SPECTRUM GROUP INTERNATIONAL, INC. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - SPECTRUM GROUP INTERNATIONAL, INC.	v55149exv31w1.htm
EX-31.2 - EX-31.2 - SPECTRUM GROUP INTERNATIONAL, INC.	v55149exv31w2.htm
EX-32.1 - EX-32.1 - SPECTRUM GROUP INTERNATIONAL, INC.	v55149exv32w1.htm
EX-32.2 - EX-32.2 - SPECTRUM GROUP INTERNATIONAL, INC.	v55149exv32w2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended December 31, 2009


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

For the transition period from to

Commission File Number: 1-11988

SPECTRUM GROUP INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		22-2365834

(State of Incorporation)		(IRS Employer I.D. No.)

18061 Fitch
Irvine, CA 92614

(Address of Principal Executive Offices) (Zip Code)

(949) 955-1250

Registrant’s Telephone Number, Including Area Code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

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

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

Large accelerated filer o

Accelerated Filer o

Non-accelerated filer o
(Do not check if smaller reporting company)

Smaller reporting company þ

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

Number of shares outstanding of each of the issuer’s classes of common stock as of February 9, 2010:

31,892,416 shares of Common Stock, $.01 par value per share.

SPECTRUM GROUPS INTERNATIONAL, INC.
FORM 10-Q
For the Quarter Ended December 31, 2009

Table of Contents


			Page
Part I.	Financial Information
	Item 1.	Condensed Consolidated Financial Statements (UNAUDITED):
		Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009		3
		Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2009 and 2008		4
		Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended December 31, 2009		5
		Condensed Consolidated Statements of Cash Flows for the Six Months ended December 31, 2009 and 2008		6

		Notes to Condensed Consolidated Financial Statements		7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39

	Item 4.	Controls and Procedures		39

Part II.	Other Information
	Item 1.	Legal Proceedings		40

	Item 1A.	Risk Factors		41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41

	Item 3.	Defaults Upon Senior Securities		41

	Item 4.	Submission of Matters to a Vote of Security Holders		41

	Item 5.	Other Information		42

	Item 6.	Exhibits		42

Signature				43

Exhibits
	Exhibits 31.1	Certification of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002		44

	Exhibits 31.2	Certification of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002		45

	Exhibits 32.1	Certification of Chief Executive Officer Under Section 906 of the Sarbanes-Oxley Act of 2002		46

	Exhibits 32.2	Certification of Chief Financial Officer Under Section 906 of the Sarbanes-Oxley Act of 2002		47
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I—FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS

SPECTRUM GROUP INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)


	December 31,			June 30,
	2009			2009⁽¹⁾
				(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	16,934		$	17,545
Restricted cash		—			650
Short-term investments and marketable securities		5,375			8,175
Receivables and secured loans, net — trading operations		47,990			46,214
Accounts receivable and consignor advances, net — collectibles operations		7,125			7,006
Inventory, net		129,178			115,654
Prepaid expenses and other assets		2,305			2,028

Total current assets		208,907			197,272
Property and equipment, net		2,505			2,668
Goodwill		6,208			5,960
Other purchased intangibles, net		8,033			8,301
Other assets		297			126
Income tax receivables		6,584			3,424
Deferred tax assets		125			398

Total assets	$	232,659		$	218,149


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, customer deposits and consignor payables	$	30,690		$	20,788
Liability on borrowed metals		32,712			15,100
Accrued expenses and other current liabilities		10,784			22,970
Accrued litigation settlement		—			6,556
Income taxes payable		6,691			6,582
Line of credit		48,350			52,750
Deferred tax liability		181			1,920
Other current liabilities		109			191

Total current liabilities		129,517			126,857
Deferred tax liability		2,018			189

Total liabilities		131,535			127,046

Commitments, contingencies and subsequent events
Stockholders’ equity:
Spectrum Group International, Inc. stockholders’ equity:
Preferred stock, $.01 par value, authorized 10,000 shares; issued and outstanding: none		—			—
Common stock, $.01 par value, authorized 40,000 shares; issued and outstanding: 31,893 and 28,309 at December 31, 2009 and June 30, 2009, respectively		319			283
Additional paid-in capital		240,549			233,385
Accumulated other comprehensive income		9,063			8,419
Accumulated deficit		(159,016	)		(161,298	)

Total Spectrum Group International, Inc. stockholders’ equity		90,915			80,789
Noncontrolling interest		10,209			10,314

Total stockholders’ equity		101,124			91,103

Total liabilities and stockholders’ equity	$	232,659		$	218,149

See accompanying notes to condensed consolidated financial statements


(1)		The condensed consolidated balance sheet as of June 30, 2009 has been derived from the audited consolidated financial statements included in the Company’s 2009 Annual Report on Form 10-K.

SPECTRUM GROUP INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
Revenues:
Sales of precious metals	$	1,664,296		$	973,251		$	2,593,176		$	1,979,189
Collectibles revenues:
Sales of inventory		37,445			30,326			79,919			64,459
Auction commissions earned		5,763			5,555			10,847			9,093

Total revenue		1,707,504			1,009,132			2,683,942			2,052,741

Cost of sales:
Cost of precious metals sold		1,658,153			957,868			2,582,713			1,956,420
Cost of collectibles sold		34,413			27,973			73,779			60,485

Total cost of sales		1,692,566			985,841			2,656,492			2,016,905

Gross profit		14,938			23,291			27,450			35,836

Operating expenses:
General and administrative		5,597			7,454			12,956			13,354
Salaries and wages		7,931			10,117			14,047			16,061
Depreciation and amortization		409			454			870			891

Total operating expenses		13,937			18,025			27,873			30,306

Operating income (loss)		1,001			5,266			(423	)		5,530

Interest and other income (expense):
Interest income		1,476			1,115			2,869			2,319
Interest expense		(431	)		(607	)		(800	)		(1,460	)
Other income (expense), net		(458	)		31			80			734
Unrealized (losses) gains on foreign exchange		484			639			(533	)		2,971

Total interest and other income		1,071			1,178			1,616			4,564

Income before income taxes		2,072			6,444			1,193			10,094
Income tax provision (benefit)		(424	)		1,243			(1,984	)		1,811

Net income		2,496			5,201			3,177			8,283
Less: Net income attributable to the noncontrolling interests		(482	)		(1,325	)		(895	)		(2,056	)

Net income attributable to Spectrum Group International, Inc.	$	2,014		$	3,876		$	2,282		$	6,227


Earnings per share attributable to Spectrum Group International, Inc.
Basic	$	0.06		$	0.12		$	0.07		$	0.21

Diluted	$	0.06		$	0.12		$	0.07		$	0.20

Weighted average shares outstanding
Basic		31,985			31,617			31,851			30,324

Diluted		32,953			32,318			32,819			31,036

See accompanying notes to condensed consolidated financial statements

SPECTRUM GROUP INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)


