Eliminated large position discounts for financial instruments quoted in active markets and requires consideration of the Company's creditworthiness when valuing liabilities; and





Expanded disclosures about instruments measured at fair value.





Valuation Hierarchy





SFAS No. 157 established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:





Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.





Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.





Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.





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The following tables presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of March 31, 2009 , aggregated by the level in the fair value hierarchy within which the measurements fall:


Assets and Liabilities Measured at Fair Value on a Recurring Basis


March 31, 2009Quoted Price inActive Markets forOther SignificantIdenticalObservableSignificantInstrumentsInputsUnobservablein thousands(Level 1)(Level 2)Inputs (Level 3)Total BalanceAssets:Commodities$97,243$—$—$97,243Marketable securities829——829Derivative assets — open purchase and sale commitments—2,036—2,036Total assets valued at fair value$98,072$2,036$—$100,108Liabilities:Liability on borrowed metals$(16,613)$—$—$(16,613)Liability on margin accounts(4,817)——(4,817)Derivative liabilities — futures contracts—(524)—(524)Total liabilities valued at fair value$(21,430)$(524)$—$(21,954)





The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy:





Commodities


Commodities consisting of the precious metals component of the Company's inventories are carried at fair value.  The fair value for commodities inventory is determined primarily using pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities are classified in Level 1 of the valuation hierarchy.





Derivatives


Futures contracts, forward contracts and open purchase and sales commitments are valued at their intrinsic values, based on the difference between the quoted market price and the contractual price, and are included within Level 2 of the valuation hierarchy.





Margin Liabilities


Margin liabilities, consisting of the Company's commodity obligations to margin customers, are carried at fair value, determined primarily using pricing and data derived from the markets on which the underlying commodities are traded. Margin liabilities are classified in Level 1 of the valuation hierarchy.





17.  SUBSEQUENT EVENTS





None.





18.  RELATED PARTY


As part of the A-Mark sale agreement dated July 15, 2005, the former owner was paid $6,000 in consulting fees for the year ended June 30, 2008. Additionally, per the terms of the A-Mark sale agreement, the former owner receives a portion of the income earned on a specific type of transaction. The Trading segment accrued $78,000 and $292,000 in royalty expense for the nine months ended March 31, 2009 and year ended June 30, 2008, respectively, which represents the total amount due to the former owner as of June 30, 2008. The entire $78,000 and $292,000 are included in accrued liabilities as of March 31, 2009 and June 30 2008, respectively.





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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





FORWARD LOOKING STATEMENTS


The discussion in Item 2 and in Item 3 of this Quarterly Report (“Report”) on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “1933 Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “1934 Act”). Those Sections of the 1933 Act and 1934 Act provide a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ from projected or anticipated results. Other than statements of historical fact, all statements in this Report and, in particular, any projections of or statements as to our expectations or beliefs concerning our future financial performance or financial condition or as to trends in our business or in our markets, are forward-looking statements. Forward-looking statements often include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Our actual financial performance in future periods may differ significantly from the currently expected financial performance set forth in the forward-looking statements contained in this Report. The sections below entitled “Factors That Can Affect our Financial Position and Operating Results” and “Risks and Uncertainties That Could Affect our Future Financial Performance” describe some, but not all, of the factors and the risks and uncertainties that could cause these differences, and readers of this Report are urged to read those sections of this Report in their entirety and to review certain additional risk factors that are described in Item 1A of our Annual Report on Forms 10-K and 8-K (the “ 2009 Annual Report” and the “ 2008 Annual Report”), as filed by us with the Securities and Exchange Commission (the “SEC”), for the fiscal year ended June 30, 2008 .


Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Report, which speak only as of the date of this Report, or to make predictions about future performance based solely on historical financial performance. We also disclaim any obligation to update forward-looking statements contained in this Report or in our Annual Report on Form 10-K or any other prior filings with the SEC.





INTRODUCTION


Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying condensed consolidated statements and footnotes to help provide an understanding of our financial condition, the changes in our financial condition and the results of operations. Our discussion is organized as follows:





|  |                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Overview.This section provides a general description of our business, as well as recent significant transactions and events that we believe are important in understanding the results of operations, as well as to anticipate future trends in those operations.

|  |                                                                                                                                                                                                                                                  
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Results of operations.This section provides an analysis of our results of operations presented in the accompanying condensed consolidated statements of operations by comparing the results for thethreeandninemonths endedMarch 31, 2009and2008.

|  |                                                                                                                                                                                                                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Financial condition and liquidity and capital resources.This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt that existed as ofMarch 31, 2009. Included in the discussion of outstanding debt is a discussion of the amount of financial capacity available to fund our future commitments, as well as a discussion of other financing arrangements.

