A-Mark Precious Metals Earnings 2019-09-30

AMRK 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
SPWH	162	584	496	852	284	23	55	184	33%	3.3	4%
BNED	152	1,502	1,082	2,019	533	-18	34	143	26%	4.2	-1%
FGP	102	1,330	1,330	1,753	0	-127	43	2,141	0%	49.4	-10%
AMRK	85	705	633	4,783	32	0	21	169	1%	8.1	0%
PRTS	58	109	73	218	76	-10	-4	57	35%	-13.0	-9%
BGFV	42	700	525	1,000	302	-0	25	35	30%	1.4	-0%
KIRK	23	469	367	620	184	-15	12	8	30%	0.6	-3%
TKAT	7	44	35	2	0	-9	-8	-28	23%	3.4	-20%
ONEW
HVT		561	294	799	436	27	62	-63	55%	-1.0	5%

10-Q 1 a-mark10xqw2019sepfs.htm 10-Q Document

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________



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

For the quarterly period ended September 30, 2019



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

For the transition period from ________ to ________

Commission File Number: 001-36347

__________________________________________________

A-MARK PRECIOUS METALS, INC.

(Exact name of registrant as specified in its charter)

__________________________________________________



Delaware (State of Incorporation)		11-2464169 (IRS Employer I.D. No.)

2121 Rosecrans Ave. Suite 6300
El Segundo, CA 90245

(Address of principal executive offices)(Zip Code)

(310) 587-1477

(Registrant’s Telephone Number, Including Area Code)

__________________________________________________

Securities registered under Section 12(b) of the Exchange Act:



Title of each class Common Stock, $0.01 par value		Name of each exchange on which registered NASDAQ Global Select Market

Securities registered under Section 12 (g) of the Exchange Act: None

__________________________________________________



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. þ 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. þ No. o



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company þ	Emerging growth company o



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.		o

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

As of November 4, 2019, the registrant had 7,031,450 shares of common stock outstanding, par value $0.01 per share.

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Three Months Ended September 30, 2019

TABLE OF CONTENTS



			Page
PART I
	Item 1.	Condensed Consolidated Financial Statements	3
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69
	Item 4.	Controls and Procedures	70

PART II
	Item 1.	Legal Proceedings	70
	Item 1A.	Risk Factors	70
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
	Item 3.	Defaults upon Senior Securities	79
	Item 4.	Mine Safety Disclosures	79
	Item 5.	Other Information	80
	Item 6.	Exhibits	80
Signatures			81

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to the Condensed Consolidated Financial Statements and Notes thereof
	Page
Condensed Consolidated Balance Sheets as of September 30, 2019 and June 30, 2019	4
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2019 and 2018	6
Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended September 30, 2019	7
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2019 and 2018	8
Notes to Consolidated Financial Statements	9
Note 1. Description of Business	9
Note 2. Summary of Significant Accounting Policies	10
Note 3. Assets and Liabilities, at Fair Value	20
Note 4. Receivables	24
Note 5. Secured Loans Receivable	24
Note 6. Inventories	26
Note 7. Plant, Property and Equipment	28
Note 8. Goodwill and Intangible Assets	28
Note 9. Long-Term Investments	29
Note 10. Accounts Payable	30
Note 11. Derivative Instruments and Hedging Transactions	30
Note 12. Income Taxes	33
Note 13. Related Party Transactions	35
Note 14. Financing Agreements	36
Note 15. Commitments and Contingencies	39
Note 16. Stockholders' Equity	39
Note 17. Customer and Supplier Concentrations	41
Note 18. Segments and Geographic Information	42
Note 19. Subsequent Events	45

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for share data) (unaudited)



	September 30, 2019		June 30, 2019

ASSETS
Current assets:
Cash⁽¹⁾	$	12,461	$	8,320
Receivables, net⁽¹⁾	23,643		26,895
Derivative assets	19,546		2,428
Secured loans receivable⁽¹⁾	150,473		125,298
Precious metals held under financing arrangements	200,809		208,792
Inventories:
Inventories⁽¹⁾	213,068		198,356
Restricted inventories	159,130		94,505
	372,198		292,861

Income taxes receivable	1,500		1,473
Prepaid expenses and other assets⁽¹⁾	2,605		2,783
Total current assets	783,235		668,850

Operating lease right of use assets, net	5,066		—
Plant, property and equipment, net	6,448		6,731
Goodwill	8,881		8,881
Intangibles, net	5,599		5,852
Long-term investments	11,897		11,885
Deferred tax assets - non-current	3,071		3,163
Other long-term assets	3,000		—
Total assets	$	827,197	$	705,362
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	204,000	$	167,000
Liabilities on borrowed metals	196,738		201,144
Product financing arrangements	159,130		94,505
Accounts payable	85,405		62,180
Derivative liabilities⁽¹⁾	6,690		9,971
Accrued liabilities⁽¹⁾	5,391		6,137
Total current liabilities	657,354		540,937
Notes payable⁽¹⁾	92,017		91,859
Other liabilities	4,791		—
Total liabilities	754,162		632,796

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued and outstanding: none as of September 30, 2019 and June 30, 2019	—		—
Common stock, par value $0.01; 40,000,000 shares authorized; 7,031,450 shares issued and outstanding as of September 30, 2019 and June 30, 2019	71		71
Additional paid-in capital	26,618		26,452
Retained earnings	43,263		43,135
Total A-Mark Precious Metals, Inc. stockholders’ equity	69,952		69,658
Non-controlling interests	3,083		2,908
Total stockholders’ equity	73,035		72,566
Total liabilities, non-controlling interests and stockholders’ equity	$	827,197	$	705,362

(1) Includes amounts of the consolidated variable interest entity, which is presented separately in the table below.

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands) (unaudited)

In September 2018, AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes, Series 2018-1, Class A in the aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0 million (collectively, the "Notes"). The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%. The Notes have a maturity date of December 15, 2023.

The Company consolidates a variable interest entity ("VIE") if it is considered to be the primary beneficiary. AMCF is a VIE because its equity may be insufficient to maintain its ongoing collateral requirements without additional financial support from the Company. The securitization is primarily secured by bullion loans and precious metals, and the Company is required to continuously hedge the value of certain collateral and make future contributions as necessary. The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., secured loans or precious metals) placed into the entity, has the right to receive (and has received) the proceeds from the securitization transaction, earns on-going interest income from the secured loans (subject to collateral requirements), and has the obligation to absorb losses should AMCF's interest expense and other costs exceed its interest income.

The following table presents the assets and liabilities of this VIE, which is included in the condensed consolidated balance sheets above. The holders of the Notes have a first priority security interest in the assets as shown in the table below, which are in excess of the Notes' aggregate principal amount. Additionally, the liabilities of the VIE include intercompany balances, which are eliminated in consolidation. See Note 14 for additional information.



	September 30, 2019		June 30, 2019

ASSETS OF THE CONSOLIDATED VIE
Cash	$	2,338	$	2,390
Receivables, net	1		1,664
Secured loans receivable	99,452		82,544
Inventories	—		16,867
Prepaid expenses and other assets	60		31
Total assets of the consolidated variable interest entity	$	101,851	$	103,496
LIABILITIES OF THE CONSOLIDATED VIE
Deferred payment obligations ⁽¹⁾	$	4,566	$	5,213
Derivative liabilities	—		1,241
Accrued liabilities	991		811
Notes payable ⁽²⁾	97,017		96,859
Total liabilities of the consolidated variable interest entity	$	102,574	$	104,124

(1) This is an intercompany balance, which is eliminated in consolidation and hence not shown on the consolidated balance sheets.
(2) $5.0 million of the Notes are held by A-Mark, which is eliminated in consolidation and hence not shown on the consolidated balance sheets.

