10-Q 1 amrk-10q_20201231.htm 10-Q amrk-10q_20201231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended December 31, 2020

OR

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

 

For the transition period from ________ to ________

Commission File Number: 001-36347

 

A-MARK PRECIOUS METALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State of Incorporation)

 

11-2464169

(IRS Employer I.D. No.)

 

2121 Rosecrans Ave. Suite 6300
El Segundo, CA 90245

(Address of principal executive offices)(Zip Code)

(310) 587-1477

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section  12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

AMRK

NASDAQ Global Select Market

 

 

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.    No. 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes.    No. 

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. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

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.    No. 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of February 4, 2021, the registrant had 7,195,434 shares of common stock outstanding, par value $0.01 per share.

 

 

 


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

For the Six Months Ended December 31, 2020

TABLE OF CONTENTS

 

 

PART I — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Condensed Consolidated Financial Statements and Notes thereof

 

 

Page

Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020

3

Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2020 and 2019

5

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended December 31, 2020 and 2019

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and 2019

7

Notes to Consolidated Financial Statements

8

Note 1. Description of Business

8

Note 2. Summary of Significant Accounting Policies

9

Note 3. Assets and Liabilities, at Fair Value

18

Note 4. Receivables

21

Note 5. Secured Loans Receivable

21

Note 6. Inventories

23

Note 7. Property, Plant, and Equipment

25

Note 8. Goodwill and Intangible Assets

25

Note 9. Long-Term Investments

26

Note 10. Accounts Payable and Other Current Liabilities

27

Note 11. Derivative Instruments and Hedging Transactions

27

Note 12. Income Taxes

30

Note 13. Related Party Transactions

31

Note 14. Financing Agreements

33

Note 15. Commitments and Contingencies

35

Note 16. Stockholders' Equity

35

Note 17. Customer and Supplier Concentrations

37

Note 18. Segments and Geographic Information

38

Note 19. Subsequent Events

42

 

2


A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

 

 

December 31,

2020

 

 

 

June 30,

2020

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash(1)

 

$

14,922

 

 

 

$

52,325

 

Receivables, net(1)

 

 

101,864

 

 

 

 

49,142

 

Derivative assets(1)

 

 

57,849

 

 

 

 

46,325

 

Secured loans receivable(1)

 

 

95,817

 

 

 

 

63,710

 

Precious metals held under financing arrangements(1)

 

 

160,255

 

 

 

 

178,577

 

Inventories:

 

 

 

 

 

 

 

 

 

Inventories(1)

 

 

245,151

 

 

 

 

246,603

 

Restricted inventories

 

 

272,531

 

 

 

 

74,678

 

 

 

 

517,682

 

 

 

 

321,281

 

Prepaid expenses and other assets(1)

 

 

3,131

 

 

 

 

2,659

 

Total current assets

 

 

951,520

 

 

 

 

714,019

 

Operating lease right of use assets

 

 

3,642

 

 

 

 

4,223

 

Property, plant, and equipment, net

 

 

5,913

 

 

 

 

5,675

 

Goodwill

 

 

8,881

 

 

 

 

8,881

 

Intangibles, net

 

 

4,657

 

 

 

 

4,974

 

Long-term investments

 

 

30,013

 

 

 

 

16,763

 

Other long-term assets

 

 

2,500

 

 

 

 

3,500

 

Total assets

 

$

1,007,126

 

 

 

$

758,035

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Lines of credit

 

$

175,000

 

 

 

$

135,000

 

Liabilities on borrowed metals

 

 

141,796

 

 

 

 

168,206

 

Product financing arrangements

 

 

272,531

 

 

 

 

74,678

 

Accounts payable and other current liabilities

 

 

142,372

 

 

 

 

140,930

 

Derivative liabilities(1)

 

 

50,809

 

 

 

 

25,414

 

Accrued liabilities(1)

 

 

9,431

 

 

 

 

10,397

 

Income tax payable

 

 

715

 

 

 

 

2,135

 

Total current liabilities

 

 

792,654

 

 

 

 

556,760

 

Notes payable(1)

 

 

92,874

 

 

 

 

92,517

 

Deferred tax liabilities

 

 

62

 

 

 

 

62

 

Other liabilities

 

 

3,108

 

 

 

 

3,802

 

Total liabilities

 

 

888,698

 

 

 

 

653,141

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, authorized 10,000,000 shares; issued

   and outstanding: none as of December 31, 2020 and June 30, 2020

 

 

 

 

 

 

 

Common stock, par value $0.01; 40,000,000 shares authorized; 7,131,462

   and 7,031,500 shares issued and outstanding as of December 31, 2020

   and June 30, 2020, respectively

 