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Critical accounting estimates.This section discusses those accounting policies that both are considered important to our financial condition and results, and require significant judgment and estimates on the part of management in their application. In addition, all of our significant accounting policies, including critical accounting policies, are summarized in Note 1 to the accompanying condensed consolidated financial statements.

|  |                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Recent accounting pronouncements.This section discusses new accounting pronouncements, dates of implementation and impact on our accompanying condensed consolidated financial statements, if any.

Overview


Business


We conduct our operations in two reporting segments: Trading and Collectibles. Our reporting segments are defined in Note 14 of the Notes to Condensed Consolidated Financial Statements. For the three months ended March 31, 2009 , total revenue was $1.08 billion consisting of Trading segment revenue of $1.04 billion , or 96.6% of our total revenue and Collectibles segment revenue of $37.2 million or 3.4% of our total revenue.  Total revenue for the three month period increased  $182.6 million to $1.08 billion from $895.9 million for the comparable period last fiscal year.  This increase was driven by an increase in Trading revenue of $192.3 million and a $9.8 million  decrease in our Collectibles segment revenue.  Total revenue for the nine month period ended March 31, 2009  increased  $1.03 billion to $3.13 billion from $2.10 billion for the same comparable period ended March 31, 2008 .  The increase was driven by a increase of $1.05 billion and decrease of $13.8 million in our Trading and Collectibles segment revenue, respectively, for the nine month period ending March 31, 2009 when compared to the same period last year.  This increase was the result of a number of factors, including higher precious metal prices, precious metals market volatility, and increased demand for precious metal products worldwide. The decrease in our collectibles segment revenue was primarily due to the unfavorable economic conditions in fiscal 2009.


Operating income for the three months ended March 31, 2009  decreased  $0.2 million to $1.3 million , from $1.5 million in the prior period.  For the nine months ended March 31, 2009 operating income (loss) increased  $13.6 million to $6.8 million income from an operating loss of $(6.8) million for the nine months ended March 31, 2008 . The $(6.8) million operating loss in the nine months ended March 31, 2008 included a $9.0 million litigation settlement charge.  Excluding this one-time charge, operating income (loss) increased by $4.5 million primarily due to better


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performance of our Trading segment, which was partially offset by a decrease in our Collectibles segment.


Trading


Our Trading segment operates in the United States through A-Mark Precious Metals, Inc. (“A-Mark”). A-Mark is a distributor and service provider to consumers, wholesalers, retailers and dealers of precious metals throughout the world from facilities located in Santa Monica, California. A-Mark is a wholly owned subsidiary of Spectrum PMI, Inc., which in turn is 80% owned by the Company.


Collateral Finance Corporation (“CFC”), a licensed California finance lender and a wholly owned subsidiary of A-Mark, offers loans on precious metals, rare coins and other collectibles to coin dealers, collectors and investors.


Collectibles


Our Collectibles segment is a global integrated network of companies with operations in North America, Europe and Asia. Our collectibles business is focused on numismatic (coins) and philatelic (stamps) material, and rare and fine vintage wine.  We primarily sell these materials, both owned and consigned, through our auction subsidiaries and through wholesale merchant/dealer relationships.





RESULTS OF OPERATIONS


Overview of Results of Operations for the Three and Nine Months Ended  March 31, 2009 and 2008


Condensed Consolidated Results of Operations


The operating results of our business for the three months ended March 31, 2009 and 2008 are as follows:


% of% ofincrease% of increasein thousands2009revenue2008revenue(decrease)(decrease)Revenue$1,078,485100.0%$895,911100.0%$182,57420.4%Gross profit19,8541.816,3011.83,55321.8General and administrative expenses8,3560.88,1770.91792.2Salaries and wages9,7660.96,1240.73,64259.5Depreciation and amortization460—5110.1(51)(10.0)Operating income1,2720.11,4890.2(217)(14.6)Interest income1,5430.11,1290.141436.7Interest expense(432)—(973)(0.1)(541)(55.6)Other income (expense), net(375)—5620.1(937)(166.7)Unrealized gain (loss) on foreign exchange1,7690.2(813)(0.1)2,582317.6Income before income taxes and minority interest3,7770.41,3940.22,383170.9Income taxes520—339—18153.4Minority interests1,1650.1198—967488.4Net income$2,0920.2%$8570.1%$1,235144.1%





increase/% of increase/20092008(decrease)(decrease)Basic and diluted income (loss) per share:Basic$0.07$0.03$0.04NMDiluted$0.07$0.03$0.04NMWeighted average shares outstandingBasic31,61628,136Diluted32,08928,380NM - not meaningful