														Total Spectrum
								Accumulated						Group
	Common		Common		Additional			Other						International, Inc.
	Stock		Stock		Paid-in			Comprehensive			Accumulated			Stockholders’			Noncontrolling			Total Stockholders’
	in shares		in $		Capital			Income (Loss)			Deficit			Equity			Interest			Equity
Balance, June 30, 2009		28,309	$	283	$	233,385		$	8,419		$	(161,298	)	$	80,789		$	10,314		$	91,103
Net income		—		—		—			—			2,282			2,282			895			3,177
Changes in unrealized gain on marketable securities, net of tax		—		—		—			(183	)		—			(183	)		—			(183	)
Change in cumulative foreign currency translation adjustment		—		—		—			827			—			827			—			827
Dividend paid to noncontrolling interest		—		—		—			—			—			—			(1,000	)		(1,000	)
Issuance of common stock for vested restricted stock grants		306		3		(3	)		—			—			—			—			—
Taxes paid in exchange for cancellation of restricted shares		—		—		(110	)		—			—			(110	)		—			(110	)
Share based compensation		—		—		754			—			—			754			—			754
Issuance of common stock for legal settlement		3,278		33		6,523			—			—			6,556			—			6,556

Balance, December 31, 2009		31,893	$	319	$	240,549		$	9,063		$	(159,016	)	$	90,915		$	10,209		$	101,124

See accompanying notes to condensed consolidated financial statements

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


	Six Months Ended			Six Months Ended
	December 31, 2009			December 31, 2008
Cash flows from operating activities:
Net income	$	3,177		$	8,283
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization		870			891
Provision for bad debts		328			15
Provision for inventory reserves		263			730
Stock based compensation		754			435
Provision for deferred income taxes		362			53
Gain on sale of marketable securities		(106	)		—
Loss on abandonment of property and equipment		114			—
Changes in assets and liabilities:
Accounts receivable and consignor advances		(423	)		(1,365	)
Receivables and secured loans		(1,800	)		(8,216	)
Litigation settlement receivable		—			5,975
Inventory		(13,787	)		30,826
Prepaid expenses and other assets		(447	)		1,564
Accounts payable, accrued expenses and other liabilities		(2,502	)		12,651
Income taxes		(3,051	)		3,685
Accrued litigation settlement		—			(6,995	)

Net cash (used in) provided by operating activities		(16,248	)		48,532

Cash flows from investing activities:
Capital expenditures for property and equipment		(455	)		(318	)
Cash paid for acquisitions, net of cash acquired		(200	)		(672	)
Cash paid for other intangibles		(20	)		—
Maturity (purchase) of short term investments		1,885			(4,929	)
(Increase) decrease in restricted cash		650			(650	)
Sales (purchases) of marketable securities		848			(1,482	)

Net cash provided by (used in) investing activities		2,708			(8,051	)

Cash flows from financing activities:
Borrowings under lines of credit, net		(4,400	)		(48,447	)
Liability on borrowed metals		17,612			(3,717	)
Dividend paid to noncontrolling interest		(1,000	)		—
Taxes paid on behalf of employees with respect to vesting of restricted shares		(110	)		(98	)

Net cash provided by (used in) financing activities		12,102			(52,262	)

Effects of exchange rates on cash		827			(4,677	)

Net decrease in cash and cash equivalents		(611	)		(16,458	)
Cash and cash equivalents, beginning of period		17,545			35,860

Cash and cash equivalents, end of period	$	16,934		$	19,402

See accompanying notes to condensed consolidated financial statements

SPECTRUM GROUP INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements reflect the financial condition, results of operations, and cash flows of Spectrum Group International, Inc. (the “Company” or “SGI”) and its subsidiaries, prepared utilizing the accounting principles generally accepted in the United States of America. The Company conducts its operations in two reporting segments: trading and collectibles. Each of these reporting segments represent an aggregation of various operating segments that meet the aggregation criteria set forth in Segment Reporting Topic of the FASB Accounting Standards Codification.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary to present fairly the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss), and Condensed Consolidated Statements of Cash Flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for the three months and six months ended December 31, 2009 are not necessarily indicative of the results that may be expected for the year ending June 30, 2010, or for any other interim period during such year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with 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 June 30, 2009 (the “2009 Annual Report”), as filed with the SEC. Amounts related to disclosure of June 30, 2009 balances within these interim condensed consolidated financial statements were derived from the aforementioned audited consolidated financial statements and notes thereto included in the 2009 Annual Report.

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

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

Correction of an error

During the quarter ended December 31, 2009, the Company began efforts to develop an improved companywide financial consolidation process. The new process is intended to streamline the preparation of the Company’s consolidated financial statements and provide greater visibility into its divisional and consolidated results of operations and financial position. The newly-developed process was first implemented in conjunction with the reporting of the consolidated financial results included in this Quarterly Report on Form 10-Q.

In applying the new reporting process noted above, management of the Company became aware that certain numbers in the Company’s previously filed Report on Form 10-Q for the period ended September 30, 2009 and the Report on Form 10-K for the period ended June 30, 2009 will require corrections, primarily comprised of reclassifications within the Company’s Consolidated Statements of Operations. The need to adjust previously-reported amounts was identified principally as a result of the enhanced visibility provided by the new consolidation process.

The Company assessed the impact of the corrections on previously-reported numbers and concluded that such adjustments are immaterial to the consolidated financial statements and segmented financial data for each of such periods, individually and in the aggregate. In reaching this conclusion, management of the Company considered both the quantitative and qualitative characteristics of such adjustments.

The impact of the identified adjustments is limited to classification among individual line-items in the consolidated statement of operations. The adjustments had no impact on previously-reported net income or earnings per share data. Based upon the immateriality of the identified adjustments, the Company will not amend it previously-filed Reports on forms 10-K and 10-Q. The Company will, however, reflect the necessary corrections to the affected historical numbers, as may be reported in future Reports filed with the Securities and Exchange Commission.