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except for share and per share data) (unaudited)



	Three Months Ended September 30,	2019			2018
Revenues		$	1,481,014		$	1,565,090
Cost of sales		1,472,674			1,556,615
Gross profit		8,340			8,475

Selling, general and administrative expenses		(8,270		)	(7,719		)
Interest income		5,768			4,551
Interest expense		(5,142		)	(3,552		)
Other (expense) income, net		(166		)	248
Unrealized loss on foreign exchange		(122		)	(70		)
Net income before provision for income taxes		408			1,933
Income tax expense		(105		)	(499		)
Net income		303			1,434
	Net income (loss) attributable to non-controlling interests	175			(47		)
Net income attributable to the Company		$	128		$	1,481

Basic and diluted net income per share attributable to A-Mark Precious Metals, Inc.:
Basic		$	0.02		$	0.21
Diluted		$	0.02		$	0.21

Weighted average shares outstanding:
Basic		7,031,400			7,031,400
Diluted		7,091,000			7,091,900

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except for share data) (unaudited)



	Common Stock (Shares)	Common Stock		Additional Paid-in Capital		Retained Earnings		Total A-Mark Precious Metals, Inc. Stockholders' Equity		Non-Controlling Interests		Total Stockholders’ Equity
Balance, June 30, 2019	7,031,450	$	71	$	26,452	$	43,135	$	69,658	$	2,908	$	72,566
Net income	—	—		—		128		128		175		303
Share-based compensation	—	—		166		—		166		—		166
Balance, September 30, 2019	7,031,450	$	71	$	26,618	$	43,263	$	69,952	$	3,083	$	73,035

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands) (unaudited)



Three Months Ended September 30,	2019			2018
Cash flows from operating activities:
Net income	$	303		$	1,434
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	668			697
Amortization of loan cost	353			211
Deferred income taxes	92			453
Interest added to principal of secured loans	(5		)	(5		)
Share-based compensation	166			272
Earnings from equity method investments	(11		)	(248		)
Changes in assets and liabilities:
Receivables	3,252			(21,476		)
Secured loans receivable	1,543			93
Secured loans made to affiliates	5,154			6,824
Derivative assets	(17,118		)	4,689
Income taxes receivable	(27		)	(8		)
Precious metals held under financing arrangements	7,983			30,090
Inventories	(79,337		)	(9,689		)
Prepaid expenses and other assets	(17		)	(208		)
Accounts payable	23,225			14,996
Derivative liabilities	(3,281		)	15,517
Liabilities on borrowed metals	(4,406		)	(53,148		)
Accrued liabilities	(1,016		)	(792		)
Net cash used in operating activities	(62,479		)	(10,298		)
Cash flows from investing activities:
Capital expenditures for plant, property, and equipment	(137		)	(122		)
Secured loans receivable, net	(31,868		)	21,621
Other loans originated	(3,000		)	—
Net cash (used in) provided by investing activities	(35,005		)	21,499
Cash flows from financing activities:
Product financing arrangements, net	64,625			(60,814		)
Borrowings and repayments under lines of credit, net	37,000			(21,000		)
Proceeds from issuance of notes payable	—			90,000
Debt funding issuance costs	—			(2,964		)
Net cash provided by financing activities	101,625			5,222
Net increase in cash, cash equivalents, and restricted cash	4,141			16,423
Cash, cash equivalents, and restricted cash, beginning of period	8,320			6,291
Cash, cash equivalents, and restricted cash, end of period	$	12,461		$	22,714

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	5,173		$	2,963
Income taxes paid	$	33		$	47

Non-cash investing and financing activities:
Interest added to principal of secured loans	$	5		$	5
Investment transactions with non-controlling interest	$	—		$	639

See accompanying Notes to Condensed Consolidated Financial Statements

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A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. DESCRIPTION OF BUSINESS

Basis of Presentation

The condensed consolidated financial statements comprise those of A-Mark Precious Metals, Inc. ("A-Mark" or the "Company") and its consolidated subsidiaries.

Business Segments

The Company conducts its operations in three reportable segments: (1) Wholesale Trading & Ancillary Services, (2) Secured Lending, and (3) Direct Sales. Each of these reportable segments represents an aggregation of operating segments that meets the aggregation criteria set forth in the Segment Reporting Topic 280 of the Financial Accounting Standards Board’s ("FASB") Accounting Standards Codification (“ASC”). (See Note 18.)

Wholesale Trading & Ancillary Services

The Wholesale Trading & Ancillary Services segment operates as a full-service precious metals trading company. The products that this segment sells include: gold, silver, platinum, and palladium primarily in the form of coins, rounds, bars, wafers, and grain. This segment's trading-related services include: consignment, storage, logistics, hedging, and various customized financial programs.

Through its wholly owned subsidiary, A-Mark Trading AG (“AMTAG”), the Company promotes A-Mark's products and services throughout the European continent. Transcontinental Depository Services (“TDS”), also a wholly owned subsidiary of the Company, offers worldwide storage solutions to institutions, dealers, and consumers.

The Company's wholly-owned subsidiary, A-M Global Logistics, LLC. ("Logistics"), operates the Company's logistics fulfillment center. Logistics provides customers an array of complementary services, including packaging, shipping, handling, receiving, processing, and inventorying of precious metals and custom coins on a secure basis.

Through our partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint"), the Company designs and produces minted silver products. The Company operates the Mint pursuant to a joint venture agreement with SilverTowne, L.P. The Company and SilverTowne L.P. own 69% and 31%, respectively, of AMST. The Company acquired its interest in AMST from SilverTowne L.P. to provide greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver products during volatile market environments.

Secured Lending

The Company operates its Secured Lending segment through its wholly-owned subsidiary, Collateral Finance Corporation LLC. ("CFC".) CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors.

AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC. AMCF issued and administers Secured Senior Term Notes: Series 2018-1, Class A, with an aggregate principal amount of $72.0 million and Secured Subordinated Term Notes: Series 2018-1, Class B with an aggregate principal amount of $28.0 million (collectively, the "Notes".) The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%. The Notes have a maturity date of December 15, 2023. For additional information regarding this securitization, see Note 14.

Direct Sales

The Company's wholly-owned subsidiary, Goldline, Inc. ("Goldline"), is a direct retailer of precious metals to the investor community. Goldline markets its precious metal products primarily on radio and the internet. Goldline sells gold and silver bullion in the form of coins, rounds, and bars.

AM IP LLC. ("AMIP"), a wholly owned subsidiary of Goldline, manages intellectual property (“IP”) that includes lists of customers and sales lead information that is licensed to third parties in the industry who can utilize such assets and provide the Company with ancillary income.

In the fourth quarter of 2019, Goldline entered into a joint venture agreement with one of the Company's related parties to form Precious Metals Purchasing Partners, LLC, ("PMPP"), a 50% owned subsidiary, primarily for the purpose of purchasing precious metals from the partners' retail customers for resale back into the marketplace. PMPP was capitalized in fiscal 2019, and commenced operations in fiscal 2020. Metals purchased by the joint venture are sold to the partners or their affiliates per terms of the joint venture agreement.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements reflect the financial condition, results of operations, statement of stockholder equity, and cash flows of the Company, and were prepared using accounting principles generally accepted in the United States (“U.S. GAAP”). The Company consolidates its subsidiaries that are wholly-owned, majority owned, and entities that are variable interest entities where the Company is determined to be the primary beneficiary. Our condensed consolidated financial statements include the accounts of: A-Mark, CFC, AMTAG, TDS, Logistics, Goldline, AMIP, AMST, AMCF, and PMPP (collectively the “Company”). Intercompany accounts and transactions are eliminated.

Comprehensive Income

For the three months ended September 30, 2019 and 2018, there were no items that gave rise to other comprehensive income or loss, and, as a result net income equaled comprehensive income.

Use of Estimates

The preparation of condensed 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 condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of fair value, allowances for doubtful accounts, impairment assessments of plant, property and equipment and intangible assets, valuation allowance determination on deferred tax assets, contingent earn-out liabilities, and revenue recognition judgments. Significant estimates also include the Company's fair value determination with respect to its financial instruments and precious metals inventory. Actual results could materially differ from these estimates.

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 statement of stockholders’ equity, and condensed consolidated statements of cash flows for the periods presented in accordance with U.S. GAAP. Operating results for the three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2020 or for any other interim period during such fiscal year. Certain information and footnote disclosures normally included in annual consolidated 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 on Form 10-K for the fiscal year ended 2019 (the “2019 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2019 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2019 Annual Report.

Fair Value Measurement

The Fair Value Measurements and Disclosures Topic 820 of the ASC ("ASC 820"), creates a single definition of fair value for financial reporting. The rules associated with ASC 820 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. (See Note 3.)

Concentration of Credit Risk

Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances.

Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. The Company enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions. Credit risk with respect to loans of inventory to customers is minimal. All of our commodity derivative contracts are under master

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netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions.

Foreign Currency

The functional currency of the Company is the United States dollar ("USD"). Also, the functional currency of the Company's wholly-owned foreign subsidiary, AMTAG, is USD, but it maintains its books of record in the European Union Euro. The Company remeasures the financial statements of AMTAG into USD. The remeasurement of local currency amounts into USD creates remeasurement gains and losses, which are included in the condensed consolidated statements of operations.

To manage the effect of foreign currency exchange fluctuations, the Company utilizes foreign currency forward contracts. These derivatives generate gains and losses when settled and/or marked-to-market.

Business Combinations

The Company accounts for business combinations by applying the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. The Company evaluates each purchase transaction to determine whether the acquired assets meet the definition of a business. Transaction costs related to the acquisition of a business are expensed as incurred and excluded from the fair value of consideration transferred. The identifiable assets acquired, liabilities assumed, and non-controlling interests, if any, in an acquired entity are recognized and measured at their estimated fair values. The excess of the fair value of consideration transferred over the fair values of identifiable assets acquired, liabilities assumed, and non-controlling interests, if any, in an acquired entity is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets and liabilities.