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The operating results of our business for the nine months ended March 31, 2009 and 2008 are as follows:


% of% ofincrease/% of increase/in thousands2009revenue2008revenue(decrease)(decrease)Revenue$3,131,226100.0%$2,099,721100.0%$1,031,50549.1%Gross profit55,6901.842,7522.012,93830.3General and administrative expenses21,7100.723,6271.1(1,917)(8.1)Salaries and wages25,8270.815,4910.710,33666.7Depreciation and amortization1,351—1,3800.1(29)(2.1)Litigation settlement——9,0200.4(9,020)(100.0)Operating income (loss)6,8020.2(6,766)(0.3)13,568(200.5)Interest income3,8620.13,1720.269021.8Interest expense(1,892)(0.1)(2,913)(0.1)(1,021)(35.0)Other income (expense), net359—2,0970.1(1,738)82.9Unrealized gain (loss) on foreign exchange4,7400.2(2,439)(0.1)7,179294.3Income (loss) before income taxes and minority interests13,8710.4(6,849)(0.3)20,720(302.5)Provision for income taxes2,3310.1660—1,671253.2Minority interests3,2210.1369—2,852772.9Net income (loss)$8,3190.3%$(7,878)(0.4)%$16,197205.6%
 increase/% of increase/20092008(decrease)(decrease)Earnings (loss) per shareBasic$0.27$(0.28)$0.55NMDiluted$0.26$(0.28)$0.54NMWeighted average shares outstandingBasic30,74828,136Diluted31,44828,136NM - not meaningful


Revenues and Gross Profit


Revenues for the three months ended March 31, 2009  increased  $182.6 million , or 20.4% , to $1.08 billion from $895.9 million in 2008 .  Revenues for the nine months ended March 31, 2009 increased  $1.03 billion or 49.1% to $3.13 billion from $2.10 billion in 2008.  Trading revenues increased  $192.3 million , or 22.7% and $1.05 billion , or 52.9% for the three and nine months ended March 31, 2009 .  Our Collectible segment revenues decreased  $9.8 million or 20.8% to $37.2 million for the three months and decreased  $13.8 million or 11.1% to $110.7 million for the nine months ended March 31, 2009 compared to the same period for 2008 .  For a further discussion regarding our revenues please refer to the discussions regarding our Trading and Collectible segments below.


Our gross profit for the three months ended March 31, 2009  increased  $3.6 million or 21.8% to $19.9 million from $16.3 million in 2008 .  An increase of $9.5 million in our Trading segment's gross profit to $14.1 million contributed to the increase .  The Collectibles segment's gross profit decreased  $5.9 million to $5.7 million for the three months ended March 31, 2009 from $11.7 million when compared to the three months ended March 31, 2008 .  Gross profit for the nine months ended March 31, 2009  increased  $12.9 million or 30.3% to $55.7 million from $42.8 million in 2008 .  Our Trading segment's gross profit increased  $26.1 million to $36.9 million from $10.8 million for the nine month period ending March 31, 2009 .  Gross profit in our Collectibles segment decreased  $13.2 million to $18.8 million from $32.0 million for same period.  Our gross profit margins remained steady at 1.8% for the three month periods ended March 31, 2009 and 2008 and slightly decreased to 1.8% for the nine months ended March 31, 2009 compared to 2.0% in 2008 .  For a further discussion regarding gross profit and gross profit margins please refer to the discussions regarding our Trading and Collectibles segments.


Operating Expenses


General and administrative expenses increased  $0.2 million , or 2.2% , to $8.4 million for the three months ended March 31, 2009 from $8.2


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million in 2008 . This increase is not attributable to any one factor.  For the nine months ended March 31, 2009 , general and administration expenses decreased  $1.9 million or 8.1% to $21.7 million from $23.6 million for the same period in 2008 .  This was primarily due to decreases in a variety of general and administrative expense categories and the sale of our former headquarters in New Jersey, which generated a gain of $0.4 million.


