Annual Report (10-k)

Date : 09/16/2019 @ 10:04AM
Source : Edgar (US Regulatory)
Stock : A Mark Precious Metals Inc (AMRK)
Quote : 9.15  0.43 (4.93%) @ 9:06PM

Annual Report (10-k)

Table of Contents            

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________   
FORM 10-K
__________________________________________________   
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2019
Commission File Number: 001-36347
__________________________________________________ 
IMAGE0A01A31.JPG
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
Yes. o   No.  þ
 
 
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Yes. o    No. þ
 
 
 
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 website, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
        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.
 
  ¨
 
 
 
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 
 
 
 
Aggregate market value of registrant’s common stock held by non-affiliates of the registrant on December 31, 2018, based upon the closing price of Common Stock on such date as reported by NASDAQ Global Select Market, was approximately $53,900,591. Shares of common stock known to be owned by directors and executive officers of the Registrant subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. No determination has been made that such persons are “affiliates” within the meaning of Rule 12b-2 under the Exchange Act.
 
 
 
As of September 6, 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

ANNUAL REPORT ON FORM 10-K
For the Year Ended June 30, 2019

TABLE OF CONTENTS
 
 
 
Page
PART I
 
 
 
 
Item 1.
Description of Business
 
Item 1A.
Risk Factors
 
Item 1B.
Unresolved Staff Comments
 
Item 2.
Properties
 
Item 3.
Legal Proceedings
 
Item 4.
Mine Safety Disclosures
PART II
 
 
 
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Item 6.
Selected Financial Data
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
Consolidated Financial Statements and Supplementary Data
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Item 9A.
Controls and Procedures
 
Item 9B.
Other Information
PART III
 
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
Item 11.
Executive Compensation
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
Item 14.
Principal Accountant Fees and Services
PART IV
 
 
 
 
Item 15.
Exhibits and Financial Statement Schedules
 
 
 
 
Signatures
 
 
Exhibit Index
 


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PART I — FINANCIAL INFORMATION
ITEM 1. DESCRIPTION OF BUSINESS
Overview
A-Mark, also referred to (together with its subsidiaries) as "we", "us" and the "Company", is a full-service precious metals trading company. It is a wholesaler of gold, silver, platinum, and palladium bullion and related products, including bars, wafers, grain, and coins. A-Mark also:
 
distributes gold and silver coins and bars from sovereign and private mints;
 
 
 
 
provides financing and other services relating to the purchase and sale of bullion and numismatics;
 
 
 
 
offers secure storage for precious metal products;
 
 
 
 
provides our customers a platform of turn-key logistics services;
 
 
 
 
provides a variety of custom fabricated gold and silver bullion and other specialty products through sovereign and private mint suppliers and its mint operations; and
 
 
 
 
sells directly to the retail community through its Goldline subsidiary.
A-Mark believes it has one of the largest customer bases in each of its markets and provides one of the most comprehensive offerings of products and services in the precious metals trading industry. Our customers include mints, manufacturers and fabricators, refiners, coin and bullion dealers, e-commerce retailers, banks and other financial institutions, commodity brokerage houses, industrial users of precious metals, investors, collectors, and retail customers. We serve customers on five continents, with over 10% of our customers located outside the United States.
A-Mark believes its businesses largely function independently of the price movement of the underlying commodities. However, factors such as global economic activity or uncertainty and inflationary trends, which affect market volatility, have the potential to impact demand, volumes, and margins.
History
A-Mark was founded in 1965 and has grown into a significant participant in the bullion and coin market. A-Mark became a wholly-owned subsidiary of Spectrum Group International, Inc. ("SGI") in 2005. In March 2014, SGI distributed all of the shares of common stock of A-Mark to its stockholders, effecting a spinoff of A-Mark from SGI. As a result of this distribution, which we refer to as the spinoff, the Company became a publicly traded company independent from SGI. 
Over the years, A-Mark has been steadily expanding its products and services. In 1986, A-Mark became an authorized purchaser of gold and silver bullion coins struck by the United States Mint. Similar arrangements with other sovereign mints followed, so that by the early 1990s, A-Mark had (and continues to have) relationships with all major sovereign mints offering bullion coins and bars internationally.
In 2005, the Company launched Collateral Finance Corporation ("CFC"), a wholly-owned subsidiary, for the purpose of making secured loans primarily collateralized by bullion and numismatic material. CFC has been steadily expanding the value of its aggregate loan portfolio and number of its customers. CFC has achieved its growth through both loan origination and acquisitions of loan portfolios purchased from wholesale customers of A-Mark.
The Company opened an overseas office in Vienna, Austria in 2009, for the purpose of marketing A-Mark's goods and services in the international markets. The office operates through A-Mark Trading AG ("AMTAG"), a wholly-owned subsidiary of the Company. In 2012, the Company formed Transcontinental Depository Services, LLC. ("TDS"), a wholly-owned subsidiary, for the purpose of providing customers with turn-key global storage solutions for their precious metals and precious metal products.
In July 2015, the Company launched its Las Vegas-based logistics fulfillment center, A-M Global Logistics, LLC. ("AMGL" or "Logistics"), a wholly-owned subsidiary, for the purpose of providing our customers a platform of complementary services, including packaging, shipping, handling, receiving, processing, and inventorying of precious metals and custom coins on a secure basis.
In August 2016, the Company formed a joint venture, AM&ST Associates, LLC. ("AMST"), with SilverTowne, L.P., an Indiana-based fabricator of silver bullion products, for the purpose of acquiring and operating SilverTowne, L.P.'s minting business unit ("SilverTowne Mint" or the "Mint"). We own a majority interest in AMST. Since the formation of AMST, the Company has invested in minting equipment and fabrication tools to expand output capabilities, increase production efficiencies and improve product quality, and has leveraged the Mint’s fabrication capabilities and coin die portfolio to expand our custom coin programs, as well as to introduce new custom products for individual customers.

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In August 2017, the Company acquired substantially all of the assets of Goldline, LLC, a direct retailer of precious metals to the investor community, and now conducts those operations through its subsidiary Goldline, Inc. ("Goldline"). Goldline LLC. was formed in 1960 and became well-known to collectors and investors for its world-wide distribution of gold, silver, and platinum bullion coins and bars, in part, due to its radio, internet, and television marketing and customer service outreach programs which have historically led to a significant base of repeat customers. Since our acquisition, Goldline has expanded its product offerings, improved its delivery times, and provided additional financing options to its customers Also, Goldline has initiated a customer service program to re-engage with Goldline LLC's inactive customers and has invested in technological solutions to reduce the cost of its customer service outreach programs. Furthermore, Goldline has implemented a scaled marketing approach to better align with varying levels of market demands, and has consolidated the predecessor-company's trading, hedging, distribution, and customer service functions within A-Mark.
In May 2018, the Company formed AM IP LLC. ("AMIP"), a wholly owned subsidiary of Goldline, for the purpose of managing certain intellectual property (“IP”). The IP assets managed by AMIP include a customer list and a sales lead data base that was contributed by Goldline. AMIP monetizes its IP rights through royalty agreements that license its IP rights to counterparties.
In September 2018, the Company formed AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, for the purpose of issuing and administering privately placed notes, which are collateralized by secured loans (contributed from CFC) and bullion product (purchased from A-Mark). The notes were Secured Senior Term Notes (collectively, the "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.  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.
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 market place. PMPP was capitalized in fiscal 2019, but did not commence operations until fiscal 2020. Metals purchased by the joint venture will be sold to the partners or their affiliates per terms of the joint venture agreement.
Business Strategy
Through strategic relationships with its customers and suppliers and vertical integration across its markets, A-Mark seeks to grow its business volume, expand its presence in non-U.S. markets around the globe, and enlarge its offering of complementary products and services. A-Mark seeks to continue its expansion by building on its strengths and what it perceives to be its competitive advantages. These include:
 
integrated operations that span trading, distribution, logistics, minting, storage, hedging, financing, and consignment products and services;
 
 
 
 
an extensive and varied customer base that includes banks and other financial institutions, coin dealers, collectors, private investors, retail customers, investment advisors, industrial manufacturers, refiners, sovereign and private mints, and mines;
 
 
 
 
ability to offer secured financing to customers;
 
 
 
 
secure storage and turn-key logistic services for precious metals products;
 
 
 
 
access to primary market makers, suppliers, refiners and government mints that provide a dependable supply of precious metals and precious metal products;
 
 
 
 
minting operations which produce bullion and custom coins, allowing for a ready response to changing market demands;
 
 
 
 
ability to design and fabricate proprietary silver products for customers ;
 
 
 
 
the largest precious metals dealer network in North America;
 
 
 
 
depository relationships in major financial centers around the world;
 
 
 
 
experienced traders who effectively manage A-Mark's exposure to commodity price risk; and
 
 
 
 
a strong management team, with over 100 years of collective industry experience.

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Business Segments
The Company conducts its operations through 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 FASB Accounting Standards Codification (“ASC”). (See Note 18 of the Notes to Consolidated Financial Statements.)
Prior to the fiscal quarter ended June 30, 2018, the operations of CFC, which now comprise our Secured Lending segment, had been considered part of the Wholesale Trading and & Ancillary Services segment.
Wholesale Trading & Ancillary Services
A-Mark operates through several business units that comprise the Wholesale Trading & Ancillary Services segment, including Industrial, Coin and Bar, Trading and Finance, TDS, Logistics, and Mint.
Industrial. Our Industrial unit sells gold, silver, platinum, and palladium to industrial and commercial users. Customers include coin fabricators such as mints and industrial manufacturers, encompassing electronics and component parts companies and refiners. Depending on the intended usage, the metals are either investment or industrial grade and are generally in the form of bars or grains.
Coin and Bar. Our Coin and Bar unit deals in over 200 different products, including gold and silver coins from around the world and gold, silver, platinum and palladium bars and ingots in a variety of weights, shapes and sizes. Our customers include coin and bullion dealers, banks and other financial institutions, commodity brokerage houses, manufacturers, investors, investment advisors, and collectors who qualify as “eligible commercial entities” and “eligible contract participants,” as those terms are defined in the Commodity Exchange Act.
We are an authorized distributor (and, in the case of the United States Mint, an authorized purchaser) of gold and silver coins for all of the major sovereign mints and various private mints. The sovereign mints include the United States Mint, the Australian (Perth) Mint, the Austrian Mint, the Royal Canadian Mint, the China Mint, Banco de Mexico, the South African Mint (Rand Refinery) and the Royal Mint (United Kingdom). We purchase and take delivery of coins from the mints for resale to coin dealers, financial institutions, and other qualified purchasers.
Our distribution and purchase agreements with the mints are non-exclusive, and may be terminated by the mints at any time, although in practice our relationship with the mints are long-standing, in some cases, as with the U.S. Mint, extending back for over 20 years. In some cases, we have developed exclusive products with sovereign and private mints for distribution through our dealer network.
In our Industrial and Coin and Bar units, orders are taken telephonically and on an electronic trading platform that can be accessed by qualified wholesale customers at www.amark.com. Pricing is generally based on screen quotes for bullion transactions in the spot market, with two-day settlement, although special pricing and extended settlement terms are also available. For example, a customer can leave an order with A-Mark to purchase at a specified price below the current market price or an order to sell at a specified price above the current market price. Almost all customers in these units take physical delivery of the precious metal. Product is shipped upon receipt of payment, except where the purchase is financed under credit arrangements between A-Mark and the customer. We have relationships with precious metal depositories around the world to facilitate shipment of product from our inventory to these customers, in many cases for next day delivery. Product may either be shipped to the customer's location or delivered to a depository or other storage facility designated by the customer. The Company also periodically loans metals to customers on a short-term consignment basis, and may charge interest fees based on the value of the metals loaned. Such metal inventories are removed at the time the customers elect to price and purchase the metals, and the Company records a corresponding sale and receivable.
Trading and Finance. Our Trading and Finance units engage in commodity hedging as well as borrowing and lending transactions in support of our Industrial and Coin and Bar units.
The Trading unit hedges the commodity risk on A-Mark's inventory in order to protect A-Mark from market price fluctuations. A-Mark maintains relationships with major market-makers and multiple futures brokers in order to provide a variety of alternatives for its hedging needs. Our traders employ a combination of future and forward contracts to hedge our market exposure. Because it seeks to substantially hedge its market exposure, A-Mark believes that its business largely functions independently of the price movements of the underlying commodities. Through its hedging activities, A-Mark may also earn contango yields, in which futures price are higher than the current spot prices, or backwardation yields, in which futures prices are lower than the spot prices. A-Mark also offers precious metals price quotes in a number of foreign currencies.
Our Finance unit engages in precious metals borrowing and lending transactions and other customized financial transactions with or on behalf of our customers and other counterparties. These arrangements range from simple hedging structures to complex inventory finance arrangements and forward purchase and sale structures, tailored to the needs of our customers.