Variable Interest Entity

A variable interest entity ("VIE") is a legal entity that has either i) a total equity investment that is insufficient to finance its activities without additional subordinated financial support or ii) whose equity investors as a group lack the ability to control the entity’s activities or lack the ability to receive expected benefits or absorb obligations in a manner that is consistent with their investment in the entity.

A VIE is consolidated for accounting purposes by its primary beneficiary, which is the party that has both the power to direct the activities that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates VIE's when it is deemed to be the primary beneficiary. Management regularly reviews and reconsiders its previous conclusions regarding whether it holds a variable interest in potential VIEs, the status of an entity as a VIE, and whether the Company is required to consolidate such VIE's in the consolidated financial statements.

AMCF, a wholly owned subsidiary of CFC, is a special purpose entity ("SPE") formed as part of a securitization transaction in order to isolate certain assets and distribute the cash flows from those assets to investors. AMCF was structured to insulate investors from claims on AMCF’s assets by creditors of other entities. The Company has various forms of ongoing involvement with AMCF, which may include (i) holding senior or subordinated interests in AMCF; (ii) acting as loan servicer for a portfolio of loans held by AMCF; and (iii) providing administrative services to AMCF.

AMCF is a VIE because the Company's initial equity investment may be insufficient to maintain its ongoing collateral requirements without additional financial support from the Company. The securitization is primarily secured by bullion loans and precious metals, and the Company is required to continuously hedge the value of certain collateral and make future contributions as necessary. The Company is the primary beneficiary of this VIE because the Company has the right to determine the type of collateral (i.e., secured loans or precious metals), has the right to receive (and has received) the proceeds from the securitization transaction, earns on-going interest income from the secured loans (subject to collateral requirements), and has the obligation to absorb losses should AMCF's interest expense and other costs exceed its interest income. (See Note 14.)

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company does not have any cash equivalents as of September 30, 2019 and June 30, 2019.

As of September 30, 2019 and June 30, 2019, the Company has $0.3 million and $0.3 million, respectively, in a bank account that is restricted and serves as collateral against a standby letter of credit issued by the bank in favor of the landlord for our office space in Los Angeles, California.

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Precious Metals held under Financing Arrangements

The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product on the repurchase date. The precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement.

These arrangements are typically terminable by either party upon 14 days' notice. Upon termination, the customer’s right to repurchase any remaining precious metal is forfeited, and the related precious metals are reclassified as inventory held for sale. As of September 30, 2019 and June 30, 2019, precious metals held under financing arrangements totaled $200.8 million and $208.8 million respectively.

The Company’s precious metals held under financing arrangements are marked-to-market.

Inventories

Inventories principally include bullion and bullion coins that are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: (1) published market values attributable to the costs of the raw precious metal, and (2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form, and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources.

The Company’s inventories, except for certain lower of cost or net realizable value basis products (as discussed below), are subsequently recorded at their fair market values, that is, "marked-to-market." The daily changes in the fair market value of our inventory are offset by daily changes in the fair market value of hedging derivatives that are taken with respect to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the condensed consolidated statements of operations.

While the premium component included in inventories is marked-to-market, our commemorative coin inventory, including its premium component, is held at the lower of cost or net realizable value, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Neither the commemorative coin inventory nor the premium component of our inventory is hedged. (See Note 6.)

Leased Right of Use Assets

We lease warehouse space, office facilities, and equipment. Our operating leases with terms longer than twelve months are recorded on the condensed consolidated balance sheets at the sum of the present value of the lease's fixed minimum payments as operating lease right of use assets ("ROU assets"). Our capital or finance leases, which are a type of ROU assets, are recorded in the condensed consolidated balance sheets as a component of plant, property and equipment at the present value of the lease payments.

For leases that contain termination options, where the rights to terminate are held by either us, the lessor, or both parties and it is reasonably certain that we will exercise that option, we factor these extended or shortened lease terms into the minimum lease payments. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by lease incentives. We use our incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is the rate of interest that we would incur to borrow on a collateralized basis over a similar term and amount in a similar economic environment.

Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. The depreciable life of ROU assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Income from subleases was not significant for any period presented.

During the three months ended September 30, 2019, we incurred lease costs of $0.4 million, which is primarily comprised of operating lease cost of $0.3 million. The other costs are insignificant and relate to our finance leases, short-term leases, and variable lease payments.

For the three months ended September 30, 2019, we made cash payments of $0.4 million for operating lease obligations. These payments are included in operating cash flows. At September 30, 2019, the weighted-average remaining lease term under

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our capitalized operating leases was 5.1 years, while the weighted-average discount rate for our operating leases was approximately 4.9%.

The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities, as of September 30, 2019:



Years ending June 30,		Operating Leases
2020 (excluding the three months ended September 30, 2019)		$	1,118
2021		1,526
2022		1,313
2023		834
2024		860
Thereafter		1,184
Total lease payments		6,835
Less imputed interest		(812		)
		$	6,023		⁽¹⁾

Operating lease liability - current		$	1,232		⁽²⁾
Operating lease liability - long-term		4,791			⁽³⁾
		$	6,023		⁽¹⁾
________________________________________________
(1)	Represents the present value of the capitalized operating lease liabilities as of September 30, 2019.
(2)	Current operating lease liabilities are presented within accrued liabilities on our condensed consolidated balance sheets.
(3)	Long-term operating lease liabilities are presented within other liabilities on our condensed consolidated balance sheets.

Following is a summary of our future minimum operating lease commitments, as determined under ASC 840, for all non-cancelable lease agreements, for each of the next five years and in the aggregate, as of June 30, 2019:



Years ending June 30,	Operating Leases
2020	$	1,488
2021	1,526
2022	1,313
2023	834
2024	860
Thereafter	1,184
	$	7,205

The Company has no related party leases. We do not have leases that have not yet commenced, which would create significant rights and obligations for us, including any involvement with the construction or design of the underlying asset. (Refer to the section below captioned "Recently Adopted Accounting Pronouncements" for the elections adopted pursuant to ASU 2016-02, Leases (Topic 842).)

Plant, Property and Equipment

Plant, property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method based on the estimated useful lives of the related assets, ranging from three years to twenty-five years. Depreciation commences when the related assets are placed into service. Internal-use software development costs are capitalized during the application development stage. Internal-use software costs incurred during the preliminary project stage are expensed as incurred. Land is recorded at historical cost and is not depreciated. Repair and maintenance costs are expensed as incurred. We have no major planned maintenance activities related to our plant assets associated with our minting operations.

The Company reviews the carrying value of these assets for impairment whenever events and circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating for impairment, the carrying value of each asset or group of assets is compared to the undiscounted estimated future cash flows expected to result from its use and eventual disposition. An impairment loss is recognized for the difference when the carrying value exceeds the discounted estimated future cash flows. The factors considered by the Company in performing this assessment include current and projected operating results, trends and

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prospects, the manner in which these assets are used, and the effects of obsolescence, demand and competition, as well as other economic factors.

Finite-lived Intangible Assets

Finite-lived intangible assets consist primarily of customer relationships, non-compete agreements, and employment contracts which are amortized on a straight-line basis over their economic useful lives ranging from three years to fifteen years. We review our finite-lived intangible assets for impairment under the same policy described above for plant, property, and equipment; that is, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Goodwill and Indefinite-lived Intangible Assets

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill and other indefinite-lived intangibles (such as trade names) are not subject to amortization, but are evaluated for impairment at least annually. However, for tax purposes, goodwill acquired in connection with a taxable asset acquisition is generally deductible.

The Company evaluates its goodwill and other indefinite-lived intangibles for impairment in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the Intangibles - Goodwill and Other Topic 350 of the ASC. Goodwill is reviewed for impairment at a reporting unit level, which in our case, corresponds to the Company’s reportable operating segments.

Evaluation of goodwill for impairment

The Company has the option to first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. A qualitative assessment includes analyzing current economic indicators associated with a particular reporting unit such as changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there would be a significant decline to the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required.

If, based on this qualitative assessment, management concludes that goodwill is more likely than not to be impaired, or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine the fair value of the business, and compare the calculated fair value of the reporting unit with its carrying amount, including goodwill. If through this quantitative analysis the Company determines the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not to be impaired. If the Company concludes that the fair value of the reporting unit is less than its carrying value, a goodwill impairment loss will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. (See Note 8.)