 

72

 

 

 

 

71

 

Additional paid-in capital

 

 

29,093

 

 

 

 

27,289

 

Retained earnings

 

 

84,461

 

 

 

 

73,644

 

Total A-Mark Precious Metals, Inc. stockholders’ equity

 

 

113,626

 

 

 

 

101,004

 

Non-controlling interests

 

 

4,802

 

 

 

 

3,890

 

Total stockholders’ equity

 

 

118,428

 

 

 

 

104,894

 

Total liabilities, non-controlling interests and stockholders’ equity

 

$

1,007,126

 

 

 

$

758,035

 

 

(1)

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

 

 

 

See accompanying

3


Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands) (unaudited)

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

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

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

 

 

 

December 31,

2020

 

 

 

June 30,

2020

 

ASSETS OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Cash

 

$

3,529

 

 

 

$

26,697

 

Receivables, net

 

 

446

 

 

 

 

3,005

 

Secured loans receivable

 

 

69,937

 

 

 

 

34,739

 

Precious metals held under financing arrangements

 

 

27,889

 

 

 

 

20,968

 

Inventories

 

 

7,907

 

 

 

 

24,057

 

Prepaid expenses and other assets

 

 

42

 

 

 

 

16

 

Total assets of the consolidated variable interest entity

 

$

109,750

 

 

 

$

109,482

 

LIABILITIES OF THE CONSOLIDATED VIE

 

 

 

 

 

 

 

 

 

Deferred payment obligations(1)

 

$

15,010

 

 

 

$

13,275

 

Derivative liabilities

 

 

87

 

 

 

 

541

 

Accrued liabilities

 

 

728

 

 

 

 

387

 

Notes payable(2)

 

 

97,875

 

 

 

 

97,517

 

Total liabilities of the consolidated variable interest entity

 

$

113,700

 

 

 

$

111,720

 

 

 

 

 

 

 

 

 

 

 

 

(1)

This is an intercompany balance, which is eliminated in consolidation and hence it is not shown on the condensed consolidated balance sheets.

(2)

$5.0 million of the Notes are held by A-Mark, which is eliminated in consolidation and hence not shown on the condensed consolidated balance sheets.

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

 

 

4


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Revenues

 

$

1,518,744

 

 

 

$

1,055,590

 

 

 

 

3,384,860

 

 

 

$

2,536,604

 

Cost of sales

 

 

1,499,993

 

 

 

 

1,047,459

 

 

 

 

3,329,964

 

 

 

 

2,520,133

 

Gross profit

 

 

18,751

 

 

 

 

8,131

 

 

 

 

54,896

 

 

 

 

16,471

 

Selling, general, and administrative expenses

 

 

(9,033

)

 

 

 

(7,870

)

 

 

 

(19,039

)

 

 

 

(16,140

)

Interest income

 

 

4,533

 

 

 

 

6,232

 

 

 

 

8,516

 

 

 

 

12,000

 

Interest expense

 

 

(5,037

)

 

 

 

(5,081

)

 

 

 

(9,330

)

 

 

 

(10,223

)

Other income (expense), net

 

 

2,567

 

 

 

 

150

 

 

 

 

7,052

 

 

 

 

(16

)

Unrealized gains (losses) on foreign exchange

 

 

19

 

 

 

 

125

 

 

 

 

(78

)

 

 

 

3

 

Net income before provision for income taxes

 

 

11,800

 

 

 

 

1,687

 

 

 

 

42,017

 

 

 

 

2,095

 

Income tax expense

 

 

(2,586

)

 

 

 

(432

)

 

 

 

(9,097

)

 

 

 

(537

)

Net income

 

 

9,214

 

 

 

 

1,255

 

 

 

 

32,920

 

 

 

 

1,558

 

Net income attributable to non-controlling interests

 

 

289

 

 

 

 

21

 

 

 

 

912

 

 

 

 

196

 

Net income attributable to the Company

 

$

8,925

 

 

 

$

1,234

 

 

 

$

32,008

 

 

 

$

1,362

 

Basic and diluted net income per share attributable

   to A-Mark Precious Metals, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.26

 

 

 

$

0.17

 

 

 

$

4.53

 

 

 

$

0.19

 

Diluted

 

$

1.16

 

 

 

$

0.17

 

 

 

$

4.21

 

 

 

$

0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,063,000

 

 

 

 

7,031,400

 

 

 

 

7,064,800

 

 

 

 

7,031,400

 

Diluted

 

 

7,713,300

 

 

 

 

7,056,300

 

 

 

 

7,610,400

 

 

 

 

7,074,800

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

5


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

 

 

 

 

Common

Stock

(Shares)

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

A-Mark

Precious

Metals, Inc.