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TDS. Our Transcontinental Depository Services LLC. ("TDS") subsidiary provides storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors and collectors worldwide. TDS contracts on behalf of our clients with independent secure storage facilities in the United States, Canada, Europe, Singapore and Hong Kong, for either fully segregated or allocated storage. We assist our clients in developing appropriate storage options for their particular requirements, and we manage the operational aspects of the storage with the third party facilities on our clients' behalf. TDS’s marketing efforts are conducted both in partnership with A-Mark, including though its dedicated website www.tdsvaults.com.
Logistics. Our A-M Global Logistics LLC. ("Logistics") subsidiary, located in Las Vegas, Nevada, supports our wholesale trading business by providing a significant amount of the secured storage and shipping and delivery services that had historically been outsourced to third-party depositories in their various locations. By consolidating those operations into one central location under our control, we have reduced our dependence on third-party service providers while enhancing quality control and reducing operating costs. Logistics also provides turn-key logistics services to our customers engaged in the retail business. We provide these customers hedging, inventory handling, packaging, storage, and drop-shipping services.
AMTAG. Our A-Mark Trading AG. ("AMTAG") subsidiary promotes the Company's products and services to international markets.
Mint. In August 2016, the Company formed AMST, a joint venture with SilverTowne, L.P., an Indiana-based producer of minted silver. AMST acquired the entire minting operations (referred to as SilverTowne Mint or the "Mint" business unit) of SilverTowne, L.P., with the goal of providing greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to fabricated silver products during volatile market environments. Since the acquisition, A-Mark has leveraged SilverTowne Mint’s fabrication capabilities and coin-die portfolio to expand its custom coin programs, as well as to introduce new custom products for individual customers.  As of June 30, 2019, the Company and SilverTowne, L.P. owned 69% and 31%, respectively, of AMST. (See Note 19 of the Notes to Consolidated Financial Statements.) The Mint markets the products it produces at www.silvertowne.com.
Secured Lending
The Company operates its Secured Lending segment through its wholly-owned subsidiary, CFC who in turn owns AMCF. CFC and AMCF have been operating since fiscal years 2005 and 2019, respectively.
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. As of June 30, 2019, the aggregate balance of CFC's secured loans was approximately $125.3 million. The balance is comprised of approximately 59.5% of loans acquired from third-parties and approximately 40.5% of loans originated by CFC.
AMCF is a special purpose entity whose sole activity consists of operating, owning, and financing indenture assets. The Notes are primarily payable from, and secured by, (i) precious metals obtained by AMCF, and (ii) a portfolio of loans collateralized by precious metals, which loans were originated by either CFC or acquired by CFC from third parties and conveyed by CFC to AMCF. The indenture requires AMCF to maintain a specified level of collateral. The indenture also provides that AMCF’s assets are not to be commingled with those of CFC or A-Mark (or any affiliate), and that AMCF is to maintain separate books and records.
General. The secured loans that CFC issues consist of on-demand loans and loans with a term of three months to 364 days, with a typical term of approximately six months. Repayment of the loans can be made at any time without penalty. Because the loans are of relatively short duration, CFC does not have significant exposure to interest rate fluctuations, even in a rising interest rate environment. Loans carried by CFC range in size from $15,000 to $10.0 million.
All loans are fully secured by bullion or numismatics coins (or in rare cases, by other acceptable collateral.) TDS, on behalf of CFC, takes physical custody of the coins or bullion collateralizing the loans. CFC requires loan-to-value ("LTV") ratios of between 50% and 85%. LTV ratio refers to the principal amount of the loan divided by the liquidation value of the collateral, as conservatively estimated by CFC for numismatic loans and based on daily spot market prices for bullion loans. The LTV ratio varies with the nature of the collateral, with CFC requiring, for example, a higher LTV ratio for bullion than for rare coins. If, because of fluctuations in the market price of the pledged collateral, the LTV ratio on a loan increases above a prescribed maximum ratio, typically 85%, CFC can make a margin call on the loan. If the borrower does not meet the margin call, either by wiring payment or supplying additional collateral, CFC is authorized to sell the collateral, which it does through its A-Mark affiliates. Because of its conservative lending practices, CFC has never experienced losses of principal on its loans.
Origination Activity. CFC's origination activities are complementary to the Company’s coin and bullion businesses, and afford our customers a convenient means of financing their inventory or collections. CFC also attempts to leverage the worldwide storage capabilities of its TDS affiliate by offering clients TDS’s asset protection services in connection with the loans. CFC’s marketing efforts for its origination activity are conducted both in partnership with A-Mark, particularly with respect to dealers, and independently, including though its dedicated website www.cfcgoldloans.com. Interest rates on loans originated by CFC are determined based on current market conditions, borrower profile and type or mix of collateral. CFC also offers a variety of custom

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loan services to its origination clients, including renewal options, options to increase loan size, financing arrangements tailored to facilitate participation in numismatic auctions, and revolving loan arrangements. CFC services the loans that it originates.
Acquisition Activity. CFC also acquires portfolios of loans secured by bullion and numismatics coins from third party originators. The loans acquired by CFC are sold subject to customary representations and warranties for loan portfolios of this type, and must comply with CFC’s criteria for quality of collateral, LTV ratio, term and interest rate. Upon acquisition of a loan portfolio, CFC takes physical possession of the collateral securing the loans. In the event that a loan is non-performing, the collateral will typically be liquidated by A-Mark on behalf of the originator in order to retire the loan. Typically, loan portfolios acquired by CFC are serviced by the originator for a fee.
Financing Activity. CFC has historically financed its loan origination and acquisition activity primarily through A-Mark's demand line of credit with a syndicate of several financial institutions. The Notes, issued by AMCF in September 2018, have provided an additional source of funding for CFC's loan originations and acquisitions of loan portfolios from third parties.
Direct Sales
The Company operates its Direct Sales segment through its wholly-owned subsidiary Goldline Inc. (“Goldline”). The Company acquired the business in August 2017 through an asset purchase transaction with Goldline LLC. Goldline LLC. had been in operation since 1960.
Direct-to-Client Sales. Goldline is a direct retailer of precious metals to the investor community. Goldline markets its precious metal products primarily on radio and the internet, as well as through telephonic sales efforts, particularly to Goldline’s repeat customers. Online orders are taken on an electronic trading platform that can be accessed by qualified retail customers at www.goldline.com.
The Company acquired the Goldline business with the objective of enhancing the Company’s distribution capabilities by adding a direct-to-client distribution channel. The acquisition has diversified the product and services offered to Goldline customers by providing them access to the Company’s wider assortment of precious metal coins and bars, and TDS’s storage and asset protection services. Furthermore, since the acquisition, the Company realigned the cost structure of the Goldline's business and has implemented a new customer-facing website to promote sales and enhance profitability.
Goldline customers are required to open an account with Goldline and enter into an account agreement. The agreement specifies the terms and conditions of purchase and explains the availability of certain programs and services offered by Goldline to its customers.
Intellectual Property Licensing. Goldline, through its wholly-owned subsidiary AMIP, licenses IP rights through royalty agreements to increase the utilization of its sales leads and customer lists.
Buy-Back Purchases. Goldline, through its 50%-owned subsidiary PMPP, acquires precious metals from retail customers (known as "buy-back purchases") in order to diversify its supply chain of product offerings and prices for its affiliates.
Liquidity
Our business depends substantially on our ability to obtain financing for our operations. Sources of cash generated from operating activities include receipts upon the sales of precious metals, and cash collected from interest payments on secured loans.
Sources of cash provided by financing activities are our uncommitted line of credit, fixed interest rate notes, and other structured financing products. The Company’s line of credit provides it with the liquidity to buy and sell billions of dollars of precious metals annually. As of June 30, 2019, A-Mark's uncommitted line of credit that provides access up to $260.0 million, featuring a $210.0 million base with a $50.0 million accordion option, is used to fund a substantial portion of the operations of the Company. In addition, the Company issued fixed rate notes in September 2018 with an aggregate principal amount of $100.0 million, having a maturity of December 2023. The proceeds upon issuance of the notes were used to fund the acquisition of CFC's secured loans and other operating activities. The Company also generates funds from other finance products that include product financing arrangements with customers, whereby the Company sells its inventory with an option to repurchase, and through precious metal borrowing and leasing arrangements with its suppliers.
Market Making Activity
We act as a principal market maker, maintaining a two-way market for buying and selling precious metals. This means we both sell product to and purchase product from our customers.
Inventory
We maintain a substantial inventory of bullion and coins in order to provide our customers with selection and prompt delivery. We acquire product for our inventory in the course of our trading activities with our customers, directly from government and private mints, mines, and refiners and from commodities brokers and dealers, privately and in transactions on established commodity exchanges. In the fourth quarter of 2019, the Company formed its PMPP joint venture to conduct precious metal

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purchases in order to diversify its supply chain of product offerings and prices for its affiliates.
A-Mark’s precious metals inventories are subject to market value changes created by change in the underlying commodity price, as well as supply and demand of the individual products the Company trades. Except for certain lower of cost or net realizable value products, our inventory is marked-to-market daily for accounting and financial reporting purposes. A-Mark’s policy is to remain substantially hedged as to its inventory position and its individual sale and purchase commitments. A-Mark seeks to minimize the effect of price changes of the underlying commodity through the use of financial derivative instruments, such as forward and futures contracts.
Sales and Marketing
We market to our products and services to our wholesale customers primarily through our offices in El Segundo and Los Angeles, California, and Vienna, Austria, our websites, and our dealer network, which we believe is the largest of its kind in North America. The dealer network consists of over 700 independent precious metal and coin companies, with whom we transact on a non-exclusive basis. The arrangements with the dealers vary, but generally the dealers acquire product from us for resale to their customers. In some instances, we deliver bullion to the dealers on a consignment basis. We also participate from time to time in trade shows and conventions, at which we promote our products and services. As a vertically integrated precious metals concern, a key element of our marketing strategy is being able to cross-sell our products and services to customers within our various business units.
Consistent with the marketing strategy for our wholesale customers, we market our secured loan products and services to customers primarily through our dealer network and by participating in trade shows and conventions.
We market our products and services to our retail customers primarily through our office in Los Angeles, California. The Company reaches its retail investor customer base primarily on radio and the internet, as well as through telephonic sales efforts.
Operational Support
The Wholesale Trading & Ancillary Services segment maintains administrative and operational support related to its trading, hedging, and finance product operations at its headquarters in El Segundo, California. We believe that our existing administrative and operational support infrastructure has the capacity to scale up with our business activities. We store our inventories of bullion and numismatics at third party depositories in major financial centers around the world and at our facility in Las Vegas, Nevada.
The Secured Lending segment also maintains administrative support at its headquarters in El Segundo, California for the processing of its originated loans, including billing of interest, managing margin calls, and tracking of precious metal collateral. However, for the processing administration of loans that are acquired from a third-party (usually a customer of A-Mark), customer invoices are typically processed by the originating dealer of the loan portfolio, through a servicing arrangement, for a fee based on the interest rate charged to the end-consumer. The operational support (specifically, the collateral custody and security) is managed by our logistics business unit. Additionally, A-Mark provides funds to CFC to purchase additional bullion and numismatic secured loans.
The Direct Sales segment maintains administrative and operational support at its office in Los Angeles, California for soliciting and processing it retail orders. The Company's Trading, Finance, and Logistics business units provide supporting services such as hedging and order fulfillment.
With a third party software developer, we have created a proprietary trading program, referred to as the Metals Trading System ("MTS"). Through MTS we are able to input, process, track and document our trading activity, including complex hedging and similar transactions. Additionally, with the objective of improving transactional ease and efficiency, we have developed and implemented web-portal processing ordering systems that operate 24-hours, 7-days per week. A-Mark's web-portal processes orders from pre-approved wholesale customers; Goldline's web-portal processes retail customer orders that are below a certain dollar amount; and CFC's web-portal processes secured loan applications.
Supplier and Customer Concentrations
A-Mark buys a majority of its precious metals from a limited number of suppliers. The Company believes that numerous other suppliers are available and would provide similar products on comparable terms. In addition, through the Company's Mint business unit, it has the capabilities to design and mint silver custom bullion-coins to respond to changing market demands.
For the year ended June 30, 2019, the Company had one customer, HSBC Bank USA, comprising more than 10% of our revenues. (See Note 17 of the Notes to Consolidated Financial Statements.) The Company's largest customers generally have significant forward contract sales activity (as opposed to those customers with whom we principally have physical trading activity), which are entered to hedge the Company's commodity holding risks, and not for speculative purposes.