Evaluation of indefinite-lived intangible assets for impairment

The Company evaluates its indefinite-lived intangible assets (i.e., trademarks and trade-names) for impairment. In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is unlikely that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is unlikely that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company is not required to perform any additional tests in assessing the asset for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine if the fair value of an indefinite-lived intangible asset is less than its carrying value. If through this quantitative analysis the Company determines the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is considered not to be impaired. If the Company concludes that the fair value of an indefinite-lived intangible asset is less than its carrying value, an impairment loss will be recognized for the amount by which the carrying amount exceeds the indefinite-lived intangible asset’s fair value.

The methods used to estimate the fair value measurements of the Company’s reporting units and indefinite-lived intangible assets include those based on the income approach (including the discounted cash flow and relief-from-royalty methods) and those based on the market approach (primarily the guideline transaction and guideline public company methods). (See Note 8.)

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Long-Term Investments

Investments in privately-held entities that are at least 20% but less than 50% owned by the Company are accounted for using the equity method. Under the equity method, the carrying value of the investment is adjusted for the Company’s proportionate share of the investee’s earnings or losses, with the corresponding share of earnings or losses reported in other income (expense), net. The carrying value of the investment is reduced by the amount of the dividends received from the equity-method investee, as they are considered a return of capital.

We evaluate our long-term investments for impairment quarterly or whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Additionally, the Company performs an on-going evaluation of its equity method investments with which the Company has variable interests to determine if any of these entities are VIEs that are required to be consolidated.

Other Long-Term Assets

Notes and other receivables, with terms greater than one year, are carried at amortized cost, net of any unamortized origination fees, which are recognized over the life of the note. The determination of an allowance is based on historical experience and, as a result, can differ from actual losses incurred in the future. We charge off receivables at such time as it is determined collection will not occur.

On September 19, 2019, the Company, as lender, entered into a convertible revolving credit facility with one of its privately-held customers (the borrower) that provides the borrower an aggregate principal amount of up to $4.0 million, bearing interest at 12.0% per annum. The facility expires on September 18, 2022. The borrower has the right to prepay the credit facility at any time without premium or penalty. Outstanding principal amounts under the credit facility may, at the lender's discretion, be converted into up to 22.0% of the borrower's issued and outstanding common stock. The credit facility also grants the lender the right to repay the borrower's outstanding unrelated third-party debt, at any time, in exchange for up to 27.5% of the borrower’s issued and outstanding common stock. In the event the borrower sells all or substantially all of its assets or has a change of control during the term of the facility, the lender is entitled to additional interest equal to 10% of the gross sales price in excess of $9.9 million. The credit facility collateral includes all: (i) account receivables; (ii) inventory; (iii) fixed assets; (iv) intellectual property; (v) contract rights; and (vi) deposit accounts, in each case subordinated to an unrelated third-party lender’s security interest.

Revenue Recognition

Settlement Date Accounting

Substantially all of the Company’s sales of precious metals are conducted using sales contracts that meet the definition of derivative instruments in accordance with the Derivatives and Hedging Topic 815 of the ASC ("ASC 815"). The contract underlying A-Mark’s commitment to deliver precious metals is referred to as a “fixed-price forward commodity contract” because the price of the commodity is fixed at the time the order is placed. Revenue is recognized on the settlement date, which is defined as the date on which: (1) the quantity, price, and specific items being purchased have been established, (2) metals have been delivered to the customer, and (3) payment has been received or is covered by the customer’s established credit limit with the Company.

All derivative instruments are marked-to-market during the interval between the trade date and the settlement date, with the changes in the fair value charged to cost of sales. The Company’s hedging strategy to mitigate the market risk associated with its sales commitments is described separately below under the caption “Hedging Activities.”

Types of Trades Orders that are Physically Delivered

The Company’s contracts to sell precious metals to customers are usually settled with the physical delivery of metals to the customer, although net settlement (i.e., settlement at an amount equal to the difference between the contract value and the market price of the metal on the settlement date) is permitted. Below is a summary of the Company’s major trade order types and the key factors that determine when settlement occurs and when revenue is recognized for each type:


•	Traditional physical trade orders — The quantity, specific product, and price are determined on the trade date. Payment or sufficient credit is verified prior to delivery of the metals on the settlement date.


•	Consignment trade orders — The Company delivers the items requested by the customer prior to establishing a firm trade order with a price. Settlement occurs and revenue is recognized once the customer confirms its order (quantity, specific product, and price) and remits full payment for the sale.

•

Provisional trade orders — The quantity and type of metal is established at the trade date, but the price is not set. The customer commits to purchasing the metals within a specified time period, usually within one year, at the then-current market price. The Company delivers the metal to the customer after receiving the customer’s deposit, which is typically based on 110% of the prevailing current spot price. The unpriced metal is subject to a margin call if the deposit falls

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below 105% of the value of the unpriced metal. The purchase price is established and revenue is recognized at the time the customer notifies the Company that it desires to purchase the metal.

•

Margin trade orders — The quantity, specific product, and price are determined at trade date; however, the customer is allowed to finance the transaction through the Company and to defer delivery by committing to remit a partial payment (approximately 20%) of the total order price. With the remittance of the partial payment, the customer locks in the purchase price for a specified time period (usually up to two years from the trade date). Revenue on margin trade orders is recognized when the order is paid in full and delivered to the customer.

•

Borrowed precious metals trade orders for unallocated positions — Customers may purchase unallocated metal positions in the Company's inventory. The quantity and type of metal is established at the trade date, but the specific product is not yet determined. Revenue is not recognized until the customer selects the specific precious metal product it wishes to purchase, full payment is received, and the product is delivered to the customer.

Hedging Activities

The value of our inventory and our purchase and sale commitments are linked to the prevailing price of the underlying precious metal commodity. The Company seeks to minimize the effect of price changes of the underlying commodity and enters into inventory hedging transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions. The Company hedges by each commodity type (gold, silver, platinum, and palladium). All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions.

Commodity forward, futures, and option contracts entered into for hedging purposes are recorded at fair value on the trade date and are marked-to-market each period. The difference between the original contract values and the market values of these contracts are reflected as derivative assets or derivative liabilities in the condensed consolidated balance sheets at fair value, with the corresponding unrealized gain or losses included as a component of cost of sales. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales and the net realized gains and losses for futures and option contracts are recorded in cost of sales.

The Company enters into futures, forward, and option contracts solely for the purpose of hedging our inventory holding risk and our liability on price protection programs, and not for speculative market purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in the fair market value of the underlying precious metals inventory, which is also recorded in cost of sales in the condensed consolidated statements of operations. (See Note 11.)

Other Sources of Revenue

The Company recognizes its storage, logistics, licensing, and other services revenues in accordance with the FASB's release ASU 2014-09 Revenue From Contracts With Customers Topic 606 ("ASC 606"), which follows five basic steps to determine whether revenue can be recognized: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company recognizes revenue when it satisfies its obligation by transferring control of the good or service to the customer. This is either satisfied over time or at a point in time. A performance obligation is satisfied over time if one of the following criteria are met: (1) the customer simultaneously receives and consumes the benefits as the Company performs, (2) the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (3) the Company's performance does not create an asset with an alternative use to the Company, and the Company has an enforceable right for payment of performance completed-to-date. When none of those are met, a performance obligation is satisfied at a point-in-time.

The Company recognizes storage revenue over time, as the customer simultaneously receives and consumes the storage services (e.g., fixed storage fees based on the passage of time). The Company recognizes logistics (i.e., fulfillment) revenue at a point-in-time, when the customer receives the benefit of the services (e.g., stated number of packages are shipped on behalf of the customer during a month). The Company recognizes revenue from the licensing of its functional intellectual property ("IP"), which include customer lists and sales lead information, at the point in time when the right to use the IP is transferred to the licensee. Any revenue generated from usage-based royalties associated with the licensing of the IP is recognized at the point in time when the licensee converts and actualizes customers from the IP. In aggregate, these types of service revenues account for less than 1% of the Company's combined revenue from all revenue streams.

Interest Income

In accordance with the Interest Topic 835 of the ASC ("ASC 835") following are interest income generating activities of the Company:

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•

Secured Loans — The Company uses the effective interest method to recognize interest income on its secured loans transactions. The Company maintains a security interest in the precious metals and records interest income over the terms of the secured loan receivable. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. The interest income accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are resolved. Cash receipts on impaired loans are recorded first against the principal and then to any unrecognized interest income. (See Note 5.)


•	Margin accounts — The Company earns a fee (interest income) under financing arrangements related to margin trade orders over the period during which customers have opted to defer making full payment on the purchase of metals.

•

Repurchase agreements — Repurchase agreements represent a form of secured financing whereby the Company sets aside specific metals for a customer and charges a fee on the outstanding value of these metals. The customer is granted the option (but not the obligation) to repurchase these metals at any time during the open reacquisition period. This fee is earned over the duration of the open reacquisition period and is classified as interest income.