Presented below is a summary of the impact of each adjustment of previously reported numbers, along with a description of the nature of the identified adjustments:

Correction of an error for the quarter ended September 30, 2009 and 2008:


	Quarter Ended September 30, 2009									Quarter Ended September 30, 2008
	As Originally						As			As Originally					As
	Reported			Adjustment			Corrected			Reported		Adjustment			Corrected
Revenue:
Sales of precious metals	$	930,472		$	(1,592	)	$	928,880	a	$	1,006,993	$	(1,055	)	$	1,005,938	a
Sales of inventory		44,173			(1,698	)		42,475	c		34,133		—			34,133
Auction commissions earned		4,072			1,011			5,083	a,c		3,926		(388	)		3,538	a

Total revenue		978,717			(2,279	)		976,438			1,045,052		(1,443	)		1,043,609


Cost of sales:
Cost of precious metals sold		926,026			(1,466	)		924,560	a		999,607		(1,055	)		998,552	a
Cost of collectibles sold		40,270			(904	)		39,366	b		32,620		(108	)		32,512	b

Total cost of sales		966,296			(2,370	)		963,926			1,032,227		(1,163	)		1,031,064

Gross profit		12,421			91			12,512			12,825		(280	)		12,545


Operating expenses:
General and administrative		7,028			331			7,359	a,b,c		6,180		(280	)		5,900	a,b
Salaries and wages		6,116			—			6,116			5,944		—			5,944
Depreciation and amortization		461			—			461			437		—			437

Total operating expenses		13,605			331			13,936			12,561		(280	)		12,281

Operating (loss) income		(1,184	)		(240	)		(1,424	)	$	264	$	—		$	264


Interest and other income (loss):
Interest income		1,393			—			1,393
Interest expense		(369	)		—			(369	)
Other income (expense), net		298			240			538	a,c
Unrealized gains (loss) on foreign exchange		(1,017	)		—			(1,017	)

Interest and other income (expense)		305			240			545


Income (loss) before income taxes and noncontrolling interest	$	(879	)	$	—		$	(879	)


(a)		Represents the elimination of intercompany transactions

(b)		Represents the reclassification of auction related expenses from cost of sales to selling, general and administrative

(c)		Represents other reclassifications including loss on sale of equipment and auction commissions

Correction of an error for the year ended June 30, 2009 and 2008:


	Year Ended June 30, 2009									Year Ended June 30, 2008
	As Originally						As			As Originally						As
	Reported			Adjustment			Corrected			Reported			Adjustment			Corrected
Revenue:
Sales of precious metals	$	4,126,909		$	(5,750	)	$	4,121,159	a	$	2,681,031		$	542		$	2,681,573	a
Sales of inventory		144,320			—			144,320			148,152			—			148,152
Auction commissions earned		22,113			(1,563	)		20,550	a		27,798			(1,322	)		26,476	a

Total revenue		4,293,342			(7,313	)		4,286,029			2,856,981			(780	)		2,856,201


Cost of sales:
Cost of precious metals sold		4,084,419			(6,422	)		4,077,997	a		2,666,955			2,991			2,669,946	a,b
Cost of collectibles sold		138,589			(1,357	)		137,232	b		133,295			(788	)		132,507	b

Total cost of sales		4,223,008			(7,779	)		4,215,229			2,800,250			2,203			2,802,453

Gross profit		70,334			466			70,800			56,731			(2,983	)		53,748


Operating expenses:
General and administrative		30,169			(206	)		29,963	a,b		33,051			(3,234	)		29,817	a,b
Salaries and wages		29,814			—			29,814			22,140			—			22,140
Depreciation and amortization		1,807			—			1,807			1,911			—			1,911
Litigation settlement		860			—			860			9,020			—			9,020

Total operating expenses		62,650			(206	)		62,444			66,122			(3,234	)		62,888

Operating (loss) income		7,684			672			8,356			(9,391	)		251			(9,140	)


Interest and other income (loss):
Interest income		5,614			—			5,614			3,504			—			3,504
Interest expense		(2,373	)		—			(2,373	)		(3,683	)		—			(3,683	)
Other income (expense), net		279			(672	)		(393	) a		80			(251	)		(171	) a
Unrealized gains (loss) on foreign exchange		3,068			—			3,068			(3,251	)		—			(3,251	)

Interest and other income (expense)		6,588			(672	)		5,916			(3,350	)		(251	)		(3,601	)


Income (loss) before income taxes and noncontrolling interest	$	14,272		$	—		$	14,272		$	(12,741	)	$	—		$	(12,741	)


(a)		Represents the elimination of intercompany transactions

(b)		Represents the reclassification of auction related expenses from/to cost of sales from/to selling, general and administrative

Business Segments

Trading

The Company’s trading business is conducted through A-Mark Precious Metals, Inc. (“A-Mark”) and its subsidiaries. A-Mark is a full-service precious metals trading company. Its products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain. The Company’s trading-related services include financing, leasing, consignment, hedging and various customized financial programs. The Company owns 80% of A-Mark through its 80% ownership interest in Spectrum PMI, Inc. (“SPMI”), which owns all of the common stock of A-Mark. The remaining 20% of SPMI is owned by Auctentia, S.L. (“Auctentia”), a wholly owned subsidiary of Afinsa Bienes Tangibles, S.A. (“Afinsa”), which, together with Auctentia, owns approximately 58% of the Company’s outstanding common stock. Through its subsidiary Collateral Finance Corporation (“CFC”), a licensed California Finance Lender, A-Mark offers loans on precious metals and rare coin collateral to coin dealers, collectors and investors.

Collectibles

The Company’s collectibles business operates as an integrated network of global companies concentrating on Philatelic (stamp) and Numismatic (coin) materials, rare and fine vintage wine, antique arms and armor, and historical memorabilia. Products are offered by way of auction or private treaty sales. The Company has offices and auction houses in the U.S., Europe and Asia. In addition to traditional live auctions, the Company also conducts Internet and telephone auctions.

European Operations

The European Operations (the “European Operations”) of the Company are comprised of ten (10) European companies, each of which is wholly owned by the Company. The European Operations are primarily engaged in the sale of philatelic material by auction.

Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies during the six months ended December 31, 2009. See Footnote 2 of the Company’s consolidated financial statements included in the Company’s 2009 Annual Report on Form 10-K for a comprehensive description of the Company’s significant accounting policies.

Comprehensive Income (Loss)

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

Following is our comprehensive income (loss) with the respective tax impacts for the six month periods ended December 31, 2009 and 2008:


	Six months ended			Six months ended
	December 31, 2009			December 31, 2008
	(in thousands)			(in thousands)

Net income	$	3,177		$	8,283

Other comprehensive income (loss), net of tax:
Changes in unrealized gain (loss) on marketable securities, net of tax		(183	)		(156	)
Foreign currency translation adjustment		827			(4,677	)

Other comprehensive income (loss)		644			(4,833	)

Less: Total comprehensive income attributable to noncontrolling interest		(895	)		(2,056	)

Total comprehensive income (loss) attributable to Spectrum Group International, Inc.	$	2,926		$	1,394

Foreign Currency Translation Gains (Losses)

The Company recognized gains and losses on foreign exchange in the consolidated statements of operations in connection with the translation of Euro-denominated loans totaling $26.3 million and $28.0 million at December 31, 2009 and June 30, 2009, respectively, owed by SGI and its US subsidiaries to certain of its subsidiaries included in its European Operations. The Company recognized an unrealized gain of $0.5 million and an unrealized loss of $(0.6) million for the three months and six months ended December 31, 2009, respectively. For the three months and six months ended December 31, 2008, the Company recognized unrealized gains of $0.6 million and $3.0 million, respectively, related to these foreign currency loans.