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Competition
A-Mark's activities cover a broad spectrum of the precious metals industry, with a concentration on the physical market. We service public, industrial, and private sector consumers of precious metals which include industrial manufacturers, refiners, minting facilities, banks, brokerage houses, and private investors. We frequently face different competitors in each area, and it is not uncommon for a customer and/or a supplier in one market segment to be a competitor in another. Our competitors may offer more favorable pricing or services considered to be superior to ours.
Our Secured Lending segment's market is believed to have limited direct competition. We believe factors, including access to capital, secure storage facilities, bullion and numismatic expertise, and other related services and offerings, provide us a competitive advantage in the marketplace.
Our Direct Sales' market environment is highly competitive and highly concentrated with a significant number of active loyal customers, from whom we seek to expand product and service offerings and generate new customers.
Our competitors may offer more favorable pricing or services considered to be superior to ours.
Trading Seasonality
While our precious metals trading business is not seasonal, we believe it is directly impacted by the perception of market trends and global economic activity. Historically, anticipation of increases in the rate of inflation, interest rates as well as anticipated devaluation of the U.S. dollar, have resulted in higher levels of interest in precious metals as well as higher prices for such metals.
Employees
As of June 30, 2019, we had 186 employees, with 184 located in North America, and two located in Europe; all except seven of these employees were considered full-time employees. We regard our relations with our employees as good.
Corporate Information
A-Mark was founded in 1965 as a New York corporation. In January 2014, the Company was reincorporated in Delaware. Our executive offices are located at 2121 Rosecrans Avenue, Suite 6300, El Segundo CA 90245. Our telephone number is (310) 587-1477, and our website is www.amark.com. Through this website, we make available, free of charge, all of our filings with the Securities and Exchange Commission ("SEC"), including those under the Exchange Act of 1934, as amended ("Exchange Act"). Such reports are made available on the same day that they are electronically filed with, or furnished to, the SEC. In addition, copies of our Code of Business Conduct and Ethics for Employees, Code of Business Conduct and Ethics for Senior Financial and Other Officers, and Code of Business Conduct and Ethics for Directors are available through this website, along with other information regarding our corporate governance policies.
Geographic Information
See Note 18 of the Notes to Consolidated Financial Statements for information about Company's geographic operations.

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ITEM 1A. RISK FACTORS
Risks Relating to Our Business Generally
Our business is heavily dependent on our credit facility.
Our business depends substantially on our ability to obtain financing for our operations. The Trading Credit Facility (as further described and defined below) provides the Company with the liquidity to buy and sell billions of dollars of precious metals annually. The Trading Credit Facility is an uncommitted demand facility provided by a syndicate of financial institutions (the “Trading Credit Lenders”), and is currently scheduled to mature on March 27, 2020.  A-Mark routinely uses funds drawn under the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes.  Our CFC subsidiary also uses the funds drawn under the Trading Credit Facility to finance its lending activities.
Pursuant to the terms of the Trading Credit Facility, each Trading Credit Lender may, at any time in its sole discretion (subject to certain notice requirements), decline to make loans to us. If we are unable to access funds under the Trading Credit Facility, we may be limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.
The Trading Credit Facility requires us to maintain certain financial ratios and to comply with various operational and other covenants. Upon the occurrence of an event of default under the Trading Credit Facility that was not cured or waived pursuant to the terms of the Trading Credit Facility, the Trading Credit Lenders could elect to declare all amounts outstanding under the Trading Credit Facility to be due and payable immediately. Further, Trading Credit Lenders holding 50% or more of the indebtedness under the Trading Credit Facility may require us to repay all outstanding indebtedness under the Trading Credit Facility at any time, even if we are in compliance with the financial and other covenants under the Trading Credit Facility. 
We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments, including the Trading Credit Facility, upon demand or acceleration, or at maturity, or that we would be able to refinance or restructure the payments under the Trading Credit Facility. The failure of A-Mark to renew or replace the Trading Credit Facility under such circumstances would reduce the financing available to us and could limit our ability to conduct our business, including the lending activity of our CFC subsidiary.  There can be no assurance that we could procure replacement financing on commercially acceptable terms on a timely basis, or at all. We have pledged a significant portion of our assets as collateral under the Trading Credit Facility, and if we were unable to repay the amounts outstanding thereunder, the administrative agent under the Trading Credit Facility could proceed against the collateral granted to secure such indebtedness.
We are subject to fluctuations in interest rates based on the variable interest terms of the Trading Credit Facility and we may not be able to pass along to our customers and borrowers some or any part of an increase in the interest that we are required to pay under the Trading Credit Facility. Amounts under the Trading Credit Facility bear interest based on one month LIBOR plus (i) 2.50% for revolving credit line loans and (ii) 4.50% for loans extended in excess of the then-available revolving credit line. The LIBOR was approximately 2.40% as of June 30, 2019.
Uncertainty about the future of LIBOR may adversely affect our business.
Borrowings under our revolving credit agreement bear interest at rates that are calculated based on LIBOR. On July 27, 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. The announcement indicates that the continuation of LIBOR in its current form cannot be assured after 2021. It is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Although alternative reference rates have been proposed, it is unknown whether these alternative reference rates will attain market acceptance as replacements of LIBOR.
If LIBOR ceases to exist, the method and rate used to calculate our variable-rate debt in the future may result in interest rates and/or payments that are higher than, lower than, or that do not otherwise correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital, financial results, and cash flows cannot yet be determined.
We could suffer losses with our financing operations.
We engage in a variety of financing activities with our customers:
Receivables from our customers with whom we trade in precious metal products are effectively short-term, non-interest bearing extensions of credit that are, in certain cases, secured by the related products maintained in the Company’s possession or by a letter of credit issued on behalf of the customer. On average, these receivables are outstanding for periods of between 8 and 9 days.

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The Company operates a financing business through CFC that makes secured loans at loan-to-value ratios—principal loan amount divided by the liquidation value, as conservatively estimated by management, of the collateral—of, in most cases, 50% to 85%. These loans are both variable and fixed interest rate loans, with some maturities on-demand and others from three to twelve months.
We make advances to our customers on unrefined metals secured by materials received from the customer. These advances are limited to a portion of the materials received.
The Company makes unsecured, short-term, non-interest bearing advances to wholesale metals dealers and government mints.
The Company periodically extends short-term credit through the issuance of notes receivable to approved customers at interest rates determined on a customer-by-customer basis.
Our ability to minimize losses on the credit that we extend to our customers depends on a variety of factors, including:
our loan underwriting and other credit policies and controls designed to assure repayment, which may prove inadequate to prevent losses;
our ability to sell collateral upon customer defaults for amounts sufficient to offset credit losses, which can be affected by a number of factors outside of our control, including (i) changes in economic conditions, (ii) increases in market rates of interest and (iii) changes in the condition or value of the collateral; and
the reserves we establish for loan losses, which may prove inadequate.
CFC May in Certain Circumstances Be Required to Repurchase Loans that It Has Securitized.
CFC has entered into a securitization financing whereby it has transferred, and may continue from time to time to transfer, to its subsidiary AMCF loans secured by precious metal coins or bullion. AMCF has issued 4.98% Class A Notes due 2023 and 5.98% Class B Notes due 2023 which are secured by these loans and related assets. While the notes are not recourse to the Company or CFC, CFC is required to provide certain warranties concerning the loans and the security interest in the metals collateral securing the loans. In the event the warranties made with respect to any loan are breached and the breach materially and adversely affects the interests of the noteholders, CFC is required to either cure the breach or repurchase the loan within specified a timeframe. If CFC were to default on its repurchase obligations, this could materially adversely affect the business of CFC, and could adversely affect the Company’s future ability to access the credit markets.
CFC and the Company have exposure to the performance of AM Capital Funding.
Regulation RR of the SEC requires the sponsor of an asset-backed securitization transaction, or certain of its affiliates, to retain an economic interest in the transaction. In compliance with this rule, CFC retained the equity interest in AMCF and the Company currently holds $5.0 million of Class B Notes, which are subordinated to the Class A Notes. In addition, CFC and the Company may, from time to time, also contribute cash or sell precious metals to AMCF in exchange for subordinated, deferred payment obligations from AMCF. If the performance of AMCF were to suffer such that AMCF were unable to service its notes, CFC and the Company could lose part or all of their investments in AMCF.
Under the terms of the servicing arrangements for the precious metals loan securitization, CFC may be required to liquidate the collateral securing securitized loans, even if this would impair relationships with its customers.
CFC is the servicer for the loans transferred to AMCF in the securitization transaction. If, under certain circumstances, the equity levels of the obligors on particular loans falls below a specified level and those obligors fail to pay in additional equity, CFC is required to liquidate the metals collateral securing those loans within a specified time period. CFC does not have the flexibility to defer or refrain from the liquidation, even if CFC were to determine that it would be in its best interests to do so. This requirement could impair valuable relationships that the Company may otherwise have with its customers whose loans have been securitized.
Our business is dependent on a concentrated customer base.
One of A-Mark's key assets is its customer base. This customer base provides deep distribution of product and makes A-Mark a desirable trading partner for precious metals product manufacturers, including sovereign mints seeking to distribute precious metals coinage or large refiners seeking to sell large volumes of physical precious metals. One customer represented 26.0% of A-Mark's revenues for the year ended June 30, 2019. The same customer represented 26.8% of A-Mark's revenues for the year ended June 30, 2018. If our relationship with this customer deteriorated, or if we were to lose this customer, our business would be materially adversely affected.

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The loss of a government purchaser/distributorship arrangement could materially adversely affect our business.
A-Mark’s business is heavily dependent on its purchaser/distributorship arrangements with various governmental mints. Our ability to offer numismatic coins and bars to our customers on a competitive basis is based on the ability to purchase products directly from a government source. The arrangements with the governmental mints may be discontinued by them at any time. The loss of an authorized purchaser/distributor relationship, including with the U.S. Mint could have a material adverse effect on our business.
The materials held by A-Mark are subject to loss, damage, theft or restriction on access.
A-Mark has significant quantities of high-value precious metals on site, at third-party depositories and in transit. There is a risk that part or all of the gold and other precious metals held by A-Mark, whether on its own behalf or on behalf of its customers, could be lost, damaged or stolen. In addition, access to A-Mark’s precious metals could be restricted by natural events (such as an earthquake) or human actions (such as a terrorist attack). Although we maintain insurance on terms and conditions that we consider appropriate, we may not have adequate sources of recovery if our precious metals inventory is lost, damaged, stolen or destroyed, and recovery may be limited. Among other things, our insurance policies exclude coverage in the event of loss as a result of terrorist attacks or civil unrest.
In addition, with the establishment of our Logistics facility and the transfer of our wholesale storage operations from third party depositories to that facility, we are assuming greater potential liability for any loss suffered in connection with the stored inventory. Among other things, our insurance, rather than the third-party depository’s, is now the primary risk policy. While we believe we have adequate insurance coverage covering these operations, in the event of any loss in excess of our coverage, we may be held liable for that excess.
Our business is subject to the risk of fraud and counterfeiting.
The precious metals (particularly bullion) business is exposed to the risk of loss as a result of “materials fraud” in its various forms. We seek to minimize our exposure to this type of fraud through a number of means, including third-party authentication and verification, reliance on our internal experts and the establishment of procedures designed to detect fraud. However, there can be no assurance that we will be successful in preventing or identifying this type of fraud, or in obtaining redress in the event such fraud is detected.
Our business is influenced by political conditions and world events.
The precious metals business is especially subject to global political conditions and world events. Precious metals are viewed by some as a secure financial investment in times of political upheaval or unrest, particularly in developing economies, which may drive up pricing. The volatility of the commodity prices for precious metals is also likely to increase in politically uncertain times. Conversely, during periods of relative international calm precious metal volatility is likely to decrease, along with demand, and the prices of precious metals may retreat. Because our business is dependent on the volatility and pricing of precious metals, we are likely to be influenced by world events more than businesses in other economic sectors.
We have significant operations outside the United States.
We derive about 5% to 15% of our revenues from business outside the United States, including from customers in developing countries. Business operations outside the U.S. are subject to political, economic and other risks inherent in operating in foreign countries. These include risks of general applicability, such as the need to comply with multiple regulatory regimes; trade protection measures and import or export licensing requirements; and fluctuations in equity, revenues and profits due to changes in foreign currency exchange rates. Currently, we do not conduct substantial business with customers in developing countries. However, if our business in these areas of the world were to increase, we would also face risks that are particular to developing countries, including the difficulty of enforcing agreements, collecting receivables, protecting inventory and other assets through foreign legal systems, limitations on the repatriation of earnings, currency devaluation and manipulation of exchange rates, and high levels of inflation.
We try to manage these risks by monitoring current and anticipated political, economic, legal and regulatory developments in the countries outside the United States in which we operate or have customers and adjusting operations as appropriate, but there can be no assurance that the measures we adopt will be successful in protecting the Company’s business interests.