Stockholders'

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance, June 30, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,452

 

 

 

43,135

 

 

 

69,658

 

 

 

2,908

 

 

 

72,566

 

Net income

 

 

 

 

 

 

 

 

 

 

 

128

 

 

 

128

 

 

 

175

 

 

 

303

 

Share-based compensation

 

 

 

 

 

 

 

 

166

 

 

 

 

 

 

166

 

 

 

 

 

 

166

 

Balance, September 30, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,618

 

 

 

43,263

 

 

 

69,952

 

 

 

3,083

 

 

 

73,035

 

Net income

 

 

 

 

 

 

 

 

-

 

 

 

1,234

 

 

 

1,234

 

 

 

21

 

 

 

1,255

 

Share-based compensation

 

 

 

 

 

 

 

 

244

 

 

 

 

 

 

244

 

 

 

 

 

 

244

 

Balance, December 31, 2019

 

 

7,031,450

 

 

 

71

 

 

 

26,862

 

 

 

44,497

 

 

 

71,430

 

 

 

3,104

 

 

 

74,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

(Shares)

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Total

A-Mark

Precious

Metals, Inc.

Stockholders'

Equity

 

 

Non-

Controlling

Interests

 

 

Total

Stockholders’

Equity

 

Balance, June 30, 2020

 

 

7,031,500

 

 

 

71

 

 

 

27,289

 

 

 

73,644

 

 

 

101,004

 

 

 

3,890

 

 

 

104,894

 

Net income

 

 

 

 

 

 

 

 

 

 

 

23,083

 

 

 

23,083

 

 

 

623

 

 

 

23,706

 

Share-based compensation

 

 

 

 

 

 

 

 

178

 

 

 

 

 

 

178

 

 

 

 

 

 

178

 

Net settlement on issuance of common shares on exercise of options

 

 

35,030

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

 

 

 

 

 

416

 

Dividends declared ($1.50 per common share)

 

 

 

 

 

 

 

 

 

 

 

(10,553

)

 

 

(10,553

)

 

 

 

 

 

(10,553

)

Balance, September 30, 2020

 

 

7,066,530

 

 

 

71

 

 

 

27,883

 

 

 

86,174

 

 

 

114,128

 

 

 

4,513

 

 

 

118,641

 

Net income

 

 

 

 

 

 

 

 

 

 

 

8,925

 

 

 

8,925

 

 

 

289

 

 

 

9,214

 

Share-based compensation

 

 

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

 

 

 

 

 

210

 

Net settlement on issuance of common shares on exercise of options

 

 

64,932

 

 

 

1

 

 

 

1,000

 

 

 

 

 

 

1,001

 

 

 

 

 

 

1,001

 

Dividends declared ($1.50 per common share)

 

 

 

 

 

 

 

 

 

 

 

(10,638

)

 

 

(10,638

)

 

 

 

 

 

(10,638

)

Balance, December 31, 2020

 

 

7,131,462

 

 

 

72

 

 

 

29,093

 

 

 

84,461

 

 

 

113,626

 

 

 

4,802

 

 

 

118,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements

 

 

 

6


 

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands) (unaudited)

 

Six Months Ended December 31,

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

32,920

 

 

$

1,558

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,006

 

 

 

1,334

 

Amortization of loan cost

 

 

968

 

 

 

730

 

Deferred income taxes

 

 

 

 

 

474

 

Interest added to principal of secured loans

 

 

(4

)

 

 

(10

)

Share-based compensation

 

 

388

 

 

 

410

 

Earnings from equity method investments

 

 

(6,488

)

 

 

(114

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(52,722

)

 

 

2,297

 

Secured loans receivable

 

 

(309

)

 

 

2,131

 

Secured loans made to affiliates

 

 

8,662

 

 

 

5,108

 

Derivative assets

 

 

(11,524

)

 

 

(2,931

)

Income tax receivable

 

 

 

 

 

7

 

Precious metals held under financing arrangements

 

 

18,322

 

 

 

11,820

 

Inventories

 

 

(196,401

)

 

 

29,930

 

Prepaid expenses and other assets

 

 

(532

)

 

 

359

 

Accounts payable and other current liabilities

 

 

1,442

 

 

 

174

 

Derivative liabilities

 

 

25,395

 

 

 

(923

)

Liabilities on borrowed metals

 

 

(26,410

)

 

 

(8,255

)

Accrued liabilities

 

 