•

Spot deferred trade orders — Spot deferred trade orders are a special type of forward delivery trade that enable customers to purchase or sell certain precious metals from/to the Company at an agreed upon price but, are allowed to delay remitting or taking delivery up to a maximum of two years from the date of trade. Even though the contract allows for physical delivery, it rarely occurs for this type of trade. As a result, revenue is not recorded from these transactions, because no product is delivered to the customer. Spot deferred trades are considered a type of financing transaction, where the Company earns a fee (interest income) under spot deferred arrangements over the period in which the trade is open.

Interest Expense

The Company accounts for interest expense on the following arrangements in accordance with Interest Topic 835 of the ASC ("ASC 835"):


•	Borrowings — The Company incurs interest expense from its lines of credit, its debt obligations, and notes payable using the effective interest method. (See Note 14.) Additionally, the Company amortizes capitalized loan costs to interest expense over the period of the loan agreement.


•	Loan servicing fees — When the Company purchases loan portfolios, the Company may have the seller service the loans that were purchased. The Company incurs a fee based on total interest charged to borrowers over the period the loans are outstanding. The servicing fee incurred by the Company is charged to interest expense.

•

Product financing arrangements — The Company incurs financing fees (classified as interest expense) from its product financing arrangements (also referred to as reverse-repurchase arrangements) with third party finance companies for the transfer and subsequent option to reacquire its precious metal inventory at a later date. These arrangements are accounted for as secured borrowings. During the term of this type of agreement, the third party charges a monthly fee as a percentage of the market value of the designated inventory, which the Company intends to reacquire in the future. No revenue is generated from these trades. The Company enters this type of transaction for additional liquidity.

•

Borrowed and leased metals fees — The Company may incur financing costs from its borrowed metal arrangements. The Company borrows precious metals (usually in the form of pool metals) from its suppliers and customers under short-term arrangements using other precious metals as collateral. Typically, during the term of these arrangements, the third party charges a monthly fee as a percentage of the market value of the metals borrowed (determined at the spot price) plus certain processing and other fees.

Leased metal transactions are a similar type of transaction, except the Company is not required to pledge other precious metal as collateral for the precious metal received. The fees charged by the third party are based on the spot value of the pool metal received.

Both borrowed and leased metal transactions provide an additional source of liquidity, as the Company usually monetizes the metals received under such arrangements. Repayment is usually in the same form as the metals advanced, but may be settled in cash.

Other Income and Expense

The Company's other income and expense is derived from the Company's proportional interest in the reported net income or loss of our investees that are accounted for under the equity method of accounting (see Note 9), and costs associated with the settlement of our purchase of Goldline (see Note 15).

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Advertising

Advertising expense was $463,000 and $590,000, respectively, for the three months ended September 30, 2019 and 2018.

Shipping and Handling Costs

Shipping and handling costs represent costs associated with shipping product to customers, and receiving product from vendors and are included in cost of sales in the condensed consolidated statements of operations. Shipping and handling costs incurred totaled $1,371,000 and $1,740,000, respectively, for the three months ended September 30, 2019 and 2018.

Share-Based Compensation

The Company accounts for equity awards under the provisions of the Compensation - Stock Compensation Topic 718 of the ASC ("ASC 718"), which establishes fair value-based accounting requirements for share-based compensation to employees. ASC 718 requires the Company to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees as expense over the service period in the Company's condensed consolidated financial statements. The expense is adjusted for actual forfeitures of unvested awards as they occur.

Income Taxes

As part of the process of preparing its condensed consolidated financial statements, 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 Income Taxes Topic 740 of the ASC ("ASC 740"). 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 new 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. These unrecognized tax benefits are presented in the condensed consolidated balance sheets principally within accrued liabilities.

The Company accounts for uncertainty in income taxes under the provisions of ASC 740. These provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise's financial statements, and prescribe 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 provisions also provide 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 for income taxes on the condensed consolidated statements of operations. Please refer to Note 12 for further discussion regarding these provisions.

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company's forecast of the reversal of temporary differences, future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company's effective tax rate on future earnings. Based on our assessment, it appears more likely than not that all of the net deferred tax assets will be realized through future taxable income.

The Company's condensed consolidated financial statements recognized the current and deferred income taxes consequences that result from the Company's activities during the current and preceding periods, as if the Company were a separate taxpayer prior to the date of the spinoff of the Company when it was a member of the consolidated income tax return group of Spectrum Group International, Inc. ("SGI"). Following its spin-off, the Company separately files its federal and state income tax filings. The Company recognizes current and deferred income taxes as a separate taxpayer for periods ending after the date of the spinoff.

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Earnings per Share ("EPS")

The Company computes and reports both basic EPS and diluted EPS. Basic EPS is computed by dividing net earnings (losses) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net earnings (losses) by the sum of the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the total potential dilution that could occur from outstanding equity awards, including unexercised stock options, utilizing the treasury stock method.

A reconciliation of shares used in calculating basic and diluted earnings per common shares for the three months ended September 30, 2019 and 2018, is presented below.



in thousands
Three Months Ended September 30,	2019	2018
Basic weighted average shares outstanding	7,031	7,031
Effect of common stock equivalents — stock issuable under outstanding equity awards	60	61
Diluted weighted average shares outstanding	7,091	7,092

Dividends

Dividends are recorded if and when they are declared by the Board of Directors.

Recently Adopted Accounting Pronouncements

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).

We adopted ASU 2016-02, Leases (Topic 842) and relevant amendments, effective for the Company on July 1, 2019. The standard represents a change to lease accounting and requires all leases, other than short-term leases, to be reported on the balance sheet through recognition of a right-of-use asset and a corresponding liability for future lease obligations. The standard also requires incremental disclosures for assets, expenses, and cash flows associated with leases, as well as a maturity analysis of lease liabilities. We adopted Topic 842 by applying the transition method whereby comparative periods have not been restated, and no adjustment to retained earnings was required. Upon adoption of the standard, we recognized right-of-use assets of approximately $5.3 million and lease liabilities of approximately $6.3 million. This increase largely relates to the present value of future minimum lease payments due under existing operating leases of office facilities and warehouse space. No material changes are expected to the recognition of lease expenses in the condensed consolidated of statement of operations as a result of the adoption of Topic 842. For adoption, we elected Topic 842’s package of three practical expedients, and 1) did not reassess whether any expired or existing contracts are or contain leases, 2) did not reassess the lease classification for any expired or existing leases, and 3) did not reassess initial direct costs for any existing leases. In addition, we made an accounting policy election not to apply the recognition requirements to short-term leases.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Financial Instruments - Credit Loss (Topic 326), which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. This update is effective for the Company on July 1, 2020 (for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years). The Company is currently evaluating the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other: Internal-Use Software (Subtopic 350-40), to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. This update is effective for the Company on July 1, 2020 (for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years). The adoption of this guidance is not expected to have a material impact on our financial statements.

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3. ASSETS AND LIABILITIES, AT FAIR VALUE

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of September 30, 2019 and June 30, 2019.



in thousands
	September 30, 2019				June 30, 2019
	Carrying Amount		Fair value		Carrying Amount		Fair value

Financial assets:
Cash	$	12,461	$	12,461	$	8,320	$	8,320
Receivables, net	23,643		23,643		26,895		26,895
Secured loans receivable	150,473		150,473		125,298		125,298
Derivative assets on open sale and purchase commitments, net	4,960		4,960		2,322		2,322
Derivative assets on option contracts	11		11		61		61
Derivative assets on futures contracts	3,871		3,871		2		2
Derivative assets on forward contracts	10,704		10,704		43		43
Income taxes receivable	1,500		1,500		1,473		1,473
Other long-term assets	3,000		3,000		—		—
Financial liabilities:
Lines of credit	$	204,000	$	204,000	$	167,000	$	167,000
Liabilities on borrowed metals	196,738		196,738		201,144		201,144
Product financing arrangements	159,130		159,130		94,505		94,505
Derivative liabilities on margin accounts	3,455		3,455		2,981		2,981
Derivative liabilities on price protection programs	13		13		22		22
Derivative liabilities on open sale and purchase commitments, net	3,115		3,115		3,822		3,822
Derivative liabilities on futures contracts	—		—		1,241		1,241
Derivative liabilities on forward contracts	107		107		1,905		1,905
Accounts payable	85,405		85,405		62,180		62,180
Accrued liabilities	5,391		5,391		6,137		6,137
Notes payable	92,017		99,172		91,859		98,609

The fair values of the financial instruments shown in the above table as of September 30, 2019 and June 30, 2019 represent the amounts that would be received upon the sale of those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk adjusted discount rates, and available observable and unobservable inputs.