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We are dependent on our key management personnel and our trading experts.
Our performance is dependent on our senior management and certain other key employees. We have employment agreements with Greg Roberts, our CEO, and Thor Gjerdrum, our President, which expire on June 30, 2020 and June 30, 2022, respectively. These and other employees have expertise in the trading markets, have industry-wide reputations, and perform critical functions for our business. We cannot offer assurance that we will be able to negotiate acceptable terms for the renewal of the employment agreements or otherwise retain our key employees. Also, there is significant competition for skilled precious metals traders and other industry professionals. The loss of our current key officers and employees, without the ability to replace them, would have a materially adverse effect on our business.
We are focused on growing our business, but there is no assurance that we will be successful.
We expect to grow both organically and through opportunistic acquisitions. We have devoted considerable time, resources and efforts over the past few years to our growth strategy. We may not be successful in implementing our growth initiatives, which could adversely affect our business.
Liquidity constraints may limit our ability to grow our business.
To accomplish our growth strategy, we will require adequate sources of liquidity to fund both our existing business and our expansion activity. Currently, our main sources of liquidity are the cash that we generate from operations, our borrowing availability under the Trading Credit Facility and the proceeds from our securitization transaction through AMCF. There can be no assurance that these sources will be adequate to support the growth that we are hoping to achieve or that additional sources of financing for this purpose, in the form of additional debt or equity financing, will be available to us, on satisfactory terms or at all. Also, the Trading Credit Facility contains, and any future debt financing is likely to contain, various financial and other restrictive covenants. The need to comply with these covenants may limit our ability to implement our growth initiatives.
We expect to grow in part through acquisitions, but an acquisition strategy entails risks.
We expect to grow in part through acquisitions. We will consider potential acquisitions of varying sizes and may, on a selective basis, pursue acquisitions or consolidation opportunities involving other public companies or privately held companies. However, it is possible that we will not realize the expected benefits from our acquisitions or that our existing operations will be adversely affected as a result of acquisitions. Acquisitions entail certain risks, including: unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations; difficulty in assimilating the operations and personnel of the acquired company within our existing operations or in maintaining uniform standards; loss of key employees of the acquired company; and strains on management and other personnel time and resources both to research and integrate acquisitions.
We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash are not sufficient to fund future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase or shareholders may be diluted as we implement our growth strategy.
Our Logistics depository is subject to authorization.
Our Trading Credit Lenders have approved our Logistics facility as an authorized depository. If that approval were to be withdrawn for any reason, we would no longer be able to keep inventory at that location, which would substantially limit our ability to conduct business from that facility.
We are subject to laws and regulations.
We are subject to various laws, litigation, regulatory matters and ethical standards, and our failure to comply with or adequately address developments as they arise could adversely affect our reputation and operations. Our policies, procedures and practices and the technology we implement are designed to comply with federal, state, local and foreign laws, rules and regulations, including those imposed by the SEC and other regulatory agencies, the marketplace, the banking industry and foreign countries, as well as responsible business, social and environmental practices, all of which may change from time to time. Significant legislative changes, including those that relate to employment matters and health care reform, could impact our relationship with our workforce, which could increase our expenses and adversely affect our operations. In addition, if we fail to comply with applicable laws and regulations or implement responsible business, social and environmental practices, we could be subject to damage to our reputation, class action lawsuits, legal and settlement costs, civil and criminal liability, increased cost of regulatory compliance, restatements of our financial statements, disruption of our business and loss of customers. Any required changes to our employment practices could result in the loss of employees, reduced sales, increased employment costs, low employee morale and harm to our business and results of operations. In addition, political and economic factors could lead to unfavorable changes in federal and state tax laws, which may increase our tax liabilities. An increase in our tax liabilities could adversely affect our results of operations. We are also regularly involved in various litigation matters that arise in the ordinary course of business. Litigation or regulatory developments could adversely affect our business and financial condition.

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There are various federal, state, local and foreign laws, ordinances and regulations that affect our trading business. For example, we are required to comply with the Foreign Corrupt Practices Act and a variety of anti-money laundering and know-your-customer rules in response to the USA Patriot Act.
The SEC has promulgated rules mandated by the Dodd-Frank Act regarding disclosure, on an annual basis, of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companies. These rules require due diligence to determine whether such minerals originated from the Democratic Republic of Congo (the "DRC") or an adjoining country and whether such minerals helped finance the armed conflict in the DRC.
The Company has concluded that it is not currently subject to the conflict minerals rules because it is not a manufacturer of conflict minerals under the definitions set forth in the rules. Depending on developments in the Company’s business, it could become subject to the rules at some point in the future. In that event, there will be costs associated with complying with these disclosure requirements, including costs to determine the origin of gold used in our products. In addition, the implementation of these rules could adversely affect the sourcing, supply and pricing of gold used in our products. Also, we may face disqualification as a supplier for customers and reputational challenges if the due diligence procedures we implement do not enable us to verify the origins for the gold used in our products or to determine that the gold is conflict free.
CFC operates under a California Finance Lenders License issued by the California Department of Corporations. CFC is required to submit a finance lender law annual report to the state which summarizes certain loan portfolio and financial information regarding CFC. The Department of Corporations may audit the books and records of CFC to determine whether CFC is in compliance with the terms of its lending license. In addition, the Commodity Futures Trading Commission and other federal and state agencies may assert oversight over aspects of CFC's operations.
There can be no assurance that the regulation of our trading and lending businesses will not increase or that compliance with the applicable regulations will not become more costly or require us to modify our business practices.
The Company faces uncertainty associated with the Tax Cuts and Jobs Act.
The Company has adopted the applicable provisions of the Tax Cuts and Jobs Act which have had a significant impact to date.  In particular, the Company is now experiencing a substantially lower federal corporate tax rate and has predominately incurred all required adjustments related to its deferred tax assets. The U.S. Department of the Treasury, the Internal Revenue Service and other standard-setting bodies will continue to issue proposed regulations and interpretive guidance on how the provisions of the Tax Cuts and Jobs Act will be applied or otherwise administered, and final regulations or interpretive guidance may be issued in the future that are different from our current interpretation and application thereof.
One or more states could assert that the Company is liable for sales and use or similar taxes, which could adversely affect our business.
In South Dakota v. Wayfair, Inc. et al ("Wayfair"), the U.S. Supreme Court recently ruled that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. The effect of Wayfair was to uphold economic nexus principles in determining sales and use tax nexus. As a result of the decision, an increasing number of states have adopted (or are expected to adopt) laws that require an out-of-state retailer to register and collect sales and use taxes upon meeting certain economic nexus standards regardless of whether the company has physical presence in the state.
The Company has gradually expanded (and continues to expand) its sales and use tax registration and compliance process (including software and related programming accommodations) in applicable states to conform with these new requirements, though many uncertainties and ambiguities remain. Although the Company believes it is complying with these new requirements as they evolve, our interpretation and application of the newly enacted legislation may differ from the states, which could result in the states' attempt to impose additional tax liabilities, including potential penalties and interest. Such amounts could be significant. Furthermore, the requirements by state or local governments on out-of-state sellers to collect sales and use taxes could deter futures sales, which could have an impact on our business, financial condition, and results of operations.
We operate in a highly competitive industry.
The business of buying and selling precious metals is global and highly competitive. The Company competes with precious metals trading firms and banks throughout North America, Europe and elsewhere in the world, some of whom have greater financial and other resources, and greater name recognition, than the Company. We believe that, as a full service firm devoted exclusively to precious metals trading, we offer pricing, product availability, execution, financing alternatives and storage options that are attractive to our customers and allow us to compete effectively. We also believe that our purchaser/distributorship arrangements with various governmental mints give us a competitive advantage in our coin distribution business. However, given the global reach of the precious metals trading business, the absence of intellectual property protections and the availability of numerous, evolving platforms for trading in precious metals, we cannot assure you that A-Mark will be able to continue to compete successfully or that future developments in the industry will not create additional competitive challenges.

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We rely extensively on computer systems to execute trades and process transactions, and we could suffer substantial damages if the operation of these systems were interrupted.
We rely on our computer and communications hardware and software systems to execute a large volume of trading transactions each year. It is therefore critical that we maintain uninterrupted operation of these systems, and we have invested considerable resources to protect our systems from physical compromise and security breaches and to maintain backup and redundancy. Nevertheless, our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, including breaches of our transaction processing or other systems, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our employees. If our systems are breached, damaged or cease to function properly, we may have to make a significant investment to fix or replace them, we may suffer interruptions in our ability to provide quotations or trading services in the interim, and we may face costly litigation.
If our customer data were breached, we could suffer damages and loss of reputation.
By the nature of our business, we maintain significant amounts of customer data on our systems. Moreover, certain third party providers have access to confidential data concerning the Company in the ordinary course of their business relationships with the Company. In recent years, various companies, including companies that are significantly larger than us, have reported breaches of their computer systems that have resulted in the compromise of customer data. Any compromise or breach of customer or company data held or maintained by either the Company or our third party providers could significantly damage our reputation and result in costs, lost trades, fines and lawsuits. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches.
Compliance with new data protection/privacy statutes could increase our costs and expose the Company to possible sanctions for violation.
In 2016, the European Union ("EU") adopted a comprehensive overhaul of its data protection regime from the current national legislative approach to a single European Economic Area Privacy Regulation, the General Data Protection Regulation (“GDPR”), which went into effect in May 2018. The EU data protection regime expands the scope of the EU data protection law to all foreign companies processing personal data of EU residents, imposes a strict data protection compliance regime with severe penalties of up to the greater of 4% of worldwide turnover or €20 million, and includes new rights such as the “portability” of personal data. Although the GDPR will apply across the EU without a need for local implementing legislation, EU member states have the ability to interpret the GDPR opening clauses, which permit region-specific data protection legislation and have the potential to create inconsistencies on a country-by-country basis.
The Company has an office in Vienna, Austria that markets to international (including EU) customers. Although our international operations are currently modest compared to our business in the United States, our international business could grow over time. We have evaluated the new regulation and its requirements, and believe we are currently in compliance with the GDPR in all material respects. Going forward, however, the expansion of our international operations could require us to change our business practices and may increase the costs and complexity of compliance. Also, a violation by the Company of the new regulation could expose us to penalties and sanctions under the regulation.
On June 28, 2018, California passed the California Consumer Privacy Act of 2018 (“CCPA”), to be effective on January 1, 2020. The new law provides California consumers with a greater level of transparency and broader rights and choices with respect to their personal information than those contained in any existing state and federal laws in the U.S. The “personal information” regulated by CCPA is broadly defined to include identification or association with a California consumer or household, including demographics, usage, transactions and inquiries, preferences, inferences drawn to create a profile about a consumer, and education information. Compliance with CCPA requires the implementation of a series of operational measures such as preparing data maps, inventories, or other records of all personal information pertaining to California residents, households and devices, as well as information sources, usage, storage, and sharing, maintaining and updating detailed disclosures in privacy policies, establishing mechanisms (including, at a minimum, a toll-free telephone number and an online channel) to respond to consumers’ data access, deletion, portability, and opt-out requests, providing a clear and conspicuous “Do Not Sell My Personal Information” link on the home page of the business’ website, etc. CCPA prohibits businesses from discriminating against consumers who have opted out of the sale of their personal information, subject to a narrow exception. It allows companies to provide financial incentives to California consumers in order to obtain their consent to the collection and use of their personal information. Violations of CCPA will result in civil penalties up to $7,500 per violation. CCPA further allows consumers to file lawsuits against a business if a data breach has occurred and the California Attorney General does not prosecute the business.
In addition, on May 29, 2019, Nevada’s governor approved a bill (the “Amendment Bill”), to be effective on October 1, 2019. The Amendment Bill provides amendments to an existing law that requires operators of websites and online services to post a notice on their websites regarding their privacy practices. The Amendment Bill requires operators of internet websites or online