Salaries and wages increased  $3.6 million , or 59.5% , to $9.8 million from $6.1 million for the three month period and increased  $10.3 million or 66.7% to $25.8 million for the nine months ended March 31, 2009 from $15.5 million , respectively when compared to the same periods in 2008 .  Increases in salaries and wages was primarily the result of increase accruals related to contractual performance-related compensation within our Trading business and also to severance and relocation expenses for moving our Arms and Armor and North American Philatelic operations to our headquarters in Irvine, California as part of our plan to centralize the U.S. Collectibles operations.


Depreciation and amortization expense was comparable for the three and nine month periods ended March 31, 2009 versus 2008.


Interest Income


Interest income increased by $0.4 million , or 36.7% to $1.5 million and increased  $0.7 million , or 21.8% to $3.9 million for the three and nine months ended March 31, 2009 when compared to the same periods in 2008 . The increase was due to the Trading segment's increases in its financing and liquidity service business.


Interest Expense


Interest expense for the three months ended March 31, 2009  decreased  $0.5 million , or 55.6% to $0.4 million and decreased by $1.0 million , or 35.0% to $1.9 million for the nine months ended March 31, 2009 when compared to 2008 . This was related primarily to the Trading segment's usage of its line of credit (the "Trading Facility") as well as our Collectibles line of credit (the "Collectibles Facility"). Both our Trading and Collectible segment utilize their lines of credit extensively for working capital requirements. For the three and nine months ended March 31, 2009 and 2008 , our consolidated average debt balance was approximately $42.9 million and $49.0 million , compared to $69.8 million and $61.9 million , respectively. The Company’s decrease in interest expense was due primarily to lower usage of its credit line and declining interest rates in 2009 versus 2008.


Net Other Income/(Expenses)


Net other income /(expenses) decreased by $0.94 million to $(0.38) million expense for the three month period in 2009 from $0.56 million income for the three month period in 2008 . Net other income/(expenses) decreased  $1.7 million to $0.36 million income for the nine months ended March 31, 2009 from $2.1 million income when compared to the same period last year.  Changes for both the three and nine month period were the result of various miscellaneous items.


Provision for Income Taxes


Our income tax expense (benefit) on continuing operations was approximately $520,000 and $339,000 for the three months ended March 31, 2009 and 2008 , respectively. Our effective tax rate for the three months ended March 31, 2009 and 2008 was approximately 13.8% and 24.3% , respectively.  Our income tax expense (benefit) on continuing operations was approximately $2.3 million and $660,000 for the nine months ended March 31, 2009 and 2008 , respectively. Our effective tax rate for the nine months ended March 31, 2009 and 2008 was approximately 16.8% and (9.6)% , respectively.


The Company’s effective tax rate differs from the Federal statutory rate for state taxes, foreign tax rate differentials and changes in the valuation allowance for deferred tax assets.


Our effective rate could be adversely 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. Some of the Company’s net operating loss carry-forwards are set to expire beginning 2010, which may impact the Company’s effective tax rate in future periods. Our effective 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.


Minority Interests


Minority interests expense increased  $1.0 million , or 488.4% , to $1.2 million for the three months ended March 31, 2009 from $0.2 million in 2008 .  Minority interests expense increased  $2.9 million or 772.9% to $3.2 million from $0.4 million for the nine months ended March 31, 2009 compared to 2008 .   The change was primarily due to higher 2009 profits in the Trading segment, which is 20%-owned by Auctentia as well as profits from the new Winter Games Bullion Ventures joint venture which was formed in March 2008.


Net Income (Loss)


Net income increased  $1.2 million to $2.1 million from $0.9 million , and increased  $16.2 million to $8.3 million from a $(7.9) million loss for the three and nine months ending March 31, 2009 .  The increases were due primarily to increased profits in the Company's Trading segment.  The Trading segment's operations benefited from a number of factors, including higher precious metals prices, precious metals market volatility, and increased demand for precious metal products worldwide.


Earnings (Loss) per Share


For the three and nine months period ended March 31, 2009 , basic earnings (loss) per share increased  $0.04 to $0.07 from $0.03 and increased  $0.55 to $0.27 from $(0.28) , respectively.  For the three and nine months period ending March 31, 2009, diluted earnings (loss) per share increased $0.04 to $0.07 from $0.03 and increased  $0.54 to $0.26 from $(0.28) , respectively.


The change in both basic and diluted earnings per share was primarily due to changes in our net income (loss).