Income Taxes

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the provisions of the Income Taxes Topic of the FASB Accounting Standards Codification. The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company’s annual tax rate and in evaluating uncertainty in its tax positions. The Company recognizes a benefit for tax positions that it

believes will more likely than not be sustained upon examination. The amount of benefit recognized is the largest amount of benefit that the Company believes has more than a 50% probability of being realized upon settlement. The Company regularly monitors its tax positions and adjusts the amount of recognized tax benefit based on its evaluation of information that has become available since the end of its last financial reporting period. The annual tax rate includes the impact of these changes in recognized tax benefits. When adjusting the amount of recognized tax benefits, the Company does not consider information that has become available after the balance sheet date, but does disclose the effects of new information whenever those effects would be material to the Company’s consolidated financial statements. The difference between the amount of benefit taken or expected to be taken in a tax return and the amount of benefit recognized for financial reporting represents unrecognized tax benefits. These unrecognized tax benefits are presented in the consolidated balance sheet principally within income taxes payable.

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

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

The potential interest and/or penalties associated with an uncertain tax position are recorded in income tax on the consolidated statements of operations.

Earnings Per Share

Basic earnings per share does not include the effects of potentially dilutive stock options and other long-term incentive stock awards, and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Basic and diluted earnings per share include vested but unissued restricted stock. In computing basic and diluted earnings per share for all periods presented, the Company also included the impact of 3.3 million shares of common stock issued in connection to a legal settlement (See Note 12), as if these shares were issued on September 10, 2008 (the date of the execution of the settlement agreement). Diluted earnings per share reflects, in periods in which they have a dilutive effect, commitments to issue common stock and common stock issuable upon exercise of stock options, for periods in which the options’ exercise price is lower than the Company’s average share price for the period.

A reconciliation of shares used in calculating diluted earnings per common shares follows. In computing diluted earnings per share for the three months and six months ended December 31, 2009, the Company excluded options to purchase 359,075 shares of common stock and 37,500 stock appreciation rights (“SARS”) where exercise prices were in excess of the quoted market price of the Company’s common stock because inclusion would be anti-dilutive from both periods. In computing diluted earnings per share for the three months and six months ended December 31, 2008, the Company excluded options to purchase 375,450 and 363,825 shares of common stock, respectively, and 37,500 SARS for both periods where exercise prices were in excess of the quoted market price of the Company’s common stock because inclusion would be anti-dilutive at the end of each period. There is no dilutive effect of stock appreciation rights as such obligations are net settled and were out of the money at December 31, 2009 and 2008.

A reconciliation of basic and diluted shares is as follows:


	Three months ended		Three months ended		Six months ended		Six months ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(thousands of shares)		(thousands of shares)		(thousands of shares)		(thousands of shares)
Basic weighted average shares outstanding		31,985		31,617		31,851		30,324
Effect of common stock equivalents — stock options and stock issuable under employee compensation plans		968		701		968		712

Diluted weighted average shares outstanding		32,953		32,318		32,819		31,036

Subsequent Events

The Company has evaluated events subsequent to December 31, 2009 to assess the need for potential recognition or disclosure in this Report. Such events were evaluated through February 12, 2010, the date these condensed consolidated financial statements were issued. See further discussion in Note 17.

Recent Accounting Pronouncements

Recently issued accounting pronouncements: The Company adopted no accounting pronouncements during the quarter ended December 31, 2009 that had a material effect on the Company’s condensed consolidated financial statements.

Recently issued accounting pronouncements not yet adopted: The Company is not aware of any issued but not yet adopted accounting pronouncements that, when adopted, are expected to have a material impact on the Company’s condensed consolidated financial statements.

2. CUSTOMER CONCENTRATIONS

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


	Three months ended					Three months ended					Six months ended					Six months ended
	December 31, 2009					December 31, 2008					December 31, 2009					December 31, 2008
	(in thousands)					(in thousands)					(in thousands)					(in thousands)
	in $’s		as a %			in $’s		as a %			in $’s		as a %			in $’s		as a %
Total Trading segment revenue	$	1,664,296		100.0	%	$	973,251		100.0	%	$	2,593,176		100.0	%	$	1,979,189		100.0	%

Trading segment customer concentrations
Customer A	$	517,942		31.1	%	$	207,623		21.3	%	$	741,935		28.6	%	$	375,876		19.0	%

Total	$	517,942		31.1	%	$	207,623		21.3	%	$	741,935		28.6	%	$	375,876		19.0	%

Customers providing 10 percent or more of the Company’s Trading segment’s accounts receivable, excluding $16,631,000 and $17,727,000 secured loans, at December 31, 2009 and June 30, 2009, respectively, are listed below:


	December 31, 2009					June 30, 2009
	(in thousands)					(in thousands)
	in $’s		as a %			in $’s		as a %
Trading segment accounts receivable	$	29,009		100.0	%	$	16,205		100.0	%

Trading segment customer concentrations
Customer A	$	19,028		65.6	%	$	3,894		24.0	%
Customer B		1,964		6.8			2,535		15.6

Total	$	20,992		72.4	%	$	6,429		39.6	%

Customers providing 10 percent or more of the Company’s Trading segment’s secured loans at December 31, 2009 and June 30, 2009, respectively, are listed below:


	December 31, 2009					June 30, 2009
	(in thousands)					(in thousands)
	in $’s		as a %			in $’s		as a %
Trading segment secured loans	$	16,631		100.0	%	$	17,727		100.0	%

Trading segment customer concentrations
Customer A	$	2,869		17.3	%	$	3,043		17.2	%
Customer B		2,745		16.5			2,600		14.7
Customer C		2,502		15.0			2,502		14.1

Total	$	8,116		48.8	%	$	8,145		46.0	%

The loss of any of the above customers of the Trading segment could have a material adverse effect on the operations of the Company.

For the three months and six months ended December 31, 2009 and 2008 and as of December 31, 2009 and June 30, 2009, the Collectibles segment had no reportable concentrations.

3. RECEIVABLES

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


	December 31, 2009			June 30, 2009
	(in thousands)			(in thousands)
Customer trade receivables	$	22,053		$	9,138
Wholesale trade advances and other		1,743			3,493
Secured loans		16,631			17,727
Due from brokers		5,213			3,574

Subtotal		45,640			33,932
Less: allowance for doubtful accounts		(108	)		(319	)

Subtotal		45,532			33,613
Derivative assets — futures contracts		1,202			10,875
Derivative assets — forward contracts		1,256			1,726

Receivables, net	$	47,990		$	46,214

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

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

Secured loans represent short term loans made to customers of CFC. Loans are fully secured by bullion, numismatic and semi-numismatic material, which is held in safekeeping by CFC. For the six months ended December 31, 2009 and 2008, the loans carried a weighted average effective interest rate of 9.6% and 9.6%, respectively, per annum and mature in periods generally ranging from three months to one year.