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services to establish a designated request address through which a consumer may submit a verified request directing such operators not to make any sale of covered information collected about the consumer. The “covered information” regulated by the Amendment Bill is defined to include an enumerated list of items of personally identifiable information (including names, addresses, email addresses, phone numbers, social security numbers and identifiers that allow a specific person to be contacted).
The changes introduced by the CCPA and the Amendment Bill, and any similar regulations enacted by other jurisdictions, will subject the Company to additional costs and complexity of compliance, by requiring, among other things, changes to the Company’s security systems, policies, procedures and practices. In addition, a violation by the Company of the new regulations could expose us to penalties and sanctions.
Our implementation of a new enterprise resource planning (“ERP”) system may adversely affect our business and results of operations or the effectiveness of internal controls over financial reporting.
We are currently implementing a new ERP system. ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities over a significant period of time. If we do not effectively implement the ERP system or if the system does not operate as intended, it could adversely affect our financial reporting systems and our ability to produce financial reports, the effectiveness of internal controls over financial reporting, and our business, financial condition, results of operations and cash flows.
We have in the past engaged, and continue to engage, in transactions with Stack’s Bowers, an affiliate of the Company, which could be perceived as not being made at arms-length.
Stack’s-Bowers Numismatics LLC. ("Stack's Bowers Galleries"), which is primarily engaged in the business of auctions of high-value and rare coins and in coin retailing, is a wholly-owned subsidiary of SGI, our former parent and a related party. We have engaged in the past, and continue to engage, in transactions with Stack’s Bowers, some of which are presently on-going. These transactions include secured lending transactions in which Stack’s Bowers is the borrower, and other transactions involving the purchase and sale of rare coins. The Company and SGI have two officers and a director in common. In addition, a majority of the board of directors of the Company has retained an ownership interest in SGI that in the aggregate represents a controlling interest in SGI. All transactions between the Company and Stack’s Bowers are approved by our Audit Committee, and we believe that all such transactions are on terms no less favorable to the Company than would be obtained from an unaffiliated third party. Nonetheless, these transactions could be perceived as being conflicted.
Risks Relating to Commodities
A-Mark’s business is heavily influenced by volatility in commodities prices.
A primary driver of A-Mark’s profitability is volatility in commodities prices, which leads to wider bid and ask spreads. Among the factors that can impact the price of precious metals are supply and demand of precious metals; political, economic, and global financial events; movement of the U.S. dollar versus other currencies; and the activity of large speculators such as hedge funds. If commodity prices were to stagnate, there would likely be a reduction in trading activity, resulting in less demand for the services A-Mark provides, which could materially adversely affect our business, liquidity and results of operations.
This volatility may drive fluctuation of our revenues, as a consequence of which our results for any one period may not be indicative of the results to be expected for any other period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our business is exposed to commodity price risks, and our hedging activity to protect our inventory is subject to risks of default by our counterparties.
A-Mark’s precious metals inventories are subject to market value changes created by change in the underlying commodity price, as well as supply and demand of the individual products the Company trades. In addition, open sale and purchase commitments are subject to changes in value between the date the purchase or sale is fixed (the trade date) and the date metal is delivered or received (the settlement date). A-Mark seeks to minimize the effect of price changes of the underlying commodity through the use of financial derivative instruments, such as forward and futures contracts. A-Mark’s policy is to remain substantially hedged as to its inventory position and its individual sale and purchase commitments. A-Mark’s management monitors its hedged exposure daily. However, there can be no assurance that these hedging activities will be adequate to protect the Company against commodity price risks associated with A-Mark’s business activities.
Furthermore, even if we are fully hedged as to any given position, there is the risk of default by our counterparties to the hedge. Any such default could have a material adverse effect on our financial position and results of operations.

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Increased commodity pricing could limit the inventory that we are able to carry.
We maintain a large and varied inventory of precious metal products, including bullion and coins, in order to support our trading activities and provide our customers with superior service. The amount of inventory that we are able to carry is constrained by the borrowing limitations and working capital covenants under the Trading Credit Facility. If commodity prices were to rise substantially, and we were unable to modify the terms of the Trading Credit Facility to compensate for the increase, the quantity of product that we could finance, and hence maintain in our inventory, would fall. This would likely have a material adverse effect on our operations.
We rely on the efficient functioning of commodity exchanges around the world, and disruptions on these exchanges could adversely affect our business.
The Company buys and sells precious metals contracts on commodity exchanges around the world, both in support of its customer operations and to hedge its inventory and transactional exposure against fluctuations in commodity prices. The Company’s ability to engage in these activities would be compromised if the exchanges on which the Company trades or any of their clearinghouses were to discontinue operations or to experience disruptions in trading, due to computer problems, unsettled markets or other factors. The Company may also experience risk of loss if futures commission merchants or commodity brokers with whom the Company deals were to become insolvent or bankrupt.
Risks Relating to Our Common Stock
Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business.
As a public company, we are required to document and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of Sarbanes-Oxley, which requires annual management assessments of the effectiveness of our internal control over financial reporting.
We are required to implement standalone policies and procedures to comply with the requirements of Section 404. During the course of our testing of our internal controls and procedures, we may identify deficiencies which we may not be able to remediate in time to comply with Section 404. Testing and maintaining internal controls can divert our management’s attention from other matters that are also important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, then investors could lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock. In addition, if we do not maintain effective internal controls, we may not be able to accurately report our financial information on a timely basis, which could harm the trading price of our common stock, impair our ability to raise additional capital, or jeopardize our continued listing on the NASDAQ Global Select Market or any other stock exchange on which common stock may be listed.
We are not currently paying dividends and may not pay dividends in the future.
The Company has not made a dividend payment since January 2018. The declaration of cash dividends is subject to the determination each quarter by the Board of Directors, based on its assessment of a number of factors, including the Company’s financial performance, available cash resources, cash requirements, bank covenants, and alternative uses of cash that the Board of Directors may conclude would represent an opportunity to generate a greater return on investment for the Company.
There can be no assurance that the Company will resume paying dividends on a regular basis.  If the Board of Directors were to determine not to pay dividends in the future, shareholders would not receive any further return on an investment in our capital stock in the form of dividends, and may obtain an economic benefit from the common stock only after an increase in its trading price and only by selling the common stock.
Provisions in our Certificate of Incorporation and Bylaws and of Delaware law may prevent or delay an acquisition of the Company, which could decrease the trading price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law contain certain anti-takeover provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company without negotiating with our board of directors. Such provisions could limit the price that certain investors might be willing to pay in the future for the Company’s securities. Certain of such provisions allow the Company to issue preferred stock with rights senior to those of the common stock, impose various procedural and other requirements which could make it more difficult for Shareholders to effect certain corporate actions and set forth rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings.
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any

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acquisition proposal. However, these provisions apply even if an acquisition offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of our Company and our Shareholders. Accordingly, in the event that our board determines that a potential business combination transaction is not in the best interests of our Company and our Shareholders, but certain shareholders believe that such a transaction would be beneficial to the Company and its Shareholders, such Shareholders may elect to sell their shares in the Company and the trading price of our common stock could decrease.
Your percentage ownership in the Company could be diluted in the future.
Your percentage ownership in A-Mark potentially could be diluted in the future because of additional equity awards that we expect will be granted to our directors, officers and employees. We have established an equity incentive plan that provides for the grant of common stock-based equity awards to our directors, officers and other employees. In addition, we may issue equity in order to raise capital or in connection with future acquisitions and strategic investments, which could dilute your percentage ownership.
Our board and management beneficially own a sizeable percentage of our common stock and therefore have the ability to exert substantial influence as shareholders.
Members of our board and management beneficially own approximately 40% of our outstanding common stock. Acting together in their capacity as shareholders, the board members and management could exert substantial influence over matters on which a shareholder vote is required, such as the approval of business combination transactions. Also because of the size of their beneficial ownership, the board members and management may be in a position effectively to determine the outcome of the election of directors and the vote on shareholder proposals. The concentration of beneficial ownership in the hands of our board and management may therefore limit the ability of our public shareholders to influence the affairs of the Company.
If the Company's spinoff from SGI is determined to be taxable for U.S. federal income tax purposes, our shareholders could incur significant U.S. federal income tax liabilities.
In connection with the spinoff, SGI received the written opinion of Kramer Levin Naftalis & Frankel LLP. ("Kramer Levin") to the effect that the spinoff qualified as a tax-free transaction under Section 355 of the Internal Revenue Code, and that for U.S. federal income tax purposes (i) no gain or loss was recognized by SGI upon the distribution of our common stock in the spinoff, and (ii) no gain or loss was recognized by, and no amount was included in the income of, holders of SGI common stock upon the receipt of shares of our common stock in the spinoff. The opinion of tax counsel is not binding on the Internal Revenue Service or the courts, and there is no assurance that the IRS or a court will not take a contrary position. In addition, the opinion of Kramer Levin relied on certain representations and covenants delivered by SGI and us. If, notwithstanding the conclusions included in the opinion, it is ultimately determined that the distribution does not qualify as tax-free for U.S. federal income tax purposes, each SGI shareholder that is subject to U.S. federal income tax and that received shares of our common stock in the distribution could be treated as receiving a taxable distribution in an amount equal to the fair market value of such shares. In addition, if the distribution were not to qualify as tax-free for U.S. federal income tax purposes, then SGI would recognize a gain in an amount equal to the excess of the fair market value of our common stock distributed to SGI shareholders on the date of the distribution over SGI’s tax basis in such shares. Also, we could have an indemnification obligation to SGI related to its tax liability.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of June 30, 2019, the Company owned or leased properties in El Segundo, California; Los Angeles, California; Las Vegas, Nevada; Winchester, Indiana; and Vienna, Austria; as described below:
Location
 
General Use of Facility
 
Square Footage
 
 
Ownership
 
Lease Term/Expiration
El Segundo, California
 
Corporate headquarters, trading desk, secured lending, marketing, and back-office operations
 
9,000

 
 
Leased
 
March 2026
Los Angeles, California
 
Direct Sales operations
 
21,500

 
 
 Leased
(1) 
February 2022
Las Vegas, Nevada
 
Storage and fulfillment logistics operations
 
17,600

 
 
Leased
 
April 2025
Winchester, Indiana
 
Minting operations
 
11,400

(2) 
 
Owned
 
Vienna, Austria
 
International marketing support operations
 
248

 
 
Leased
 
every three months
 
 
 
 
 
 
 
 
 
 
(1) We sublease a portion of the space to a third party.
(2) This facility is located on 2.9 acres of land that is jointly owned by the Company and SilverTowne LP (our minority interest partner.)

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ITEM 3. LEGAL PROCEEDINGS
We are from time to time involved in legal proceedings, claims, or investigations that are incidental to the conduct of our business.
Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on current information, including our assessment of the merits of the particular claim, we do not expect that these legal proceedings or claims will have any material adverse impact on our future consolidated financial position, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
None.

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PART II — OTHER INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
SGI effected the spinoff of A-Mark on March 14, 2014. On March 17, 2014, A-Mark’s shares of common stock commenced trading on the NASDAQ Global Select Market under the symbol "AMRK."
As of September 6, 2019, there were 165 registered stockholders of record of our common stock, and the last reported sale price of our stock as reported by the NASDAQ Global Select Market was $13.98.
The following table sets forth the range of high and low closing prices for our common stock for each full quarterly period during fiscal 2019 and 2018, as reported by the NASDAQ Global Select Market. These quotations below reflect inter-dealer closing prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
 
2019
 
2018
Quarter
High
 
Low
 
High
 
Low
First
$
13.80

 
$
12.05

 
$
18.82

 
$
14.76

Second
$
13.89

 
$
10.99

 
$
16.96

 
$
12.56

Third
$
13.35

 
$
11.43

 
$
14.65

 
$
10.78

Fourth
$
13.60

 
$
10.90

 
$
14.06

 
$
12.00

 
 
 
 
 
 
 
 
Issuer Purchases of Equity Securities
On April 26, 2018, the Company’s Board of Directors authorized a stock repurchase program for up to 500,000 shares of the Company’s stock.  The actual number of shares repurchased and the timing of repurchases will be determined by the Board of Directors and will depend on a number of factors, including stock price, trading volume, general market conditions, working capital requirements, general business conditions, and other factors. The stock repurchase program has no time limit and may be modified, suspended, or terminated at any time.
As of September 6, 2019, there have been no repurchases of equity securities under the above-referenced stock repurchase program.

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Dividend Policy
 The Board of Directors assesses the Company's capital resources on a quarterly basis and makes a determination whether to declare a dividend based on that assessment. The assessment addresses a number of factors, including the Company’s financial performance, available cash resources, cash requirements, bank restrictive covenants, alternative uses of cash and such other factors as the Board of Directors deems relevant.
Based on the above factors, the Company has not made a dividend payment since January 2018.
Equity Compensation Plan Information
The following table provides information as of June 30, 2019, with respect to the shares of our common stock that may be issued under existing equity compensation plans.
Plan category
 
(a)
 Number of securities to be issued upon exercise of outstanding options, warrants, and rights
 
(b)
Weighted average
exercise price of outstanding options, warrants, and rights
 
(c)
Number of securities remaining available for future issuance under equity compensation plans

(excluding securities reflected in column (a))
 
Equity compensation plans approved by security holders
 
956,998

 
$
17.08

 
408,395

(1) 
Equity compensation plans not approved by security holders
 

 

 

 
Total
 
956,998

 
$
17.08

 
408,395

 
 
 
 
 
 
 
 
 
_________________________________
(1)
 
Represents shares that are available for future issuance under A-Mark's amended and restated 2014 Stock Award and Incentive Plan ("2014 Plan"). All of the 2014 Plan shares that are available for future issuance include the following award types: stock options, stock appreciation rights, restricted stock units, restricted stock, and other "full-value" awards.
 