The carrying amounts of cash, secured loans receivable, receivables, income taxes receivable, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The carrying amounts of derivative assets and derivative liabilities, liabilities on borrowed metals and product financing arrangements are marked-to-market on a daily basis to fair value. The carrying amounts of lines of credit approximate fair value based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities. The Company’s notes payable are reported at their aggregate principal amount less unamortized original issue discount and deferred financing costs on the accompanying consolidated balance sheets. The fair value of the notes payable is based on the present value of the expected coupon and principal payments using an estimated discount rate based on current market rates for debt with similar credit risk.

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Valuation Hierarchy

Topic 820 of the ASC 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The significant assumptions used to determine the carrying value and the related fair value of the assets and liabilities measured at fair value on a recurring basis are described below:

Inventory. Inventories, which principally include bullion and bullion coins, are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins are comprised of two components: 1) published market values attributable to the costs of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. Except for commemorative coin inventory, which are included in inventory at the lower of cost or net realizable value, the Company’s inventories are subsequently recorded at their fair market values on a daily basis. The fair value for commodities inventory (i.e., inventory excluding commemorative coins) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory are classified in Level 1 of the valuation hierarchy.

Precious Metals held under Financing Arrangements. The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the spot value of the product on the repurchase date. The precious metals purchased under these arrangements consist of rare and unique items, and therefore the Company accounts for these transactions as precious metals held under financing arrangements, which generate financing income rather than revenue earned from precious metals inventory sales. In these repurchase arrangements, the Company holds legal title to the metals and earns financing income for the duration of the agreement. The fair value for precious metals held under financing arrangements, (a commodity, like inventory above) is determined using pricing data derived from the markets on which the underlying commodities are traded. Precious metals commodities inventory are classified in Level 1 of the valuation hierarchy.

Derivatives. Futures contracts, forward contracts, option contracts, and open sale and purchase commitments are valued at their fair values, based on the difference between the quoted market price and the contractual price (i.e., intrinsic value,) and are included within Level 1 of the valuation hierarchy.

Margin and Borrowed Metals Liabilities. Margin and borrowed metals liabilities consist of the Company's commodity obligations to margin customers and suppliers, respectively. Margin liabilities and borrowed metals liabilities are carried at fair value, which is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Margin and borrowed metals liabilities are classified in Level 1 of the valuation hierarchy.

Product Financing Arrangements. Product financing arrangements consist of financing agreements for the transfer and subsequent re-acquisition of the sale of gold and silver at an agreed-upon price based on the spot price with a third party. Such transactions allow the Company to repurchase this inventory on the termination (repurchase) date. The third party charges monthly interest as a percentage of the market value of the outstanding obligation, which is carried at fair value. The obligation is stated at the amount required to repurchase the outstanding inventory. Fair value is determined using quoted market pricing and data derived from the markets on which the underlying commodities are traded. Product financing arrangements are classified in Level 1 of the valuation hierarchy.

Liability on Price Protection Programs. The Company records an estimate of the fair value of the liability on the price protection programs based on the difference between the contractual price at trade date and the retail price at the remeasurement date (i.e., quarter-end) based on the expected redemption rate. As of September 30, 2019, the Company used the quoted market price based on the current spot rate and used an expected redemption rate of 100%. The use of a throughput rate ignores the future price volatility that would affect the timing and rate of redemption under the program, and, as a result, the liability on the price protection programs is classified in Level 3 of the valuation hierarchy.

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The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and June 30, 2019, aggregated by the level in the fair value hierarchy within which the measurements fall:



	September 30, 2019
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Inventory ⁽¹⁾	$	369,862	$	—	$	—	$	369,862
Precious metals held under financing arrangements	200,809		—		—		200,809
Derivative assets — open sale and purchase commitments, net	4,960		—		—		4,960
Derivative assets — option contracts	11		—		—		11
Derivative assets — futures contracts	3,871		—		—		3,871
Derivative assets — forward contracts	10,704		—		—		10,704
Total assets, valued at fair value	$	590,217	$	—	$	—	$	590,217

Liabilities:
Liabilities on borrowed metals	$	196,738	$	—	$	—	$	196,738
Product financing arrangements	159,130		—		—		159,130
Derivative liabilities — price protection programs	—		—		13		13
Derivative liabilities — margin accounts	3,455		—		—		3,455
Derivative liabilities — open sale and purchase commitments, net	3,115		—		—		3,115
Derivative liabilities — forward contracts	107		—		—		107
Total liabilities, valued at fair value	$	362,545	$	—	$	13	$	362,558

____________________

⁽¹⁾ Commemorative coin inventory totaling $2.3 million is held at lower of cost or net realizable value and is thus excluded from this table.

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	June 30, 2019
	Quoted Price in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Inventory ⁽¹⁾	$	292,844	$	—	$	—	$	292,844
Precious metals held under financing arrangements	208,792		—		—		208,792
Derivative assets — open sale and purchase commitments, net	2,322		—		—		2,322
Derivative assets — option contracts	61		—		—		61
Derivative assets — futures contracts	2		—		—		2
Derivative assets — forward contracts	43		—		—		43
Total assets, valued at fair value	$	504,064	$	—	$	—	$	504,064
Liabilities:
Liabilities on borrowed metals	$	201,144	$	—	$	—	$	201,144
Product financing arrangements	94,505		—		—		94,505
Derivative liabilities — price protection programs	—		—		22		22
Derivative liabilities — margin accounts	2,981		—		—		2,981
Derivative liabilities — open sale and purchase commitments, net	3,822		—		—		3,822
Derivative liabilities — futures contracts	1,241		—		—		1,241
Derivative liabilities — forward contracts	1,905		—		—		1,905
Total liabilities, valued at fair value	$	305,598	$	—	$	22	$	305,620

____________________

⁽¹⁾ Commemorative coin inventory totaling $17 thousand is held at lower of cost or net realizable value and is thus excluded from this table.

There were no transfers in or out of Level 2 or 3 from other levels within the fair value hierarchy during the reported periods.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only under certain circumstances. These include: i) equity method investments that are written down to fair value when a decline in the fair value is determined to be other-than-temporary, ii) plant, property and equipment and definite-lived intangibles, or iii) goodwill and indefinite-lived intangibles, all of which are written down to fair value when they are held for sale or determined to be impaired. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples, and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the Company’s estimated outlook and various growth rates. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective equity method investment, asset group, or reporting unit. In assessing the reasonableness of its determined fair values, the Company evaluates its results against other value indicators, such as comparable transactions and comparable public company trading values.

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4.	RECEIVABLES

Receivables consist of the following as of September 30, 2019 and June 30, 2019:



in thousands
	September 30, 2019		June 30, 2019

Customer trade receivables	$	5,876	$	13,050
Wholesale trade advances	12,600		9,704
Due from brokers	5,167		4,141
Receivables, net	$	23,643	$	26,895

Customer Trade Receivables. Customer trade receivables represent short-term, non-interest bearing amounts due from precious metal sales, advances related to financing products, and other secured interests in assets of the customer.

Wholesale Trade Advances. Wholesale trade advances represent advances of various bullion products and cash advances for purchase commitments of precious metal inventory. Typically, these advances are unsecured, short-term, and non-interest bearing, and are made to wholesale metals dealers and government mints.

Due from Brokers. Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts. (See Note 11.)


5.	SECURED LOANS RECEIVABLE

Below is a summary of the carrying value of our secured loans as of September 30, 2019 and June 30, 2019:



in thousands
	September 30, 2019			June 30, 2019

Secured loans originated	$	37,197		$	36,714
Secured loans originated - with a related party	8,904			14,058
	46,101			50,772
Secured loans acquired	104,372		⁽¹⁾	74,526		⁽²⁾
Secured loans	$	150,473		$	125,298

_________________________________

(1) Includes $29 thousand of loan premium as of September 30, 2019.

(2) Includes $29 thousand of loan premium as of June 30, 2019.

Secured Loans - Originated: Secured loans include short-term loans, which include a combination of on-demand lines and short-term facilities, and long-term loans that are made to our customers. These loans are fully secured by the customers' assets that include bullion, numismatic, and semi-numismatic material, which are typically held in safekeeping by the Company. (See Note 13 for further information regarding our secured loans made to related parties.)

Secured Loans - Acquired: Secured loans also include short-term loans, which include a combination of on-demand lines and short term facilities that are purchased from our customers. The Company acquires a portfolio of their loan receivables at a price that approximates the aggregate carrying value of each loan in the portfolio, as determined on the effective transaction date. Each loan in the portfolio is fully secured by the borrowers' assets, which include bullion, numismatic, and semi-numismatic material that are held in safekeeping by the Company. Typically, the seller of the loan portfolio retains the responsibility for the servicing and administration of the loans.

As of September 30, 2019 and June 30, 2019, our secured loans carried weighted-average effective interest rates of 10.6% and 10.2%, respectively, and mature in periods ranging typically from on-demand to one year.