Due from brokers principally consists of the margin requirements held at brokers related to open futures contracts.

The Company’s derivative asset represents the net fair value of the difference between market value and trade value at trade date for open metals purchase and sales contracts, as adjusted on a daily basis for changes in market values of the underlying metals, until settled. The Company’s derivative liability represents the net fair value of open metals forwards and futures contracts. The metals forwards and futures contracts are settled at contract settlement date.

Accounts receivable and consignor advances from the Company’s Collectibles segment consist of the following at December 31, 2009 and at June 30, 2009:


	December 31, 2009			June 30, 2009
	(in thousands)			(in thousands)
Auction and trade	$	7,626		$	7,555
Less: allowance for doubtful accounts		(501	)		(549	)

Accounts receivable from collectibles operations, net	$	7,125		$	7,006

The Company frequently extends trade credit in connection with its auction sales. The Company evaluates each customer’s creditworthiness on a case-by-case basis. Generally, the customers that receive trade credit are established collectors and professional dealers that have regularly purchased property at the Company’s auctions or whose reputation within the industry is known and

respected by the Company. The Company makes judgments as to the ability to collect outstanding auction and consignor advance receivables and provides allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. The Company continuously monitors payments from its customers and maintains allowances for doubtful accounts for estimated losses in the period they become probable. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available, the Company believes its allowance for doubtful accounts as of December 31, 2009 and as of June 30, 2009 is adequate. However, actual write-offs could exceed the recorded allowance.

Activity in the allowance for doubtful accounts for the six months ended December 31, 2009 (in thousands):


Balance, June 30, 2009	$	868
Provision for loss		328
Charge off to reserve		(612	)
Foreign currency exchange rate charges		25

Balance, December 31, 2009	$	609

4. INVENTORIES

The Trading segment’s inventories primarily include bullion and bullion coins and are stated at published market values plus purchase premiums paid on acquisition of the metal. The amount of premium included in the inventories at December 31, 2009 and June 30, 2009 totaled $805,000 and $1,477,000, respectively. Commemorative coins and other products, which are not hedged, are included in inventory at the lower of cost or market totaled $2,295,000 and $3,413,000 at December 31, 2009 and June 30, 2009, respectively. For the three months and six months ended December 31, 2009 and 2008, the unrealized gain/(loss) resulting from the difference between market value and cost of physical inventories totaled $14,283,000, $3,084,000, $(1,778,000) and $9,990,000, respectively, and is included as a reduction of the cost of products sold in the accompanying consolidated statements of operations. Such gains are generally offset by the results of hedging transactions, which have been reflected as a net gain on derivative instruments, which is a component of cost of products sold in the consolidated statements of operations.

The Trading segment’s inventories include amounts borrowed from various suppliers under ongoing agreements totaling $32,712,000 at December 31, 2009 and $15,100,000 at June 30, 2009. A corresponding obligation related to metals borrowed is reflected on the consolidated balance sheets (See Note 8).The Trading segment also protects substantially all of its physical inventories from market risk through commodity hedge transactions (See Note 9).

The Trading segment periodically loans metals to customers on a short-term consignment basis, charging interest fees based on the value of the metal loaned. Inventories loaned under consignment arrangements to customers at December 31, 2009 and June 30, 2009 totaled $19,684,000 and $15,701,000, respectively. Such inventory is removed at the time the customer elects to price and purchase the metals, and the Company records a corresponding sale and receivable. Substantially all inventory loaned under consignment arrangements is secured by letters of credit issued by major financial institutions for the benefit of the Company or under an all-risk insurance policy with the Company as the loss-payee.

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


	December 31, 2009			June 30, 2009
	(in thousands)			(in thousands)
Trading segment inventory	$	103,447		$	92,043
Less: provision for loss		(104	)		(104	)

Trading, net	$	103,343		$	91,939


Collectibles segment inventory	$	28,198		$	26,719
Less: provision for loss		(2,363	)		(3,004	)

Collectibles, net	$	25,835		$	23,715


Total inventory, gross	$	131,645		$	118,762
Less: provision for loss		(2,467	)		(3,108	)

Net inventory	$	129,178		$	115,654

Activity in the allowance for inventory loss reserves for the six months ended December 31, 2009 is as follows (in thousands):


Balance, June 30, 2009	$	3,108
Provision for loss		263
Charge off to reserve		(882	)
Foreign currency exchange rate changes		(22	)

Balance, December 31, 2009	$	2,467

5. OTHER PURCHASED INTANGIBLE ASSETS

The carrying values of other purchased intangible assets at December 31, 2009 and at June 30, 2009 are as described below:


			December 31, 2009							June 30, 2009
	Estimated		(in thousands)							(in thousands)
	Useful Lives		Gross Carrying		Accumulated			Net Book		Gross Carrying		Accumulated						Net Book
	(Years)		Amount		Amortization			Value		Amount		Amortization			Impairment			Value
Trademarks	Indefinite		$	2,604	$	—		$	2,604	$	2,616	$	—		$	(80	)	$	2,536
Customer lists		5 — 15		9,189		(3,819	)		5,370		9,161		(3,500	)		—			5,661
Non-compete and other		4		2,248		(2,189	)		59		2,302		(2,198	)		—			104

			$	14,041	$	(6,008	)	$	8,033	$	14,079	$	(5,698	)	$	(80	)	$	8,301

The Company’s intangible assets are subject to amortization except for trademarks, which have an indefinite life. Amortization expense related to the Company’s intangible assets was $371,000 and $597,000 for the six months ended December 31, 2009 and 2008, respectively. In December 2008, the Company purchased Ponterio & Associates for $792,000, of which $592,000 was paid in December 2008 and $200,000 was paid in December 2009. The Company entered into an earn-out agreement in connection with the purchase of Ponterio & Associates in which the Company was obligated to provide additional consideration, thus increasing the original purchase price, based on performance provisions of qualified earnings during the period from December 1, 2008 through November 30, 2009. The Company finalized the computation of the earn-out obligation as of December 31, 2009 accruing $335,000 as of that date. Goodwill recorded in connection with this earn-out is $248,000 and the Company recorded purchased intangibles relating to this earn-out totaling $87,000. The Company wrote off $64,000 in fully amortized non-compete intangibles during the three month period ended December 31, 2009.