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Trading Operations


The operating results of our Trading segment for the three months ended March 31, 2009 and 2008 are as follows:


% of% of$%In thousands2009revenue2008revenueincrease/(decrease)increase/(decrease)Trading revenues$1,041,334100.0%$849,003100.0%$192,33122.7%Gross profit14,1231.44,6420.59,481204.2General and administrative expenses7720.19090.1(137)(15.1)Salaries and wages5,2500.51,6340.23,616221.3Depreciation and amortization250—247—31.2Operating income$7,8510.8%$1,8520.2%$5,999323.9%





The operating results of our Trading segment for the nine months ended March 31, 2009 and 2008 are as follows:


% of% of$%In thousands2009revenue2008revenueIncrease/(decrease)Increase/(decrease)Trading revenues$3,020,523100.0%$1,975,246100.0%$1,045,27752.9%Gross profit36,8921.210,7640.526,128242.7General and administrative expenses2,0820.12,1420.1(60)(2.8)Salaries and wages13,6040.53,4700.210,134292.0Depreciation and amortization747—741—60.8Operating income$20,4590.7%$4,4110.2%$16,048363.8%





Trading Revenues


Our Trading segment revenues increased by $192.3 million , or 22.7% , to $1.04 billion for the three months ended March 31, 2009 from $849.0 million in 2008 .  For the nine months ended March 31, 2009 trading segment revenues increased  $1.05 billion , or 52.9% to $3.02 billion from $1.98 billion for the same period in 2008 .  These increases were the result of a number of factors, including higher precious metal prices, precious metals market volatility, and increased demand for precious metal products worldwide.


Gross Profit


Gross profit in our Trading segment for the three months ended March 31, 2009  increased by $9.5 million or 204.2% , to $14.1 million in March 31, 2009 from $4.6 million in 2008 .  During the nine months ended March 31, 2009 , Trading segment gross profit increased  $26.1 million to $36.9 million from $10.8 million in 2008 . Our Trading segment gross profit increased primarily as a result of increased demand for precious metals products which caused a substantial increase in premium spreads during the year. Additionally, our Trading segment’s access to capital and strong supplier network provided us the ability to capitalize on profit opportunities in a highly volatile and uncertain market. We did not speculate in this market maintaining hedges against substantially all of its market exposure at all times, thus earning the majority of our profits from the sale of physical precious metals. In fiscal 2009, global economic conditions caused substantial volatility in the precious metals markets and demand for physical precious metal products.


General and Administrative Expenses


General and administrative expenses in our Trading segment remained flat for the three and nine months ended March 31, 2009 when compared to 2008 .


Salaries and Wages


Salaries and wages in our Trading segment increased by $3.6 million , or 221.3% , to $5.3 million and increased  $10.1 million , or 292.0% to $13.6 million for the three and nine months ended March 31, 2009 .   This was due primarily to higher levels of contractual performance based compensation expense recorded in the three and nine months period ending when compared to the same periods last year.


Depreciation and Amortization


Depreciation and amortization in our Trading segment for the three and nine months ended March 31, 2009 was consistent with the prior year.


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Collectibles Operations


The revenues in our operations by collectible type for the three months ended March 31, 2009 and 2008 are as follows:


March 31, 2009March 31, 2008$%in thousands$% to total$% to totalIncrease/(decrease)Increase/(decrease)Collectibles revenues$37,151100.0%$46,908100%$(9,757)(20.8)%Revenues by Collectible Type:Philatelic$6,38517.2%$9,58320.4%$(3,198)(33.4)%Numismatics30,16881.236,28877.4(6,120)(16.9)Militaria and other5981.61,0372.2(439)(42.3)$37,151100.0%$46,908100.0%$(9,757)(20.8)%





The revenues in our collectibles operations by type for the nine months ended March 31, 2009 and 2008 are as follows:


March 31, 2009March 31, 2008$%in thousands$% to total$% to totalIncrease/(decrease)Increase/(decrease)Collectibles revenues$110,703100.0%$124,475100.0%$(13,772)(11.1)%Revenues by Collectible Type:Philatelic$22,31820.2%$29,42323.6%$(7,105)(24.1)%Numismatics87,17678.792,52274.3(5,346)(5.8)Militaria and other1,2091.12,5302.0(1,321)(52.2)$110,703100.0%$124,475100.0%$(13,772)(11.1)%





Collectible Revenue


Our Collectible segment revenues decreased by $9.8 million , or 20.8% , to $37.2 million for the three months ended March 31, 2009 from $46.9 million in 2008 .  For the nine months ended March 31, 2009 collectible segment revenues decreased  $13.8 million , or 11.1% to $110.7 million from $124.5 million for the same period in 2008 .  The decrease in numismatics revenue for the three and nine months ended March 31, 2009 was primarily due to timing of our auctions.  Our Philatelic operations, whose market was affected by weaker economic conditions, also experienced a decrease in revenues.  We also decreased inventory levels at the Philatelic operations in connection with the relocation of those operations to our headquarters in California. Our militaria and other revenues also decreased for the three and nine month periods, which was also attributable to unfavorable economic conditions as well as management’s determination to contract those operations and move them to our California headquarters. The relocation and contraction of both the North American Philatelic Operations and the Arms and Armor operations was part of the Company’s plan to centralize its U.S. Collectibles operations at the Company’s headquarters and to manage those operations more effectively.