The secured loans that the Company generates with active customers of A-Mark are reflected as an operating activity on the condensed consolidated statements of cash flows. The secured loans that the Company generates with borrowers who are not active customers of A-Mark are reflected as an investing activity on the condensed consolidated statements of cash flows as secured loans receivables, net. For the secured loans that (i) are reflected as an investing activity and have terms that allow the borrowers to increase their loan balance (at the discretion of the Company) based on the excess value of their collateral compared to their

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aggregate principal balance of loan, and (ii) are repayable on demand or in the short-term, the borrowings and repayments are netted on the condensed consolidated statements of cash flows.

Credit Quality of Secured Loans Receivables and Allowance for Credit Losses

The Company's secured loan receivables portfolio is comprised of secured loans with similar credit risk profiles and methods for assessing and monitoring credit risk. This similarity allows the Company to apply a standard methodology to determine the credit quality for each loan and the allowance, if any, for credit losses. The credit quality of each loan is generally determined by the type (or class) of secured material, the initial and ongoing collateral value determination, and the assessment of loan-to-value ratio. Historically, the Company has not established an allowance for any credit losses because each of its loans is fully secured by the underlying collateral.

The Company evaluates its loan portfolio in one of two classes of secured loan receivables: those loans secured by: 1) bullion items, and 2) numismatic and semi-numismatic coins. The Company's secured loans by portfolio class, which align with management reporting, are as follows:



in thousands
	September 30, 2019				June 30, 2019
Bullion	$	115,459	76.7	%	$	92,899	74.1	%
Numismatic and semi-numismatic	35,014		23.3		32,399		25.9
	$	150,473	100.0	%	$	125,298	100.0	%

Each of the two classes of secured loans receivables has the same initial measurement attribute and a similar method for assessing and monitoring credit risk. The methodology of assessing the credit quality of the secured loans acquired by the Company is similar to the secured loans originated by the Company; they are administered using the same internal reporting system, collateralized by precious metals, for which loan-to-value determination procedures are applied.

Credit Quality of Loans and Non-Performing Status

Generally, interest is due and payable within 30 days. A loan is considered past due if interest is not paid in 30 days or collateral calls are not met timely. Typically, loans do not achieve the threshold of non-performing status due to the fact that customers are generally put into default for any interest past due over 30 days and for unsatisfied collateral calls. When this occurs the loan collateral is typically liquidated within 90 days.

For certain secured loans, interest is billed monthly and, if not paid, is added to the outstanding loan balance. These secured loans are considered past due if their current loan-to-value ratio fails to meet established minimum equity levels, and the borrower fails to meet the collateral call required to reestablish the appropriate loan-to-value ratio.

Non-performing loans have the highest probability for credit loss. The allowance for credit losses attributable to non-performing loans is based on the most probable source of repayment, which is normally the liquidation of collateral. In determining collateral value, the Company estimates the current market value of the collateral and considers credit enhancements such as additional collateral and third-party guarantees. Due to the accelerated liquidation terms of the Company's loan portfolio, all past due loans are generally liquidated within 90 days of default.

Further information about the Company's credit quality indicators includes differentiating by categories of current loan-to-value ratios. The Company desegregates its secured loans that are collateralized by precious metal products, as follows:



in thousands
	September 30, 2019				June 30, 2019
Loan-to-value of 75% or more	$	83,789	55.7	%	$	59,258	47.3	%
Loan-to-value of less than 75%	66,684		44.3		66,040		52.7
Secured loans collateralized by precious metal products	$	150,473	100.0	%	$	125,298	100.0	%

The Company had no loans with a loan-to-value ratio in excess of 100% at September 30, 2019 or June 30, 2019.

Impaired Loans

A loan is considered impaired if it is probable, based on current information and events, that the Company will be unable to collect all amounts due according to the contractual terms of the loan. Customer loans are reviewed for impairment and include loans that are past due, non-performing, or in bankruptcy. Recognition of interest income is suspended and the loan is placed on non-accrual status when management determines that collection of future interest income is not probable. Accrual is resumed, and previously suspended interest income is recognized, when the loan becomes contractually current and/or collection doubts are removed. Cash receipts on impaired loans are recorded first against the receivable and then to any unrecognized interest income.

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All loans are contractually subject to margin calls. As a result, loans typically do not become impaired due to the fact the Company has the ability to require margin calls which are due upon receipt. Per the terms of the loan agreement, the Company has the right to liquidate the loan collateral in the event of a default. The collateral material is highly liquid and can easily be sold by the Company to pay off the loan. In such circumstances, this would result in a short term impairment that would typically result in full repayment of the loan and fees due to the Company.

For the three months ended September 30, 2019 and 2018, the Company incurred no loan impairment costs.


6.	INVENTORIES

Our inventory consists of the precious metals that the Company has physically received, and inventory held by third-parties, which, at the Company's option, it may or may not receive. Below, our inventory is summarized by classification at September 30, 2019 and June 30, 2019:



in thousands
	September 30, 2019		June 30, 2019
Inventory held for sale	$	112,604	$	106,165
Repurchase arrangements with customers	68,854		65,516
Consignment arrangements with customers	5,004		4,896
Commemorative coins, held at lower of cost or net realizable value	2,336		17
Borrowed precious metals	24,270		21,762
Product financing arrangements, restricted	159,130		94,505
	$	372,198	$	292,861

Inventory Held for Sale. Inventory held for sale represents precious metals, excluding commemorative coin inventory, that have been received by the Company and are not subject to repurchase by or consignment arrangements with third parties. As of September 30, 2019 and June 30, 2019, the inventory held for sale totaled $112.6 million and $106.2 million, respectively.

Repurchase Arrangements with Customers. The Company enters into arrangements with certain customers under which A-Mark purchases precious metals from the customers which are subject to repurchase by the customer at the fair value of the product on the repurchase date. Under these arrangements, the Company, which holds legal title to the metals, earns financing income until the time the arrangement is terminated or the material is repurchased by the customer. In the event of a repurchase by the customer, the Company records a sale.

These arrangements are typically terminable by either party upon 14 days' notice. Upon termination, the customer’s rights to repurchase any remaining inventory is forfeited. As of September 30, 2019 and June 30, 2019, included within inventory is $68.9 million and $65.5 million, respectively, of precious metals products subject to repurchase arrangements with customers.

Consignment Arrangements with Customers. The Company periodically loans metals to customers on a short-term consignment basis. Inventories loaned under consignment arrangements to customers as of September 30, 2019 and June 30, 2019 totaled $5.0 million and $4.9 million, respectively. Such transactions are recorded as sales and are removed from the Company's inventory at the time the customer elects to price and purchase the precious metals.

Commemorative Coins. Our commemorative coin inventory, including its premium component, is held at the lower of cost or net realizable value, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Our commemorative coins are not hedged, and are included in inventory at the lower of cost or net realizable value and totaled $2,336,000 and $17,000 as of September 30, 2019 and June 30, 2019, respectively.

Borrowed Precious Metals. Borrowed precious metals inventories include: 1) metals held by suppliers as collateral on advanced pool metals, 2) amounts due to suppliers for the use of consigned inventory, 3) unallocated metal positions held by customers in the Company’s inventory, and 4) shortages in unallocated metal positions held by the Company in the supplier’s inventory. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts due under these arrangements require delivery either in the form of precious metals or cash. The Company's inventories included borrowed precious metals with market values totaling $24.3 million and $21.8 million as of September 30, 2019 and June 30, 2019, respectively, with a corresponding offsetting obligation reflected as liabilities on borrowed metals on the condensed consolidated balance sheets.

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Product Financing Arrangements. In substance, these inventories represent amounts held as security by lenders for obligations under product financing arrangements. The Company enters into a product financing agreement for the transfer and subsequent re-acquisition of gold and silver at an agreed-upon price based on the spot price with a third party finance company. This inventory is restricted and is held at a custodial storage facility in exchange for a financing fee, paid to the third party finance company. During the term of the financing, the third party finance company holds the inventory as collateral, and both parties intend for the inventory to be returned to the Company at an agreed-upon price based on the spot price on the finance arrangement termination date. These transactions do not qualify as sales and have been accounted for as financing arrangements in accordance with ASC 470-40 Product Financing Arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing and the underlying inventory are carried at fair value, with changes in fair value included in cost of sales in the condensed consolidated statements of operations. Such obligations totaled $159.1 million and $94.5 million as of September 30, 2019 and June 30, 2019, respectively.

The Company mitigates market risk of its physical inventories and open commitments through commodity hedge transactions. (See Note 11.) As of September 30, 2019 and June 30, 2019, the unrealized (losses) gains resulting from the difference between market value and cost of physical inventories were $(1.5) million and $8.8 million, respectively.