ITEM 6. SELECTED FINANCIAL DATA
Not applicable for a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K ("Form 10-K") contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this Annual Report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans, and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this Annual Report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-K.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes contained elsewhere in this Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in

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these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Annual Report, particularly in “Risk Factors.”
INTRODUCTION
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and related notes to aid in the understanding of our results of operations and financial condition. Our discussion is organized as follows:
Executive overview. This section provides a general description of our business, as well as significant transactions and events that we believe are important in understanding the results of operations.
Results of operations. This section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations by comparing the results for the respective years. Included in our analysis is a discussion of five performance metrics: (i) ounces of gold and silver sold, (ii) Wholesale trading ticket volume, (iii) Direct Sales ticket volume, (iv) inventory turnover ratio and (v) number of secured loans at period-end.
Segment results of operations. This section provides an analysis of our results of operations presented for our three segments:
for the comparable periods.
Liquidity and financial condition. This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt as of June 30, 2019. Included in this section is a discussion of our: outstanding debt, the amount of financial capacity available to fund our future commitments and other financing arrangements.
Critical accounting policies. This section discusses critical accounting policies that are considered both important to our financial condition and results of operations, and requires management to make significant judgment and estimates. All of our significant accounting policies, including the critical accounting policies, are summarized in Note 2, as well.
Recent accounting pronouncements. This section discusses new accounting pronouncements, dates of implementation and their expected impact on our accompanying consolidated financial statements.

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EXECUTIVE OVERVIEW
Our Business
We conduct our operations in three reportable segments: (1) Wholesale Trading & Ancillary Services, (2) Secured Lending and (3) Direct Sales.
Wholesale Trading & Ancillary Services Segment
The Company operates its Wholesale Trading & Ancillary Services segment through A-Mark Precious Metals Inc., and its wholly-owned subsidiaries, Transcontinental Depository Services ("TDS"), A-M Global Logistics, LLC. ("Logistics'), and AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint").
The Wholesale Trading & Ancillary Services segment operates as a full-service precious metals trading company. We offer gold, silver, platinum, and palladium in the form of bars, plates, powder, wafers, grain, ingots, and coins. Our Industrial unit services manufacturers and fabricators of products utilizing or incorporating precious metals. Our Coin and Bar unit deals in over 200 coin and bar products in a variety of weights, shapes, and sizes for distribution to dealers and other qualified purchasers. We have a marketing support office in Vienna, Austria, and a trading center in El Segundo, California. The trading center, for buying and selling precious metals, is available to receive orders from approved customers 24 hours every day, even when many major world commodity markets are closed. In addition to wholesale trading activity, A-Mark offers its customers a variety of services, including financing, storage, consignment, logistics, and various customized financial programs. As a U.S. Mint-authorized purchaser of gold, silver, platinum, and palladium coins, A-Mark purchases product directly from the U.S. Mint and other sovereign mints for sale to its customers.
Through our wholly-owned subsidiary TDS, we offer a variety of managed storage options for precious metals products to financial institutions, dealers, investors, and collectors around the world. Our storage business generated less than 1% of total revenues for each of the periods presented.
The Company's wholly-owned subsidiary, A-M Global Logistics, LLC, referred to as Logistics, is based in Las Vegas, Nevada, and provides our customers an array of complementary services, including receiving, handling, inventorying, processing, packing, and shipping of precious metals and custom coins on a secure basis. Our logistics business generated less than 1% of the total revenues for each of the periods presented.
Through our partially-owned subsidiary, AMST, 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. AMST acquired the entire minting operations (referred to as SilverTowne Mint) of SilverTowne, L.P., with the goal of providing greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments, which have historically resulted in higher demand for precious metals products.
Secured Lending Segment
The Company operates its Secured Lending segment through its wholly-owned subsidiaries, Collateral Finance Corporation LLC. ("CFC") and AM Capital Funding, LLC. (“AMCF”).
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. As of June 30, 2019, CFC and AMCF had, in aggregate, approximately $125.3 million in secured loans outstanding, of which approximately 59.5% were acquired from third-parties (some of which may be customers of A-Mark) and approximately 40.5% were originated by CFC.
AMCF, a wholly-owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC. AMCF issued, administers, and owns 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 in the aggregate principal amount of $28.0 million.  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% (collectively referred to as the "Notes").  The Notes have a maturity date of December 15, 2023. For additional information regarding this securitization. (See Note 14 of the Notes to Consolidated Financial Statements.)
Direct Sales Segment
The Company operates its Direct Sales segment through its wholly-owned subsidiaries Goldline Inc. (“Goldline”) and AM IP LLC. ("AMIP"), and through its 50%-owned subsidiary Precious Metals Purchasing Partners, LLC, ("PMPP").
The Company acquired Goldline in August 2017 through an asset purchase transaction with Goldline LLC. Goldline LLC. had been in operation since 1960. Goldline is a direct retailer of precious metals to the investor community. Goldline markets its precious metal products primarily on radio and the internet, as well as through telephonic sales efforts, particularly to Goldline’s

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repeat customers. Goldline's business has enhanced the Company’s distribution capabilities by adding a direct-to-client distribution channel that has diversified the product and services offered to Goldline's customers, through access to the Company’s wider assortment of precious metal coins and bars, including TDS’s storage and asset protection services.
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 further exploit such assets and provide the Company with ancillary income.
In fiscal 2019, the Company formed and capitalized PMPP, a 50%-owned subsidiary of Goldline, pursuant to terms of a joint venture agreement, for the purpose of purchasing precious metals from the partners' retail customers, and then reselling the acquired products back to affiliates of the partners. In fiscal 2020, PMPP commenced its operations.
Our Strategy
The Company was formed in 1965 and has grown into a significant participant in the bullion and coin markets, with approximately $4.8 billion in revenues for fiscal year 2019. Our strategy continues to focus on growth, including the volume of our business, our geographic presence, and the scope of complementary products, services, and technological tools that we offer to our customers. We intend to promote our growth by leveraging off the strengths of our existing integrated operations:
the depth of our customer relationships;
our access to market makers, suppliers and government mints and other mints;
our trading systems in the U.S. and Europe;
our expansive precious metals dealer network;
our depository relationships around the world;
our knowledge of secured lending;
our logistics capabilities;
our trading expertise; and
the quality and experience of our management team.
Our Customers
Our customers include financial institutions, bullion retailers, industrial manufacturers and fabricators, sovereign mints, refiners, coin and metal dealers, investors, and collectors. The Company makes a two way market, which results in many customers also operating as our suppliers.  This diverse base of customers purchases a variety of products from the Company in a multitude of grades, primarily in the form of coins and bars.
Factors Affecting Revenues, Gross Profits, Interest Income, and Interest Expense
Revenues. The Company enters into transactions to sell and deliver gold, silver, platinum and palladium to industrial and commercial users, coin and bullion dealers, mints, and financial institutions. The metals are investment or industrial grade and are sold in a variety of shapes and sizes.
The Company also sells precious metals on forward contracts at a fixed price based on current prevailing precious metal spot prices with a certain delivery date in the future (up to six months from inception date of the forward contract). The Company also uses other derivative products (primarily futures contracts) or a combinations thereof to hedge commodity risks. We enter into these forward contracts as part of our hedging strategy to mitigate our price risk of holding inventory; they are not entered into for speculative purposes.
However, unlike futures contracts which do not impact the Company’s revenue, forward sales contracts by their nature are required to be included in revenues. The decision to use a forward contract verses another derivative type product (e.g., a futures contract) for hedging purposes is based on the economics of the transaction.  Since the volume of hedging can be significant, the movement in and out of forwards can substantially impact revenues, both positively or negatively, from period to period. For this reason, the Company believes ounces sold (excluding ounces sold on forward sales contracts) is a meaningful metric to assess our top line performance. 
In addition, the Company earns revenue by providing storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors and collectors worldwide and by providing storage and order-fulfillment services to our retail customers. These revenue streams are complementary to our trading activity, and represent less than 1% of our revenues.

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The Company operates in a high volume/low margin industry.  Revenues are impacted by three primary factors: product volume, market prices and market volatility. A material change in any one or more of these factors may result in a significant change in the Company’s revenues. A significant increase or decrease in revenues can occur simply based on changes in the underlying commodity prices and may not be reflective of an increase or decrease in the volume of products sold. 
Gross Profits. Gross profit is the difference between our revenues and the cost of our products sold. Since we quote prices based on the current commodity market prices for precious metals, we enter into a combination of forward and futures contracts to effect a hedge position equal to the underlying precious metal commodity value, which substantially represents inventory subject to price risk.  We enter into these derivative transactions solely for the purpose of hedging our inventory, and not for speculative purposes. Our gross profit includes the gains and losses resulting from these derivative instruments. However, the gains and losses on the derivative instruments are substantially offset by the gains and losses on the corresponding changes in the market value of our precious metals inventory. As a result, our results of operations generally are not materially impacted by changes in commodity prices.
Volatility also affects our gross profits. Greater volatility typically causes the trading spreads to widen resulting in an increase in the gross profit. Product supply constraints during extended periods of higher volatility have historically resulted in a heightening of wider trading spreads resulting in further improvement in the gross profit.
Interest Income. The Company enters into secured loans and secured financing structures with its customers under which it charges interest. CFC acquires loan portfolios and originates loans that are secured by precious metal bullion and numismatic material owned by the borrowers and held by the Company for the term of the loan. Additionally, AMCF acquires certain loans from CFC that are secured by precious metal bullion to meet the collateral requirements of the Notes. Also, the Company offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products whereby the Company earns a fee based on the underlying value of the precious metal ("repurchase arrangements with customers").
    Interest Expense. The Company incurs interest expense associated with its: lines of credit, notes, related-party debt, product financing agreements for the transfer and subsequent re-acquisition of gold and silver at a fixed price with a third-party finance company ("product financing arrangements"), and short-term precious metal borrowing arrangements with our suppliers ("liability on borrowed metals").
Performance Metrics        
In addition to financial statement indicators, management also utilizes certain key operational metrics to assess the performance of our business.
Gold and Silver Ounces Sold and Delivered to Customers. We look at the number of ounces of gold and silver sold and delivered to our customers (excluding ounces recorded on forward contracts). These metrics reflect our business volume without regard to changes in commodity pricing, which also impacts revenue and can mask actual business trends.
The primary purpose of entering into forward sales transactions is to hedge commodity price risk. Although the revenues realized from these forward sales transactions are often significant, they generally have negligible impact to gross margins. As a result, the Company excludes the ounces recorded on forward contracts from its performance metrics, as the Company does not enter into forward sales transactions for speculative purposes.
Wholesale Trading Ticket Volume and Direct Sales Ticket Volume. Another measure of our business that is unaffected by changes in commodity pricing, is ticket volume. Ticket volume for the Wholesale Trading & Ancillary Services and Direct Sales segments measures the total number of orders processed by our trading desks in El Segundo, California and Los Angeles, California. In periods of higher volatility, there is generally increased trading in the commodity markets, causing increased demand for our products, resulting in higher business volume. Generally, the ounces sold on a per-trading-ticket basis is substantially higher for orders placed telephonically compared to those placed on our online portal platform.
Inventory Turnover. Inventory turnover is another performance measure on which we are focused, and is calculated as the cost of sales divided by the average inventory during the relevant period. Inventory turnover is a measure of how quickly inventory has moved during the period. A higher inventory turnover ratio, which we typically experience during periods of higher volatility when trading is more robust, typically reflects a more efficient use of our capital.
The period of time that inventory is held by the Company varies depending upon the nature of our inventory commitments with customers and suppliers. (See Note 6 of the Notes to Consolidated Financial Statements, for a description of our classifications of inventory by type.) When management analyzes inventory turnover on a period over period basis, consideration is given to each inventory type and its corresponding impact on the inventory turnover calculation. Management's analysis includes the following:

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The Company enters into various structured borrowing arrangements that commit the Company's inventory (such as; product financing arrangements or liability on borrowed metals) for an unspecified period of time. While the Company is able to obtain access to this inventory on demand, there is a tendency that this type of inventory does not turn over as quickly as other types of inventory.
The Company enters into repurchase arrangements with customers under which A-Mark holds precious metals which are subject to repurchase for an unspecified period of time. While the Company retains legal title to this inventory, the Company is required to hold this inventory (or like-kind inventory) for the customer until the arrangement is terminated or the material is repurchased by the customer. As a result, there is a tendency that this type of inventory does not turn over as quickly as other types of inventory.
Additionally, our inventory turnover ratio can be affected by hedging activity, as the period over period change of the inventory turnover ratio may be significantly impacted by a period over period change in hedging volume. For example, if trading activity were to remain constant over two periods, but there were significantly higher forward sales in the current period compared to a prior period, the calculated inventory turnover ratio would indicate an increase in the ratio rather than remaining constant.
Number of Secured Loans. Finally, as a measure of the size of our secured lending segment, we look at the number of outstanding secured loans to customers at the end of the fiscal quarter. Typically, the number of loans increase during periods of increasing precious metal pricing and decrease during periods of declining precious metal prices.
The Company calculates its loan-to-value ("LTV") ratio as the principal amount of the loan divided by the liquidation value of the collateral, which is based on daily spot market prices of precious metal bullion. When the market price of the pledged collateral decreases and thereby increases the LTV ratio of a loan above a prescribed maximum ratio, usually 85%, the Company has the option to make a margin call on the loan. As a result, a decline of precious metal market prices may cause a decrease in the number of loans outstanding in a period.
Fiscal Year
Our fiscal year end is June 30 each year. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years.