The operating results of our Collectibles segment for the three months ended March 31, 2009 and 2008 are as follows:


% of% of$% ofin thousands2009revenue2008revenueIncrease/(decrease)Increase/(decrease)Collectibles revenue$37,151100.0%$46,908100.0%$(9,757)(20.8)%Gross profit5,73115.411,65924.9(5,928)(50.8)General and administrative expenses5,18314.02,7465.92,43788.7Salaries and wages3,6609.93,9798.5(319)(8.0)Depreciation and amortization2100.62640.6(54)(20.5)Operating income (loss)$(3,322)(8.9)%$4,67010.0%$(7,992)(171.1)%


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The operating results of our Collectibles segment for the nine months ended March 31, 2009 and 2008 are as follows:


% of% of$% ofin thousands2009revenue2008revenueIncrease/(decrease)Increase/(decrease)Collectibles revenue$110,703100.0%$124,475100.0%$(13,772)(11.1)%Gross profit18,79817.031,98825.7(13,190)(41.2)General and administrative expenses15,53514.013,54510.91,99014.7Salaries and wages10,2119.210,8248.7(613)(5.7)Depreciation and amortization6040.56390.5(35)(5.5)Operating income (loss)$(7,552)(6.8)%$6,9805.6%$(14,532)(208.2)%


Gross Profit


Gross profit in our Collectibles segment for the three months ended March 31, 2009  decreased by $5.9 million or 50.8% , to $5.7 million in March 31, 2009 from $11.7 million in 2008 .  During the nine months ended March 31, 2009 Collectibles segment gross profit decreased  $13.2 million or 41.2% to $18.8 million from $32.0 million in 2008 .  These decreases were primarily attributable to our Philatelic division, and resulted principally from the weak economy and our decision to liquidate a large portion of our North American Philatelic inventory as part of our relocation and consolidation efforts.


General and Administrative Expense


General and administrative expenses in our Collectibles segment increased by $2.4 million , or 88.7% to $5.2 million for the three months ended March 31, 2009 from $2.7 million when compared to 2008 .  During the nine months ended March 31, 2009 general and administration expenses in our Collectibles segment increased  $2.0 million , or 14.7% to $15.5 million from $13.5 million in 2008 .  The increase is attributable to various categories of general and administrative expenses, including additional expenses associated with the relocation of our North American Philatelic and Arms and Armor businesses to our headquarters in California.


Salaries and Wages


Salaries and wages in our Collectibles segmen t decreased by $0.3 million , or 8.0% , to $3.7 million and decreased  $0.6 million , or 5.7% to $10.2 million for the three and nine months ended March 31, 2009 , respectively. The primary reason for the decreases was lower performance-based compensation as a result of weaker performance in our Collectibles segment, which was partially offset by severance costs associated with the relocation of our North American Philatelic and Arms and Armor operations to our headquarters in California.


Depreciation and Amortization


Depreciation and amortization in our Collectibles segment for the three and nine months ended March 31, 2009 remained steady at $0.2 million and $0.6 million , respectively.








FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES


The following details cash flow components for the nine months ended March 31, 2009 and 2008 :


in thousands20092008Cash provided by (used in) operating activities$14,039$(13,022)Cash used in investing activities$(4,372)$(558)Cash provided by (used in) financing activities$(20,318)$13,223


Our principal capital requirements have been to fund (i) working capital, (ii) acquisitions and (iii) capital expenditures. Our working capital requirements fluctuate with market conditions, the availability of philatelic and numismatic materials and the timing of our auctions.