Premium component of inventory

The Company's inventories primarily include bullion and bullion coins and are acquired and initially recorded at fair market value. The fair market value of the bullion and bullion coins is comprised of two components: 1) published market values attributable to the cost of the raw precious metal, and 2) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form and the market value attributable solely to the premium is readily determined, as it is published by multiple reputable sources. The premium is included in the cost of the inventory, paid at acquisition, and is a component of the total fair market value of the inventory. The precious metal component of the inventory may be hedged through the use of precious metal commodity positions, while the premium component of our inventory is not a commodity that may be hedged.

The Company’s inventories are subsequently recorded at their fair market values, that is, marked-to-market, except for our commemorative coin inventory. The daily changes in the fair market value of our inventory are offset by daily changes in fair market value of hedging derivatives that are taken with respects to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the condensed consolidated statements of operations.

The premium component, at market value, included in the inventories as of September 30, 2019 and June 30, 2019 totaled $5.3 million and $4.4 million, respectively.

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7. PLANT, PROPERTY AND EQUIPMENT

Plant, property and equipment consists of the following at September 30, 2019 and June 30, 2019:



in thousands
	September 30, 2019			June 30, 2019
Office furniture, and fixtures	$	2,080		$	2,080
Computer equipment	802			798
Computer software	4,215			4,111
Plant equipment	2,896			2,872
Building	319			319
Leasehold improvements	2,804			2,804
Total depreciable assets	13,116			12,984
Less: accumulated depreciation	(7,810		)	(7,395		)
Property and equipment not placed in service	1,106			1,106
Land	36			36
Plant, property and equipment, net	$	6,448		$	6,731

Depreciation expense for the three months ended September 30, 2019 and 2018 was $415,000 and $445,000, respectively.

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill is an intangible asset that arises when a company acquires an existing business or assets (net of assumed liabilities) which comprise a business. In general, the amount of goodwill recorded in an acquisition is calculated as the purchase price of the business minus the fair market value of the tangible assets and the identifiable intangible assets, net of the assumed liabilities. Goodwill and intangibles can also be established by push-down accounting. Below is a summary of the significant transactions that generated goodwill and intangible assets of the Company:

•

In connection with the acquisition of A-Mark by SGI in July 2005, the accounts of the Company were adjusted using the push down basis of accounting to recognize the allocation of the consideration paid to the respective net assets acquired. In accordance with the push down basis of accounting, the Company's net assets were adjusted to their fair values as of the date of the acquisition based upon an independent appraisal.

•

In connection with the Company's business combination with AMST in August 2016, the Company recorded an additional $2.5 million and $4.3 million of identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represent their fair values at the acquisition date. The Company’s investment in AMST has resulted in synergies between the acquired minting operation and the Company’s established distribution network by providing a more steady and reliable fabricated source of silver during times of market volatility. The Company considers that much of the acquired goodwill relates to the “ready state” of AMST's established minting operation with existing quality processes, procedures, and ability to scale production to meet market needs.

•

In connection with the Company's acquisition of Goldline in August 2017, the Company recorded $5.0 million and $1.4 million of additional identifiable intangible assets and goodwill, respectively; these values were based upon an independent appraisal and represent their fair values at the acquisition date. The Company’s investment in Goldline created synergies between Goldline's direct marketing operation and the Company’s established distribution network, secured storage and lending operations that has led to increased product margin spreads, lower distribution and storage costs for Goldline.

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Carrying Value

The carrying value of goodwill and other purchased intangibles as of September 30, 2019 and June 30, 2019 is as described below:



dollar amounts in thousands
		September 30, 2019										June 30, 2019
	Estimated Useful Lives (Years)	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Book Value
Identifiable intangible assets:
Existing customer relationships	5 - 15	$	8,848	$	(6,605	)	$	—		$	2,243	$	8,848	$	(6,376	)	$	—		$	2,472
Non-compete and other	3 - 5	2,300		(2,138		)	—			162		2,300		(2,122		)	—			178
Employment agreement	3	295		(264		)	—			31		295		(256		)	—			39
Intangibles subject to amortization		11,443		(9,007		)	—			2,436		11,443		(8,754		)	—			2,689

Trade name	Indefinite	$	4,454	$	—		$	(1,291	)	$	3,163	$	4,454	$	—		$	(1,291	)	$	3,163

Identifiable intangible assets		$	15,897	$	(9,007	)	$	(1,291	)	$	5,599	$	15,897	$	(8,754	)	$	(1,291	)	$	5,852

Goodwill	Indefinite	$	10,245	$	—		$	(1,364	)	$	8,881	$	10,245	$	—		$	(1,364	)	$	8,881

The Company's intangible assets are subject to amortization except for trade-names, which have an indefinite life. Intangible assets subject to amortization are amortized using the straight-line method over their useful lives, which are estimated to be three to fifteen years. Amortization expense related to the Company's intangible assets for the three months ended September 30, 2019 and 2018 was $253,000 and $252,000, respectively.

Impairment

The accumulated impairment charge of $2.7 million (goodwill and indefinite-lived intangible assets) was a non-recurring charge for fiscal 2018 related to the Direct Sales segment. No further impairment of goodwill or indefinite-lived intangible assets has occurred for the three months ended September 30, 2019.

Estimated Amortization

Estimated annual amortization expense related to definite-lived intangible assets for the succeeding five years is as follows (in thousands):



Fiscal Year Ending June 30,	Amount
2020 (9 months remaining)	$	758
2021	599
2022	571
2023	128
2024	47
Thereafter	333
Total	$	2,436


9.	LONG-TERM INVESTMENTS

The Company has three investments in privately-held entities, each of which is a precious metals retailer and customer of the Company. For each of these entities, the Company has: 1) an exclusive supplier agreement, for which these entities have agreed to purchase all bullion products required for their businesses exclusively from A-Mark, subject to certain limitations; 2) a product fulfillment services and storage agreement; and 3) the right to appoint a director to the entity's board of directors (which has been exercised in each case). The Company has determined that it is appropriate to account for each of these investments under

Table of Contents

the equity method of accounting. The following table shows the carrying value and ownership percentage of the Company's investment in each entity:



	September 30, 2019				June 30, 2019
Entity	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
	(in thousands)				(in thousands)
Company A	$	2,006	7.4	%	$	2,000	7.4	%
Company B	9,046		20.6	%	9,059		20.6	%
Company C	845		10.0	%	826		10.0	%
	$	11,897			$	11,885

The Company considers these equity method investees to be related parties. See Note 13 for a summary of the Company's aggregate balances and activity with these related party entities.

10. ACCOUNTS PAYABLE

Accounts payable consists of the following:



	in thousands
		September 30, 2019		June 30, 2019
Trade payables to customers		$	12,644	$	1,246
Advances from customers		66,366		57,643
Deferred revenue		4,734		1,592

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	7	$85

10-Q	2019-11-12	Quarter: 2019-09-30
10-K	2019-09-16	Annual: 2019-06-30
10-Q	2019-05-10	Quarter: 2019-03-31
10-Q	2019-02-12	Quarter: 2018-12-31
10-Q	2018-11-13	Quarter: 2018-09-30
10-K	2018-09-19	Annual: 2018-06-30
10-Q	2018-05-11	Quarter: 2018-03-31
10-Q	2018-02-09	Quarter: 2017-12-31
10-Q	2017-11-14	Quarter: 2017-09-30
10-K	2017-09-15	Annual: 2017-06-30
10-Q	2017-05-10	Quarter: 2017-03-31
10-Q	2017-02-08	Quarter: 2016-12-31
10-Q	2016-11-09	Quarter: 2016-09-30
10-K	2016-09-23	Annual: 2016-06-30
10-Q	2016-05-11	Quarter: 2016-03-31
10-Q	2016-02-11	Quarter: 2015-12-31
10-Q	2015-11-12	Quarter: 2015-09-30
10-K	2015-09-24	Annual: 2015-06-30
10-Q	2015-05-07	Quarter: 2015-03-31
10-Q	2015-02-10	Quarter: 2014-12-31
10-Q	2014-11-07	Quarter: 2014-09-30
10-K	2014-09-26	Annual: 2014-06-30
10-Q	2014-05-13	Quarter: 2014-03-31
10-Q	2014-03-27	Quarter: 2013-12-31

8-K	2020-01-13	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-11-22	Officers, Exhibits
8-K	2019-10-30	Shareholder Vote, Other Events
8-K	2019-10-01	Officers
8-K	2019-09-10	Officers, Exhibits
8-K	2019-08-01	Officers, Exhibits
8-K	2019-02-28	Enter Agreement, Exhibits
8-K	2018-12-07	Other Events
8-K	2018-10-30	Other Events
8-K	2018-06-07	Regulation FD
8-K	2018-03-20	Enter Agreement, Exhibits

EX-31.1	ex311a-mark93019.htm
EX-31.2	ex312a-mark93019.htm
EX-32.1	ex321a-mark93019.htm
EX-32.2	ex322a-mark93019.htm