(1,068

)

 

 

(743

)

Income tax payable

 

 

(1,420

)

 

 

 

Net cash (used in) provided by operating activities

 

 

(207,775

)

 

 

43,356

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(937

)

 

 

(455

)

Purchase of long-term investments

 

 

(6,763

)

 

 

 

Purchase of intangible assets

 

 

 

 

 

(150

)

Secured loans receivable, net

 

 

(40,456

)

 

 

(34,274

)

Other secured loans, net

 

 

1,000

 

 

 

(3,500

)

Net cash used in investing activities

 

 

(47,156

)

 

 

(38,379

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Product financing arrangements, net

 

 

197,853

 

 

 

(14,739

)

Dividends paid

 

 

(21,191

)

 

 

 

Borrowings and repayments under lines of credit, net

 

 

40,000

 

 

 

13,000

 

Debt funding issuance costs

 

 

(551

)

 

 

 

Net settlement on issuance of common shares on exercise of options

 

 

1,417

 

 

 

 

Net cash provided by (used in) financing activities

 

 

217,528

 

 

 

(1,739

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(37,403

)

 

 

3,238

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

52,325

 

 

 

8,320

 

Cash, cash equivalents, and restricted cash, end of period

 

$

14,922

 

 

$

11,558

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

7,721

 

 

$

10,026

 

Income taxes paid

 

$

11,561

 

 

$

50

 

Income taxes refunded

 

$

(1,044

)

 

$

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Interest added to principal of secured loans

 

$

4

 

 

$

10

 

 

 

 

 

See accompanying

7


Notes to Condensed Consolidated Financial Statements

A-MARK PRECIOUS METALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. DESCRIPTION OF BUSINESS

Basis of Presentation

The condensed consolidated financial statements comprise those of A-Mark Precious Metals, Inc. ("A-Mark" or the "Company"), its wholly owned consolidated subsidiaries, and its joint ventures in which the Company has a controlling interest.

Business Segments

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

The Wholesale Sales & Ancillary Services segment name change was to the name only and had no impact on the Company's historical financial position, results of operations, cash flow or segment level results previously reported.

Wholesale Sales & Ancillary Services

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

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

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

Through our partially-owned subsidiary, AM&ST Associates, LLC. ("AMST" or "SilverTowne" or the "Mint"), the Company designs and produces minted silver products. The Company operates the Mint pursuant to a joint venture agreement with SilverTowne, L.P.  The Company and SilverTowne L.P. own 69% and 31%, respectively, of AMST.

Secured Lending

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

AM Capital Funding, LLC. (“AMCF”), a wholly owned subsidiary of CFC, was formed for the purpose of securitizing eligible secured loans of CFC.  AMCF issued and administers the Notes. For additional information, see Note 14.

Direct Sales

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

AM IP LLC. ("AMIP"), a wholly owned subsidiary of Goldline, manages its intellectual property.

Precious Metals Purchasing Partners, LLC, ("PMPP"), is a 50% owned subsidiary of Goldline.  PPMP acquires precious metals from retail customers and resells the metals to partners or affiliates of the joint venture.

8


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Comprehensive Income

For the six months ended December 31, 2020 and 2019, there were no items that gave rise to other comprehensive income or loss, and, as a result net income equaled comprehensive income.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. These estimates include, among others, determination of fair value, allowances for doubtful accounts, impairment assessments of property, plant and equipment and intangible assets, valuation allowance determination on deferred tax assets, determining the incremental borrowing rate for calculating right of use assets and lease liabilities, and revenue recognition judgments. Significant estimates also include the Company's fair value determination with respect to its financial instruments and precious metals inventory. Actual results could materially differ from these estimates.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the condensed consolidated balance sheets, condensed consolidated statements of income, condensed consolidated statements of stockholders’ equity, and condensed consolidated statements of cash flows for the periods presented in accordance with U.S. GAAP. Operating results for the six months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2021 or for any other interim period during such fiscal year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended 2020 (the “2020 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2020 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2020 Annual Report.

Fair Value Measurement

The Fair Value Measurements and Disclosures Topic 820 of the ASC ("ASC 820"), creates a single definition of fair value for financial reporting. The rules associated with ASC 820 state that valuation techniques consistent with the market approach, income approach, and/or cost approach should be used to estimate fair value. Selection of a valuation technique, or multiple valuation techniques, depends on the nature of the asset or liability being valued, as well as the availability of data. (See Note 3.)