Operating activities provided $14.0 million of cash in the nine months ended March 31, 2009 versus a use of cash of $13.0 million in the nine months ended March 31, 2008 . A primary source of cash in 2009 operating cash flows was the impact of $14.9 million based on net income adjusted for non-cash items, as well as increases in litigation settlement receivable, inventory, and prepaid expenses and other current assets of $6.0 million , $5.7 million , $1.8 million , plus decreases in accounts payable, accrued expenses and other liabilities, income taxes payable of $1.7 million and $4.1 million , respectively.  This was offset by a decrease in receivables and secured loans in our Trading segment of $12.9 million , and an increases in accrued litigation settlement of $7.0 million .  A primary use of cash in 2008 operating cash flows was the impact of decreases in receivables and secured loans in our Trading segment, inventory, litigation settlement receivable, and accounts receivable and consignor advances in our Collectibles segment of $24.9 million , $9.1 million , $6.0 million and $5.0 million , as well as the impact of the used of cash of $5.1 million based on net loss adjusted for non-cash items.  These uses of cash were partially offset by sources of cash from decreases in accounts payable, accrued expenses and other liabilities and accrued litigation settlement of $18.5 million and $15.0 million , respectively.


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Our investing activities used cash in the nine months ended March 31, 2009 of $4.4 million compared to $0.6 million in the nine months ended March 31, 2008 .   During the nine months ended March 31, 2009 , $0.7 million of cash was used  to purchase Ponterio and Associates. We also purchased $2.1 million of short-term investments and marketable securities and expended $0.9 million for property and equipment during this period.  During the nine months ended March 31, 2008, we used $0.6 million in cash on purchases of property and equipment.


Our financing activities used $20.3 million in cash for the nine months ended March 31, 2009 versus a cash inflow of $13.2 million for the same period in 2008.   The main contributing factor of the increase was due to repayments of $16.8 million for the current nine month period compared to a net borrowings of $10.3 million for the same period last year.


A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit of up to $100.0 million including a facility for letters of credit up to a maximum of $100.0 million .  A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The One Month LIBOR rate was approximately 0.5% and 2.5% as of March 31, 2009 and June 30, 2008 , respectively. Borrowings are due on demand and totaled $48.9 million and $65.7 million for lines of credit and $4.8 million and $4.8 million for letters of credit at March 31, 2009 and at June 30, 2008 , respectively.  Amounts borrowed under the Trading Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Trading Credit Facility are formula based and totaled $29.6 million and $32.0 million at March 31, 2009 and June 30, 2008 respectively.  The Trading Credit Facility also limits A-Mark's ability to pay dividends to SGI. The Trading Credit Facility is cancelable by written notice from the financial institutions.


A-Mark’s Trading Credit Facility has certain restrictive financial covenants which require it and SGI to maintain a minimum tangible net worth, as defined, of $12.5 million and $50.0 million , respectively. A-Mark’s and SGI’s tangible net worth at March 31, 2009 were $31.8 million and $59.8 million , respectively. The Company's ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.


A-Mark 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 borrowed metals or cash. A-Mark's inventories included borrowed metals with market values totaling $16.6 million and $18.8 million at March 31, 2009 and at June 30, 2008 , respectively. Certain of these metals are secured by letters of credit issued under the Trading Credit Facility which totaled $4.8 million and $4.8 million at March 31, 2009 and at June 30, 2008 , respectively.








Contractual Obligations, Contingent Liabilities, and Commitments


We manage the value of certain specific assets and liabilities of our trading business, including trading inventories (see Note 9 in the accompanying condensed consolidated financial statements included elsewhere in this document), by employing a variety of strategies. These strategies include the management of exposure to changes in the market values of our trading inventories through the purchase and sale of a variety of derivative products such as metals forwards and futures.


Our trading inventories and purchase and sale transactions consist primarily of precious metal bearing products. The value of these assets and liabilities are linked to the prevailing price of the underlying precious metals. Our precious metals inventories are subject to market value changes, created by changes in the underlying commodity markets. Inventories we purchase or borrow are subject to price changes. Inventories we borrow 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 date the purchase or sale price is fixed (the trade date) and the date the metal is received or delivered (the settlement date). We seek to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.


Our policy is to substantially hedge our inventory position, net of open purchase and sales commitments, that is subject to price risk. We regularly enter into metals commodity forward and futures contracts with major financial institutions to hedge price changes that would cause changes in the value of our physical metals positions and purchase commitments and sale commitments. We have access to all of the precious metals markets, allowing us to place hedges. However, we also maintain relationships with major market makers in every major precious metals dealing center.


We set credit and position risk limits. These limits include gross position limits for counterparties engaged in purchase and sales transactions with us. They also include collateral limits for different types of purchase and sale transactions that counter parties may engage in with us from time to time.