Estimated amortization expense on an annual basis for the succeeding five years is as follows:


Years ending June 30:	(in thousands)
2010 (remaining 6 months)	$	392
2011		646
2012		575
2013		515
2014		498
Thereafter		2,803

Total	$	5,429

6. ACCOUNTS PAYABLE, CUSTOMER DEPOSITS AND CONSIGNOR PAYABLES

Accounts payable consist of the following as of:


	December 31, 2009		June 30, 2009
	(in thousands)		(in thousands)
Trade payable to customers and other accounts payable	$	1,071	$	5,909
Advances from customers		12,640		5,834
Net liability on margin accounts		8,248		3,041
Due to brokers		—		648
Other Accounts Payable		3,994		—
Derivative liabilities — open purchase and sales commitments		4,737		5,356

	$	30,690	$	20,788

7. INCOME TAXES

The provision (benefit) for income taxes for the three and six months ended December 31, 2009 and 2008 consisted of:


	Three months ended			Three months ended			Six months ended			Six months ended
	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
	(in thousands)			(in thousands)			(in thousands)			(in thousands)

Current:
Federal	$	(1,586	)	$	731		$	(3,067	)	$	1,065
State		95			345			112			502
Foreign		550			172			608			251

Total current tax provision (benefit)		(941	)		1,248			(2,347	)		1,818

Deferred:
Federal		33			(24	)		68			(35	)
State		10			16			22			24
Foreign		474			3			273			4

Total deferred tax provision (benefit)		517			(5	)		363			(7	)

Income tax provision (benefit)	$	(424	)	$	1,243		$	(1,984	)	$	1,811

Income taxes receivable at December 31, 2009, and June 30, 2009 totaled approximately $6.6 million, and $3.4 million, respectively, and were primarily comprised of Federal net operating loss carryback claims and certain overpayments of state taxes.

Income (loss) before income taxes and noncontrolling interests for U.S. and foreign-based operations for the three months and six months ended December 31, 2009 and 2008 are shown below (in thousands):


	Three months ended		Three months ended		Six months ended			Six months ended
	December 31, 2009		December 31, 2008		December 31, 2009			December 31, 2008
U.S.	$	1,195	$	4,613	$	(191	)	$	9,401
Foreign		877		1,831		1,384			693

Income before income taxes and noncontrolling interest	$	2,072	$	6,444	$	1,193		$	10,094

The income (loss) before income taxes and noncontrolling interests for U.S. and foreign-based operations reflect the effects of related party interest income (foreign-based operations) and interest expense (U.S. operations) totaling $296,000 and $602,000, $479,000 and $999,000 for the three months and six months ended December 31, 2009 and 2008, respectively.

On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 (P.I. 111-92) was enacted. The new law significantly expands the scope of the five-year net operating loss carryback for U.S. federal tax purposes. Rather than being limited to business with gross receipts of $15 million or less, it now is available to all business. Business can still choose to carryback losses to either the third, fourth or fifth year; however, except for those small businesses with gross receipts of $15 million or less, losses carried back to the fifth year are limited to 50 percent of the taxable income in that year. The Company recorded an income tax benefit of approximately $1.5 million for the three and six months ended December 31, 2009 to recognize an additional refundable carryback claim that may be permitted under these provisions.

On September 30, 2008, California enacted Assembly Bill 1452 which among other provisions, suspends net operating loss deductions for 2008 and 2009 and extends the carry-forward period of any net operating losses not utilized due to such suspension; adopts the federal 20-year net operating loss carry-forward period; phases-in the federal two-year net operating loss carryback periods beginning in 2011 and limits the utilization of tax credits to 50 percent of a taxpayer’s taxable income. The Company does not expect this change in tax law to materially impact its tax provision, except for the increase in the current state tax liability due to the temporary suspension of the utilization of California net operating loss carry-forwards.

The Company’s effective income tax rate differed from the statutory federal income tax rate (34%) due primarily to state and foreign income taxes and changes in the valuation allowance.

A reconciliation of the total unrecognized tax benefits (UTBs) at the beginning and end of the period are as follows (in thousands):


	UTBs		FIN 48 Payable
Balance as of June 30, 2009	$	26,587	$	2,475
Increase as a result of tax positions taken during the current period		84		84
Increase as a result of additional interest and penalties during the current period		—		61

Balance as of December 31, 2009	$	26,671	$	2,620

Final determination of a significant portion of the Company’s global unrecognized tax benefits that will be effectively settled remains subject to ongoing examination by various taxing authorities, including the Internal Revenue Service (IRS). The Company is actively pursuing strategies to favorably settle or resolve these liabilities for unrecognized tax benefits. If the Company is successful in mitigating these liabilities, in whole or in part, the impact will be recorded as an adjustment to income tax provision in the period of settlement. The Company is currently under examination by the IRS for the years ended June 30, 2004, 2005 and 2006, and other taxing jurisdictions on certain tax matters, including challenges to certain positions the Company has taken. With few exceptions, either examinations have been completed by tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Company for the years through 2003. Our Spanish operations are currently under examination as discussed in our 2009 annual report on Form 10-K in Note 15. For our remaining foreign operations, either examinations have been completed by tax authorities or the statute of limitations have expired for tax returns filed by the Company for the years through 2002.

8. FINANCING AGREEMENTS

A-Mark has a borrowing facility (“Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit of up to $85,000,000 including a facility for letters of credit up to a maximum of $85,000,000. A-Mark routinely uses the Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The One Month LIBOR rate was approximately 0.23% and 0.32% as of December 31, 2009 and June 30, 2009, respectively. Borrowings are due on demand and totaled $48,350,000 and $52,750,000 for lines of credit and $4,750,000 and $4,750,000 for letters of credit at December 31, 2009 and at June 30, 2009, respectively. Amounts borrowed under the Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Credit Facility are formula based and totaled $31,900,000 and $27,500,000 at December 31, 2009 and June 30, 2009. The Credit Facility also limits the ability of A-Mark to pay dividends to SGI. The Credit Facility is cancelable by written notice of the financial institutions.

A-Mark’s Credit Facility has certain restrictive financial covenants which require it and SGI to maintain a minimum tangible net worth, as defined, of $12.5 million and $50.0 million, respectively. A-Mark’s and SGI’s tangible net worth at December 31, 2009 were $35.2 million and $84.5 million, respectively. The Company’s ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.

A-Mark also borrows metals from several of its suppliers under short-term agreements bearing interest at a designated rate. Amounts under these agreements are due at maturity and require repayment either in the form of metals borrowed or cash. A-Mark had borrowed metals included in inventories with market values totaling $32,712,000 and $15,100,000 at December 31, 2009 and at June 30, 2009, respectively. Certain of these metals are secured by letters of credit issued under the Credit Facility, which totaled $4,750,000 and $4,750,000 at December 31, 2009 and at June 30, 2009, respectively.