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RESULTS OF OPERATIONS
Overview of Results of Operations for the Years Ended June 30, 2019 and 2018

Consolidated Results of Operations
The operating results of our business for the years ended June 30, 2019 and 2018 are as follows:
in thousands, except per share data and performance metrics
 
 
Years Ended June 30,
2019
 
2018
 
$
 
%
 
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Revenues
$
4,783,157

 
100.000
 %
 
$
7,606,248

 
100.000
 %
 
$
(2,823,091
)
 
(37.1
)%
Gross profit
31,958

 
0.668
 %
 
29,443

 
0.387
 %
 
$
2,515

 
8.5
 %
Selling, general and administrative expenses
(32,502
)
 
(0.680
)%
 
(33,398
)
 
(0.439
)%
 
$
(896
)
 
(2.7
)%
Goodwill and intangible asset impairment

 
 %
 
(2,654
)
 
(0.035
)%
 
$
(2,654
)
 
(100.0
)%
Interest income
19,270

 
0.403
 %
 
16,105

 
0.212
 %
 
$
3,165

 
19.7
 %
Interest expense
(17,146
)
 
(0.358
)%
 
(13,891
)
 
(0.183
)%
 
$
3,255

 
23.4
 %
Other income, net
1,697

 
0.035
 %
 
954

 
0.013
 %
 
$
743

 
77.9
 %
Unrealized gain on foreign exchange

 
 %
 
30

 
 %
 
$
(30
)
 
(100.0
)%
Net income (loss) before provision for income taxes
3,277

 
0.069
 %
 
(3,411
)
 
(0.045
)%
 
$
6,688

 
196.1
 %
Income tax expense
(1,015
)
 
(0.021
)%
 
(8
)
 
 %
 
$
1,007

 
NM

Net income (loss)
2,262

 
0.047
 %
 
(3,419
)
 
(0.045
)%
 
$
5,681

 
166.2
 %
 
Net income (loss) attributable to non-controlling interest
37

 
0.001
 %
 
(22
)
 
 %
 
$
59

 
268.2
 %
Net income (loss) attributable to the Company
$
2,225

 
0.047
 %
 
$
(3,397
)
 
(0.045
)%
 
$
5,622

 
165.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to A-Mark Precious Metals, Inc.:
Per Share Data:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.32

 
 
 
$
(0.48
)
 
 
 
$
0.80

 
166.7
 %
Diluted
$
0.31

 
 
 
$
(0.48
)
 
 
 
$
0.79

 
164.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
Performance Metrics:(1)
 
 
 
 
 
 
 
 
 
 
 
Gold ounces sold(2)
1,799,000

 
 
 
1,912,000

 
 
 
(113,000
)
 
(5.9
)%
Silver ounces sold(3)
67,620,000

 
 
 
46,466,000

 
 
 
21,154,000

 
45.5
 %
Inventory turnover ratio(4)
16.6

 
 
 
26.8

 
 
 
(10.2
)
 
(38.1
)%
Number of secured loans at period end(5)
2,806

 
 
 
3,507

 
 
 
(701
)
 
(20.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________
 
 
 
 
NM
 
Not meaningful.
 
 
 
 
 
(1)
 
See "Results of Segments" for ticket count volume by segment.
 
 
 
 
 
(2)
 
Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.
 
 
 
 
 
(3)
 
Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.
 
 
 
 
 
(4)
 
Inventory turnover ratio is the cost of sales divided by average inventory. This calculation excludes precious metals held under financing arrangements, which are not classified as inventory on the consolidated balance sheets.
 
 
 
 
 
(5)
 
Number of outstanding secured loans to customers at the end of the period.
 


27

Table of Contents            

Revenues
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metrics
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Revenues
$
4,783,157

 
100.000
%
 
$
7,606,248

 
100.000
%
 
$
(2,823,091
)
 
(37.1
)%
Performance Metrics
 
 
 
 
 
 
 
 
 
 
 
Gold ounces sold
1,799,000

 
 
 
1,912,000

 
 
 
(113,000
)
 
(5.9
)%
Silver ounces sold
67,620,000

 
 
 
46,466,000

 
 
 
21,154,000

 
45.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Revenues for the year ended June 30, 2019 decreased $2.823 billion, or 37.1%, to $4.783 billion from $7.606 billion in 2018. Our revenues decreased primarily due to lower forward sales (representing approximately $2.8 billion of the aggregate change), lower gold and silver prices and lower gold ounces sold, offset by an increase in the total amount of silver ounces sold.
Gold ounces sold for the year ended June 30, 2019 decreased 113,000 ounces, or 5.9%, to 1,799,000 ounces from 1,912,000 ounces in 2018. Silver ounces sold for the year ended June 30, 2019 increased 21,154,000 ounces, or 45.5%, to 67,620,000 ounces from 46,466,000 ounces in 2018. On average, the selling prices for gold decreased by 2.7% and selling prices for silver decreased by 10.0% during the year ended June 30, 2019 as compared to 2018.
    
Gross Profit
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metric
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Gross profit
$
31,958

 
0.668
%
 
$
29,443

 
0.387
%
 
$
2,515

 
8.5
 %
Performance Metric
 
 
 
 
 
 
 
 
 
 
 
Inventory turnover ratio
16.6

 
 
 
26.8

 
 
 
(10.2
)
 
(38.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit for the year ended June 30, 2019 increased by $2.5 million, or 8.5%, to $32.0 million from $29.4 million in 2018. Overall gross profit increased due to improved gross profits of the Wholesale Trading & Ancillary segment and Direct Sales segment (e.g., Goldline), offset by lower trading profits.
The Company’s gross margin percentage increased by 72.6% to 0.668% from 0.387% in 2018. The increase in gross margin percentage was primarily due to lower forward sales ($2.8 billion), which increase revenues but have negligible impact to gross margins. Secondarily, wider spreads earned by the Wholesale Trading & Ancillary segment and Direct Sales segment contributed to the higher gross margin percentage. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes.
Our inventory turnover rate for the year ended June 30, 2019 decreased by 38.1%, to 16.6 from 26.8 in 2018. The decrease in our inventory turnover rate was primarily due to the lower volume of ounces sold on forward contracts and by higher average borrowed metal inventory balances, partially offset by lower average product financing arrangements during the year ended June 30, 2019 as compared to 2018.
Selling, General and Administrative Expense
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Selling, general and administrative expenses
$
(32,502
)
 
(0.680
)%
 
$
(33,398
)
 
(0.439
)%
 
$
(896
)
 
(2.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses for the year ended June 30, 2019 decreased $0.9 million, or 2.7%, to $32.5 million from $33.4 million in 2018. The change was primarily due to a decrease in IT consulting costs of $0.8 million, lower investigatory acquisition costs of $0.6 million, lower advertising costs of $0.8 million, and lower legal costs of $0.4 million, which were partially offset by an increased overall compensation costs of $1.3 million. Our Direct Sales Segment reported a decrease in selling, general, and administrative expense even though the Direct Sales segment was only owned for ten months in the prior comparable period.

28

Table of Contents            

Goodwill and intangible asset impairment
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Goodwill and intangible asset impairment
$

 
%
 
$
(2,654
)
 
(0.035
)%
 
$
(2,654
)
 
(100.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and intangible asset impairment for the year ended June 30, 2019 decreased $2.7 million to $0 from $2.7 million in 2018. The change was due to an impairment charge booked as a result of our annual impairment assessment we conducted in the fourth quarter of fiscal year 2018, which was related to our Direct Sales segment (Goldline).
Interest Income    
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metric
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Interest income
$
19,270

 
0.403
%
 
$
16,105

 
0.212
%
 
$
3,165

 
19.7
 %
Performance Metric
 
 
 
 
 
 
 
 
 
 
 
Number of secured loans at period-end
2,806

 
 
 
3,507

 
 
 
(701
)
 
(20.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Interest income for the year ended June 30, 2019 increased $3.2 million, or 19.7%, to $19.3 million from $16.1 million in 2018. The aggregate increase in interest income was primarily due to interest income earned by our Secured Lending Segment and other finance product income by our Wholesale Trading & Ancillary Services segment.
The increase in interest income from our Secured Lending segment increased by $1.0 million or by 10.6% in comparison to the same year-ago period, which represents approximately 32.4% of the aggregate increase. This increase was primarily due to increases in interest rates (a weighted average interest rate of 10.2% for fiscal 2019, compared to a weighted average interest rate of 9.6% for fiscal 2018) and an increase in the value of the secured loan portfolio ($125.3 million as of June 30, 2019 compared to $110.4 million as of June 30, 2018). Despite the increase in value of the loan portfolio, the number of secured loans outstanding decreased by 20.0% to 2,806 from 3,507 in 2018. This decrease was due to lower metal prices in the first quarter of fiscal 2019 that lowered the customer's collateral value, which lead to loans being liquidated. The Company did not incur any loan losses from the liquidations.
The aggregate increase in interest income from our Wholesale Trading & Ancillary Services segment increased by $2.1 million or 32.8% in comparison to the same year-ago period, which represents approximately 67.2% of the aggregate increase. Our finance fees earned related to repurchase arrangements with customers increased by 30.1% or by $1.7 million in comparison to the same year-ago period, which represent approximately 54.4% of the aggregate increase.
Interest Expense
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Interest expense
$
(17,146
)
 
(0.358
)%
 
$
(13,891
)
 
(0.183
)%
 
$
3,255

 
23.4
%
 
 
 
 
 
 
 
 
 
 
 
 
    
Interest expense for the year ended June 30, 2019 increased $3.3 million, or 23.4% to $17.1 million from $13.9 million in 2018. The increase was primarily due to higher overall average debt levels and interest rates, mainly associated with our two principal financing vehicles (e.g. the Trading Credit Facility and AMCF's recently issued Notes) in fiscal 2019 compared to the prior fiscal year.
As compared to the same year-ago period, the following interest expense components increased: (i) $4.3 million related to our Notes (including debt amortization costs), and (ii) $1.0 million related to our liability on borrowed metals, partially offset by a reduction of (iii) $(1.1) million related to product financing arrangements and (iv) $(0.4) million associated with our Trading Credit Facility (including debt amortization costs), and (v) $(0.3) million related to the Goldline Credit Facility (including debt amortization costs). The Goldline Credit Facility was paid off in full during second quarter of fiscal year 2019.

29

Table of Contents            

Provision for Income Taxes
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Income tax expense
$
(1,015
)
 
(0.021
)%
 
$
(8
)
 
 %
 
$
1,007

 
NM
 
 
 
 
 
 
 
 
 
 
 
 
    
Our income tax expense was $1.0 million and $0.0 million for the years ended June 30, 2019 and 2018, respectively. Our effective tax rate was approximately 31.0% and 0.2% for the years ended June 30, 2019 and 2018, respectively. For the year ended June 30, 2019, our effective tax rate differed from the federal statutory rate primarily due to state taxes (including state minimum taxes and net of federal tax benefit) and non-deductible Company provided transportation benefits. For the year ended June 30, 2018, our effective tax rate differed from the federal statutory rate primarily due the impact of a one-time revaluation tax charge related to the Tax Cuts and Job Act, offsetting the tax benefit from operating losses.