Due to the nature of our global hedging strategy, we are not using hedge accounting as defined under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Gains or losses resulting from our futures and forward contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability (see Notes 3 and 6). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts.  Realized and unrealized net gains (losses) on derivative instruments in the condensed consolidated statements of operations for the three and nine months ended March 31, 2009 and 2008 were $(8.2) million , $2.3 million , $(5.7) million , and $(19.6) million , respectively.


At March 31, 2009 and June 30, 2008 , we had outstanding purchase and sale commitments arising in the normal course of business totaling $175.5 million and $105.2 million and $(144.7) million and $(49.9) million , respectively; purchase and sales commitments related to open forward and futures contracts totaling $7.3 million and $30.2 million and $96.6 million and $82.4 million , respectively. We use forward contracts and futures contracts to protect our inventories from market exposure.


The contract amounts of these forward and futures contracts and the open purchase and sale orders are not reflected in the accompanying Condensed Consolidated Balance Sheets. The difference between the market price of the underlying metal or contract and the trade amount is recorded at fair value. Our open purchase and sales commitments generally settle within 2 business days, and for those commitments that do not have stated settlement dates, we have the right to settle the positions upon demand. Futures and forwards contracts open at March 31, 2009


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are scheduled to settle within 90 days.


Our stock is currently not traded on a national exchange and we were delinquent in certain historical filings with the Securities and Exchange Commission. As a result we are substantially limited in its ability to issue equity or debt instruments. There can be no assurance our stock will be listed on a national exchange in future periods.


Historically, for our Collectibles we have relied on funds provided by operating activities, equity offerings, short and long-term borrowings and seller-financed notes to meet our liquidity needs. We invest our excess cash predominantly in money market funds. For our Trading segment we rely on funds provided by operating activities and our borrowing arrangements with our bank group.





We believe that our current cash and cash equivalents, marketable securities, Trading and Collectibles Credit Facilities, and cash we anticipate to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital needs, capital expenditures, investment requirements and commitments through at least the next twelve months. Certain of our foreign subsidiaries have nominal statutory restricted capital requirements. Our liquidity could be impacted by the potential adverse outcomes, if any, relating to its open contingent matters, including, an ongoing Internal Revenue Service examination, a foreign tax inspection and certain litigation as described under Legal Proceedings of the June 30, 2008 Annual Report filed via Form 8-K on June 30, 2009 .





CRITICAL ACCOUNTING ESTIMATES


During the quarter ended March 31, 2009 , there were no changes in the critical accounting policies or estimates that were described in Item 7 of our Annual Report filed with the SEC via Form 8-K for the fiscal year ended June 30, 2008 . Readers of this report are urged to read that Section of that Annual Report for a more complete understanding of our critical accounting policies and estimates.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK


Not applicable for smaller reporting companies





ITEM 4. CONTROLS AND PROCEDURES


Disclosure Controls and Procedures


We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.


Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting (as described in “Management's Report on Internal Control over Financial Reporting” in our 2008 Annual Report filed on Form 8-K with the SEC on June 30, 2009).


Our principal executive officer and principal financial officer have also concluded that there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We are performing ongoing evaluations and enhancements to our internal controls system.





PART II—OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





Certain legal proceedings in which we are involved are discussed in Part I, Item 3 of our 2011 Annual Report on Form 10-K, and in Note 16 to the Notes to Consolidated Financial Statements in our 2011 Annual Report, which are incorporated into this filing by reference. There have been no material developments in those legal proceedings since the date of our 2011 Annual Report, except for the matters disclosed in Part II, Item 1 of our quarterly report on Form 10-Q for the quarter ended March 31, 2012, which are also incorporated into this filing by reference.





ITEM 1A. RISK FACTORS.





There have been no material changes from the risk factors disclosed in Part I, Item 1A, of our 2011 Annual Report, which are incorporated by reference into this filing, except for the matters disclosed in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended March 31, 2012, which are also incorporated into this filing by reference.








ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None


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ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None





ITEM 5. OTHER INFORMATION.


None





ITEM 6. EXHIBITS.


Exhibit 31.1Certification of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2Certification of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1Chief Executive Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2Chief Financial Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002





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SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date:June 25, 2012SPECTRUM GROUP INTERNATIONAL, INC.By:/s/ Gregory N. RobertsName:Gregory N. RobertsTitle:President and Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SignaturesTitle(s)Date/s/ Gregory N. RobertsPresident, Chief Executive Officer and Director(Principal Executive Officer)June 25, 2012Gregory N. Roberts/s/ Paul SothChief Financial Officer and Executive Vice President (Principal Financial Officer)June 25, 2012Paul Soth











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