Interest expense related to A-Mark’s borrowing arrangements totaled $431,000, $800,000, $590,000 and $1,258,000 for the three months and six months ended December 31, 2009 and 2008, respectively.

9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Company manages the value of certain specific assets and liabilities of its trading business, including trading inventories (see Note 4), by employing a variety of strategies. These strategies include the management of exposure to changes in the market values of the Company’s trading inventories through the purchase and sale of a variety of derivative products such as metal’s forwards and futures.

The Company’s trading inventories and purchase and sale transactions consist primarily of precious metal bearing products. The value of these assets and liabilities are linked to the prevailing price of the underlying precious metals. The Company’s precious metals inventories are subject to market value changes, created by changes in the underlying commodity markets. Inventories purchased or borrowed by the Company are subject to price changes. Inventories borrowed are considered natural hedges, since changes in value of the metal held are offset by the obligation to return the metal to the supplier.

Open purchase and sale commitments are subject to changes in value between the date the purchase or sale price is fixed (the trade date) and the date the metal is received or delivered (the settlement date). The Company seeks to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts.

The Company’s policy is to substantially hedge its inventory position, net of open purchase and sales commitments that is subject to price risk. The Company regularly enters into metals commodity forward and futures contracts with major financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. The Company has access to all of the precious metals markets, allowing it to place hedges. However, the Company also maintains relationships with major market makers in every major precious metals dealing center.

Due to the nature of the Company’s global hedging strategy, the Company is not using hedge accounting as defined in the Derivatives and Hedging Topic of the FASB Accounting Standards Codification. Gains or losses resulting from the Company’s futures and forward contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability (see Notes 3 and 6). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts. Net (gain) loss on derivative instruments in the consolidated statements of operations of $(14,427,000) and $2,108,000 for the six months ended December 31, 2009 and 2008, respectively, includes both realized and unrealized amounts.

The Company’s management sets credit and position risk limits. These limits include gross position limits for counterparties engaged in purchase and sales transactions with the Company. They also include collateral limits for different types of purchase and sale transactions that counter parties may engage in from time to time.

A summary of the market values of the Company’s physical inventory positions, purchase and sale commitments, and its outstanding forwards and futures contracts is as follows at December 31, 2009 and at June 30, 2009:


	December 31, 2009			June 30, 2009
	(in thousands)			(in thousands)
Trading Inventory, net	$	103,343		$	91,939
Less unhedgable inventory:
Commemorative coins		(2,295	)		(3,413	)
Premium on metals position		(805	)		(1,477	)

Subtotal		100,243			87,049
Commitments at market:
Open inventory purchase commitments		215,262			131,844
Open inventory sale commitments		(97,984	)		(38,370	)
Margin sale commitments		(19,926	)		(7,358	)
Premium on open commitments position		818			32
Inventory borrowed from suppliers		(32,712	)		(15,100	)
Advances on industrial metals		137			700

Inventory subject to price risk		165,838			158,797

Inventory subject to derivative financial instruments:
Precious metals forward contracts at market values		54,292			27,731
Precious metals futures contracts at market values		113,764			132,651

Total market value of derivative financial instruments		168,056			160,382

Net inventory subject to price risk, Company consolidated basis	$	(2,218	)	$	(1,585	)


Effects of open related party transactions between A-Mark and affiliates:
Net inventory subject to price risk, Company consolidated basis	$	(2,218	)	$	(1,585	)
Open inventory purchase commitments with affiliates		7,204			1,088
Open inventory sale commitments with affiliates		(5,498	)		—
Premium on open commitments position with affiliates		450			—

Net inventory subject to price risk, A-Mark stand-alone basis	$	(62	)	$	(497	)

At December 31, 2009 and June 30, 2009, the Company had outstanding purchase and sale commitments arising in the normal course of business totaling $215,262,000 and $97,984,000, $131,844,000 and $38,370,000, respectively; purchase and sale commitments related to open forward contracts totaling $54,292,000 and $27,731,000, respectively, and purchase and sale commitments relating to open futures contracts totaling $113,764,000 and $132,651,000, respectively. The Company uses forward contracts and futures contracts to protect its inventories from market exposure.

During the three months and six months ended December 31, 2009, the Company recorded a net unrealized (gain) loss on open future commodity and forward contracts and open purchase and sale commitments of $(4,823,000) and $2,027,000 and net realized gains on future commodity contract of $(12,299,000) and $(16,454,000), respectively. This resulted in the recordation of net unrealized (gains) in the condensed consolidated statement of operations totaling $(17,122,000) and $(14,427,000) for the three and six months ended December 31, 2009 . During the three months and six months ended December 31, 2008, the Company recorded a net unrealized (gain) loss on open future commodity and forward contracts and open purchase and sale commitments of $(1,860,000) and $576,000 and net realized losses on future commodity contract of $12,403,000 and $1,532,000), respectively. This resulted in the recordation of net unrealized losses in the condensed consolidated statement of operations totaling $10,543,000 and $2,108,000 for the three and six months ended December 31, 2008.

The contract amounts of these forward and futures contracts and the open purchase and sale orders are not reflected in the accompanying consolidated balance sheets. The difference between the market price of the underlying metal or contract and the trade amount is recorded at fair value. The Company’s open purchase and sales commitments generally settle within 2 business days, and for those commitments that do not have stated settlement dates, the Company has the right to settle the positions upon demand. Futures and forwards contracts open at December 31, 2009 are scheduled to settle within 90 days. The Company is exposed to the risk of failure of the counter parties to its derivative contracts. Significant judgment is applied by the Company when evaluating the related fair value implications. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At December 31, 2009, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.

10. NONCONTROLLING INTERESTS

On March 28, 2008, A-Mark entered into a Joint Venture Limited Liability Company Agreement (“JV Agreement”) with a third party marketing company and contributed $450,000 for a 50% ownership in the joint venture named Winter Game Bullion Ventures, LLC (“WGBV”), which was formed on March 28, 2008. The purpose of the joint venture is solely to purchase, market, distribute and sell 2010 Vancouver Winter Olympic Bullion and Commemorative Coins. The term of the JV Agreement is through June 30, 2011, unless extended by mutual agreement of the members or sooner terminated, as defined in the JV Agreement.

The Company has determined that WGBV is a variable interest entity (“VIE”) and that A-Mark is the primary beneficiary. Accordingly, A-Mark has consolidated the financial position of WGBV as of December 31, 2009 and 2008 and the results of its operations for the three and six month periods then ended are included in these consolidated financial statements.

Noncontrolling interest represents Auctentia’s 20% share in the net assets and income of A-Mark and the outside partner’s 50% interest in the net assets and income of the WGBV joint venture.