30

Table of Contents            

Segment Results of Operations
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 FASB Accounting Standards Codification (“ASC”).
Results of Operations — Wholesale Trading & Ancillary Services Segment
Overview of Results of Operations for the Years Ended June 30, 2019 and 2018
The operating results of our Wholesale Trading & Ancillary Services segment for the years ended June 30, 2019 and 2018 are as follows:
in thousands, except performance metrics
 
 
Years Ended June 30,
2019
 
2018
 
$
 
%
 
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Revenues
$
4,733,800

 
100.000
 %
 
$
7,538,856

 
100.000
 %
 
$
(2,805,056
)
 
(37.2
)%
Gross profit
26,270

 
0.555
 %
 
24,109

 
0.320
 %
 
$
2,161

 
9.0
 %
Selling, general and administrative expenses
(22,274
)
 
(0.471
)%
 
(21,096
)
 
(0.280
)%
 
$
1,178

 
5.6
 %
Interest income
8,601

 
0.182
 %
 
6,473

 
0.086
 %
 
$
2,128

 
32.9
 %
Interest expense
(9,626
)
 
(0.203
)%
 
(7,778
)
 
(0.103
)%
 
$
1,848

 
23.8
 %
Other income, net
1,749

 
0.037
 %
 
954

 
0.013
 %
 
$
795

 
83.3
 %
Unrealized gain on foreign exchange

 
 %
 
30

 
 %
 
$
(30
)
 
NM

Net income before provision for income taxes
$
4,720

 
0.100
 %
 
$
2,692

 
0.036
 %
 
$
2,028

 
75.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Performance Metrics:
 
 
 
 
 
 
 
 
 
 
 
Gold ounces sold(1)
1,783,000

 
 
 
1,895,000

 
 
 
(112,000
)
 
(5.9
)%
Silver ounces sold(2)
66,553,000

 
 
 
46,045,000

 
 
 
20,508,000

 
44.5
 %
Wholesale Trading ticket volume(3)
120,257

 
 
 
114,935

 
 
 
5,322

 
4.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________
 
 
 
 
NM
 
Not meaningful.
 
 
 
 
 
(1)
 
Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts.
 
 
 
 
 
(2)
 
Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts.
 
 
 
 
 
(3)
 
Trading ticket volume represents the total number of product orders processed by our trading desks in El Segundo, California for the Wholesale Trading & Ancillary Services segment.
 
 
 
 
 


31

Table of Contents            

Revenues — Wholesale Trading & Ancillary Services
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metrics
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Revenues
$
4,733,800

 
100.000
%
 
$
7,538,856

 
100.000
%
 
$
(2,805,056
)
 
(37.2
)%
Performance Metrics
 
 
 
 
 
 
 
 
 
 
 
Gold ounces sold
1,783,000

 
 
 
1,895,000

 
 
 
(112,000
)
 
(5.9
)%
Silver ounces sold
66,553,000

 
 
 
46,045,000

 
 
 
20,508,000

 
44.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Revenues for the year ended June 30, 2019 decreased $2.805 billion, or 37.2%, to $4.734 billion from $7.539 billion in 2018. Our revenues decreased primarily due to lower forward sales (about $2.8 billion of the aggregate change), lower gold and silver prices, and lower gold ounces sold, offset by an increase in the total amount of silver ounces sold.
Gold ounces sold for the year ended June 30, 2019 decreased 112,000 ounces, or 5.9%, to 1,783,000 ounces from 1,895,000 ounces in 2018. Silver ounces sold for the year ended June 30, 2019 increased 20,508,000 ounces, or 44.5%, to 66,553,000 ounces from 46,045,000 ounces in 2018. On average, the selling prices for gold decreased by 2.7% and selling prices for silver decreased by 10.1% during the year ended June 30, 2019 as compared to 2018.
    
Gross Profit — Wholesale Trading & Ancillary Services
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metric
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Gross profit
$
26,270

 
0.555
%
 
$
24,109

 
0.320
%
 
$
2,161

 
9.0
%
Performance Metric
 
 
 
 
 
 
 
 
 
 
 
Wholesale trading ticket volume
120,257

 
 
 
114,935

 
 
 
5,322

 
4.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit for the year ended June 30, 2019 increased by $2.2 million, or 9.0%, to $26.3 million from $24.1 million in 2018. Overall gross profit increased primarily due to improved overall product margins, offset by lower trading profits.
The Company’s profit margin percentage increased by 73.4% to 0.555% from 0.320% in 2018. The increase in gross margin percentage was largely attributable to lower forward sales ($2.8 billion), which increase revenues but are associated with negligible gross margin percentages, and by wider spreads earned on products sold. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative purposes.
The wholesale trading ticket volume for the year ended June 30, 2019 increased by 5,322 tickets, or 4.6%, to 120,257 tickets from 114,935 tickets in 2018. The increase in our trading ticket volume is indicative of higher trading activity as compared to 2018.
Selling, General and Administrative Expenses — Wholesale Trading & Ancillary Services
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Selling, general and administrative expenses
$
(22,274
)
 
(0.471
)%
 
$
(21,096
)
 
(0.280
)%
 
$
1,178

 
5.6
%
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses for the year ended June 30, 2019 increased $1.2 million, or 5.6%, to $22.3 million from $21.1 million in 2018. The increase is mainly driven by higher overall compensation costs of $2.6 million, partially offset by a decrease in IT consulting costs of $0.8 million, lower investigatory acquisition costs of $0.6 million, and lower legal costs of $0.4 million,
 

32

Table of Contents            

Interest Income — Wholesale Trading & Ancillary Services
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Interest income
$
8,601

 
0.182
%
 
$
6,473

 
0.086
%
 
$
2,128

 
32.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Interest income for the year ended June 30, 2019 increased $2.1 million, or 32.9%, to $8.6 million from $6.5 million in 2018. The aggregate increase in interest income increased primarily due to other finance product income. Our finance fees earned from repurchase arrangements with customers increased by 30.1% or by $1.7 million in comparison to the same year-ago period.
Interest Expense — Wholesale Trading & Ancillary Services
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
Interest expense
$
(9,626
)
 
(0.203
)%
 
$
(7,778
)
 
(0.103
)%
 
$
1,848

 
23.8
%
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense for the year ended June 30, 2019 increased $1.8 million, or 23.8% to $9.6 million from $7.8 million in 2018. The increase was related primarily to interest expense on this segment's source of financing provided by the Trading Credit Facility and the recently issued Notes (both of which carried a higher interest rate than the prior year), as well as higher interest related to liabilities on borrowed metal, partially offset by a reduction in interest expense on our product financing arrangements. As compared to the same year-ago period, the following interest expense components increased: (i) $1.4 million related to our Notes, (ii) $0.6 million, related to our Trading Credit Facility, (iii) $1.0 million, related to our liability on borrowed metals, which was partially offset by a decrease of (iv) $(1.1) million related to product financing arrangements.

33

Table of Contents            

Results of Operations — Secured Lending Segment
Overview of Results of Operations for the Years Ended June 30, 2019 and 2018
The operating results of our Secured Lending segment for the years ended June 30, 2019 and 2018 are as follows:
in thousands, except performance metrics
Years Ended June 30,
2019
 
2018
 
$
 
%
 
$
 
% of interest income
 
$
 
% of interest income
 
Increase/(decrease)
 
Increase/(decrease)
Interest income
$
10,657

 
100.000
 %
 
$
9,632

 
100.000
 %
 
$
1,025

 
10.6
 %
Interest expense
(7,178
)
 
(67.355
)%
 
(5,465
)
 
(56.738
)%
 
$
1,713

 
31.3
 %
Selling, general and administrative expenses
(1,456
)
 
(13.662
)%
 
(1,689
)
 
(17.535
)%
 
$
(233
)
 
(13.8
)%
Other income, net
105

 
0.985
 %
 

 
 %
 
$
105

 
NM

Net income before provision for income taxes
$
2,128

 
19.968
 %
 
$
2,478

 
25.727
 %
 
$
(350
)
 
(14.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
Performance Metrics:
 
 
 
 
 
 
 
 
 
 
 
Number of secured loans at period end (1)
2,806

 
 
 
3,507

 
 
 
(701
)
 
(20.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
_________________________________
 
 
 
 
NM
 
Not meaningful.
 
 
 
 
 
(1)
 
Number of outstanding secured loans to customers at the end of the period.
 

34

Table of Contents            

Interest Income — Secured Lending
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018     
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands, except performance metric
$
 
% of interest income
 
$
 
% of interest income
 
Increase/(decrease)
 
Increase/(decrease)
Interest income
$
10,657

 
100.000
%
 
$
9,632

 
100.000
%
 
$
1,025

 
10.6
 %
Performance Metric
 
 
 
 
 
 
 
 
 
 
 
Number of secured loans at period-end
2,806

 
 
 
3,507

 
 
 
(701
)
 
(20.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Interest income for the year ended June 30, 2019 increased $1.0 million, or 10.6%, to $10.7 million from $9.6 million in 2018. This increase was primarily due to increases in interest rates (a weighted average interest rate of 10.2% for fiscal 2019, compared to a weighted average interest rate of 9.6% for fiscal 2018) and an increase in the value of the secured loan portfolio ($125.3 million as of June 30, 2019 compared to $110.4 million as of June 30, 2018). Despite the increase in value of the loan portfolio, the number of secured loans outstanding decreased by 20.0% to 2,806 from 3,507 in 2018. This decrease was due to lower metal prices in the first quarter of fiscal 2019 that lowered the customer's collateral value, which lead to loans being liquidated. The Company did not incur any loan losses from the liquidations.
Interest Expense — Secured Lending
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of interest income
 
$
 
% of interest income
 
Increase/(decrease)
 
Increase/(decrease)
Interest expense
$
(7,178
)
 
(67.355
)%
 
$
(5,465
)
 
(56.738
)%
 
$
1,713

 
31.3
%
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense for the year ended June 30, 2019 increased $1.7 million, or 31.3% to $7.2 million from $5.5 million in 2018. The increase was related primarily to our issuance of Notes (with an aggregate principal value and aggregate stated interest rate of $100.0 million and 5.3%, respectively, in the first quarter of fiscal 2019 and a shift in the source of financing (for originating and acquiring secured loans by the Secured Lending segment) from the Trading Credit Facility to the newly issued Notes (which carry a higher overall interest rate). As compared to the same year-ago period, interest expense increased by $2.9 million as a result of our recently issued Notes partially offset by $(0.9) million associated with our Trading Credit Facility.
Selling, General and Administrative Expenses — Secured Lending
Year Ended June 30, 2019 Compared to Year Ended June 30, 2018
Years Ended June 30,
2019
 
2018
 
$
 
%
in thousands
$
 
% of interest income
 
$
 
% of interest income
 
Increase/(decrease)
 
Increase/(decrease)
Selling, general and administrative expenses
$
(1,456
)
 
(13.662
)%
 
$
(1,689
)
 
(17.535
)%
 
$
(233
)
 
(13.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses for the year ended June 30, 2019 decreased $233,000, or 13.8%, to $1.5 million from $1.7 million in 2018.

35

Table of Contents            

Results of Operations — Direct Sales Segment
Overview of Results of Operations for the Years Ended June 30, 2019 and 2018
The Direct Sales segment was formed on August 28, 2017 as a result of the Goldline acquisition. Accordingly, comparative prior period data only contains approximately ten months of activity. The operating results of our Direct Sales segment for the years ended June 30, 2019 and 2018 are as follows:
in thousands, except performance metrics
 
Years Ended June 30,
2019
 
2018
 
$
 
%
 
 
$
 
% of revenue
 
$
 
% of revenue
 
Increase/(decrease)
 
Increase/(decrease)
 
Revenues
$
49,357

(a) 
100.000
 %
 
$
67,392

(c) 
100.000
 %
 
$
(18,035
)
 
(26.8
)%
 
Gross profit
5,688

 
11.524
 %
(b) 
5,334

 
7.915
 %
(d) 
$
354

 
6.6
 %
 
Selling, general and administrative expenses
(8,772
)
 
(17.773
)%
 
(10,613
)
 
(15.748
)%
 
$
(1,841
)
 
(17.3
)%
 
Goodwill and intangible asset impairment

 
 %
 
(2,654
)
 
(3.938
)%
 
$
(2,654
)
 
(100.0
)%
 
Interest income
12

 
0.024
 %
 

 
 %
 
$
12

 
 %
 
Interest expense
(342
)
 
(0.693
)%
 
(648
)
 
(0.962
)%
 
$
(306
)
 
(47.2
)%
 
Other expense
(157
)
 
(0.318
)%
 

 
 %
 
$
157

 
NM

 
Net loss before provision for income taxes
$
(3,571
)
 
(7.235
)%
 
$
(8,581
)
 
(12.733
)%
 
$
(5,010
)
 
(58.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Metrics:
 
 
 
 
 
 
 
 
 
 
 
 
Gold ounces sold(1)
16,000

 
 
 
17,000

 
 
 
(1,000
)
 
(5.9
)%
 
Silver ounces sold(2)
1,067,000

 
 
 
421,000

 
 
 
646,000

 
153.4
 %