Concentration of Credit Risk

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

Assets that potentially subject the Company to concentrations of credit risk consist principally of receivables, loans of inventory to customers, and inventory hedging transactions. Concentration of credit risk with respect to receivables is limited due to the large number of customers composing the Company's customer base, the geographic dispersion of the customers, and the collateralization of substantially all receivable balances. Based on an assessment of credit risk, the Company typically grants collateralized credit to its customers. Credit risk with respect to loans of inventory to customers is minimal. The Company enters into inventory hedging

9


transactions, principally utilizing metals commodity futures contracts traded on national futures exchanges or forward contracts with credit worthy financial institutions.  All of our commodity derivative contracts are under master netting arrangements and include both asset and liability positions. Substantially all of these transactions are secured by the underlying metals positions.

Foreign Currency

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

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

Variable Interest Entity

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

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

AMCF, a wholly owned subsidiary of CFC, is a special purpose entity ("SPE") formed as part of a securitization transaction in order to isolate certain assets and distribute the cash flows from those assets to investors. AMCF was structured to insulate investors from claims on AMCF’s assets by creditors of other entities.  The Company has various forms of ongoing involvement with AMCF, which may include (i) holding senior or subordinated interests in AMCF; (ii) acting as loan servicer for a portfolio of loans held by AMCF; and (iii) providing administrative services to AMCF. AMCF is required to maintain separate books and records. The assets and liabilities of this VIE, as of December 31, 2020 and June 30, 2020, are indicated on the table that follows the condensed consolidated balance sheets.

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company does not have any cash equivalents as of December 31, 2020 and June 30, 2020.

As of December 31, 2020 and June 30, 2020, the Company has $0.2 million and $0.2 million, respectively, in a bank account that is restricted and serves as collateral against a standby letter of credit issued by the bank in favor of the landlord for our office space in Los Angeles, California.

Precious Metals held under Financing Arrangements

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

10


These arrangements are typically terminable by either party upon 14 days' notice.  Upon termination, the customer’s right to repurchase any remaining precious metal is forfeited, and the related precious metals are reclassified as inventory held for sale. As of December 31, 2020 and June 30, 2020, precious metals held under financing arrangements totaled $160.3 million and $178.6 million respectively.

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

Inventories

The Company's inventory primarily includes bullion and bullion coins, which is acquired and initially recorded at cost and then marked to fair market value.  The fair market value of the bullion and bullion coins comprises two components: (i) published market values attributable to the costs of the raw precious metal, and (ii) a published premium paid at acquisition of the metal. The premium is attributable to the additional value of the product in its finished goods form, and the market value attributable solely to the premium may be readily determined, as it is published by multiple reputable sources.

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

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

Leased Right of Use Assets

We lease warehouse space, office facilities, and equipment. Our operating leases with terms longer than twelve months are recorded at the sum of the present value of the lease's fixed minimum payments as operating lease right of use assets ("ROU assets") in the condensed consolidated balance sheets.  Our finance leases (previously considered by the Company as capital leases prior to our adoption of ASC 842) are another type of ROU asset, but are classified in the condensed consolidated balance sheets as a component of property, plant, and equipment at the present value of the lease payments.

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

Operating lease cost is recognized on a straight-line basis over the lease term. Finance lease cost is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. The depreciable life of ROU assets is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Components of operating lease expense for the three and six months ended December 31, 2020 and 2019 were as follows:

 

in thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

 

 

December 31,

2020

 

 

 

December 31,

2019

 

Operating lease costs

 

$

350

 

 

 

$

350

 

 

 

$

699

 

 

 

$

699

 

Short term and variable lease costs

 

 

91

 

 

 

 

99

 

 

 

 

224

 

 

 

 

192

 

Finance lease costs

 

 

5

 

 

 

 

5

 

 

 

 

11

 

 

 

 

11

 

Sublease income

 

 

 

 

 

 

(27

)

 

 

 

 

 

 

 

(54

)

Total lease costs, net

 

$

446

 

 

 

$

427

 

 

 

$

934

 

 

 

$

848

 

 

11


For the six months ended December 31, 2020 and 2019, we made cash payments for operating lease obligations of $0.8 million and $0.7 million, respectively. These payments are included in operating cash flows.  At December 31, 2020, the weighted-average remaining lease term under our capitalized operating leases was 4.2 years, while the weighted-average discount rate for our operating leases was approximately 4.9%.

The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities, as of December 31, 2020:

 

Years ending June 30,

 

Operating

Leases

 

 

2021 (6 months remaining)

 

 

767

 

 

2022

 

 

1,313

 

 

2023

 

 

834

 

 

2024

 

 

860

 

 

2025

 

 

816

 

 

Thereafter

 

 

370

 

 

Total lease payments

 

 

4,960