The Company’s consolidated balance sheet includes the following noncontrolling interests as of December 31, 2009 and June 30, 2009:


	December 31, 2009		June 30, 2009
	(in thousands)		(in thousands)
Auctentia 20% interest in Spectrum PMI	$	8,929	$	9,167
Winter Games Bullion Ventures, LLC. 50% outside interest		1,280		1,147

Total	$	10,209	$	10,314

The Company’s consolidated statement of operations for the three months and six months ended December 31, 2009 and 2008 included the following noncontrolling interest components:


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(in thousands)		(in thousands)		(in thousands)		(in thousands)
Auctentia 20% interest in Spectrum PMI	$	464	$	1,056	$	763	$	1,592
Winter Games Bullion Ventures, LLC. 50% interest		18		269		132		464

Total	$	482	$	1,325	$	895	$	2,056

The following table summarizes the balance sheet of WGBV:


	December 31, 2009		June 30, 2009
	(in thousands)		(in thousands)
Cash	$	113	$	154
Receivables		315		21
Inventories		2,352		3,516
Prepaid expenses		57		—

Total Assets	$	2,837	$	3,691


Accounts payable and other liabilities	$	278	$	1,397
Members’ equity		2,559		2,294

Total liabilities and members’ equity	$	2,837	$	3,691

The following table summarizes the statements of income of WGBV:


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(in thousands)		(in thousands)		(in thousands)		(in thousands)
Sales	$	11,391	$	32,173	$	21,997	$	35,664
Cost of products sold		11,219		31,360		21,456		34,362

Gross profit		172		813		541		1,302
Operating and other expenses		134		274		276		374

Net income	$	38	$	539	$	265	$	928

11. COMMITMENTS AND CONTINGENCIES

Refer to Note 15 to the Notes to Consolidated Financial Statements in the 2009 Annual Report for information relating to minimum rental commitments under operating leases, consulting and employment contracts, and other commitments. There have been no material changes to such scheduled commitments as of the filing of this Report.

12. LITIGATION

Certain legal proceedings in which we are involved are discussed in Part I, Item 3 of our 2009 Annual Report on Form 10-K, and in Note 15 to the Notes to Consolidated Financial Statements in our 2009 Annual Report, which are incorporated by reference into this filing. There have been no material developments in those legal proceedings since the date of our 2009 Annual Report, except as follows:

Greg Manning v. SGI

The arbitration hearings that were originally scheduled to take place in December 2009 were postponed by agreement of the parties. We are in the process of selecting new dates for the hearings.

Security Class Action and Derivative Lawsuits Settlement

As part of the settlement of the shareholder litigation, on October 1, 2009, the Company issued the remaining 3,277,777 shares of common stock to the settlement fund. These shares have been distributed to the claimants. The Company has no further obligation or liability under the settlement agreement. The Company’s litigation settlement accrual total of $6,556,000 was relieved with the distribution.

13. STOCKHOLDERS’ EQUITY

Stock Option Plan

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

Under the 1997 Plan, the exercise price of options and base price of SARs may be set in the discretion of the Board, and stock options and SARs may have any term. The majority of the stock options granted through June 30, 2008 under the 1997 Plan have been granted with an exercise price equal to market value on the date of grant. The 1997 Plan limits the number of stock options and SARs that may be granted to any one employee to 550,000 in any year. The 1997 Plan will terminate when no shares remain available for issuance and no awards remain outstanding. At December 31, 2009, there were 797,499 shares remaining available for future awards under the 1997 Plan.

Employee Stock Options. During the three months and six months ended December 31, 2009 and 2008, the Company recorded no expense in the consolidated statement of operations related to the vesting of previously issued employee stock options for all periods. The Company made no grants during the six months ended December 31, 2009 and 2008.

The following table summarizes the stock option activity for the six months ended December 31, 2009:


							Weighted
							Average
			Weighted				per share
			Average		Intrinsic Value		Grant Date
	Options		Exercise Price		(in thousands)		Fair Value
Outstanding at June 30, 2009		604,325		6.09	$	104		4.63

Granted through stock option plan		—		—		—		—
Exercised		—		—		—		—
Expired		—		—		—		—
Forfeited		—		—		—		—

Outstanding at December 31, 2009		604,325		6.09	$	104		4.63

Shares exercisable at December 31, 2009		604,325		6.09	$	104		4.63

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


Options Outstanding										Options Exercisable
						Weighted		Weighted				Weighted
Exercise Price				Number of		Average		Average		Number of		Average
Ranges				Shares		Remaining		Exercise		Shares		Exercise
From		To		Outstanding		Contractual Life		Price		Exercisable		Price
$	1.00	$	5.00		391,250		3.3		$2.29		391,250		$2.29
	5.01		10.00		26,200		3.9		8.96		26,200		8.96
	10.01		15.00		186,875		4.3		13.65		186,875		13.65

					604,325		3.6	$	6.09		604,325	$	6.09

The Company has issued restricted stock to certain members of management and key employees. During the six months ended December 31, 2009 and 2008, the Company granted 508,226 and 326,548 restricted shares at a weighted average issuance price of $2.65 and $2.74, respectively. Total compensation expense recorded for restricted shares for the six months ended December 31, 2009 and 2008 was $754,000 and $435,000, respectively. The remaining compensation expense that will be recorded under restricted stock grants totals $1,322,000.

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


				Weighted
				Average share
	Shares			price at grant date
Outstanding at June 30, 2009		676,682		$	2.54
Shares granted		508,226			2.65
Shares issued		(306,002	)		2.63
Shares forfeited		—			—
Shares withheld for employee taxes		(64,011	)		2.66

Outstanding at December 31, 2009		814,895		$	2.57

Vested but unissued at December 31, 2009		92,502

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

Certain Anti-Takeover Provisions

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

14. SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s operations are organized under two business segments — Collectibles and Trading. See Note 17 on the Company’s 2009 Annual Report on Form 10-K for additional information about reportable segment.

Segment information for the Company is as follows:


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(in thousands)		(in thousands)		(in thousands)		(in thousands)
Revenue:
Trading	$	1,664,296	$	973,251	$	2,593,176	$	1,979,189

Collectibles:
Coins		35,734		25,959		77,991		57,008
Stamps		4,440		9,682		9,404		15,933
Others		3,034		240		3,371		611

Total Collectibles		43,208		35,881		90,766		73,552

Total revenue	$	1,707,504	$	1,009,132	$	2,683,942	$	2,052,741


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(in thousands)		(in thousands)		(in thousands)		(in thousands)
Revenue by Geographic Region:
United States	$	1,705,008	$	1,004,102	$	2,679,287	$	2,047,298
Asia Pacific		348		210		698		213
Europe		2,148		4,820		3,957		5,230

Total revenue	$	1,707,504	$	1,009,132	$	2,683,942	$	2,052,741


	Three Months Ended			Three Months Ended			Six Months Ended			Six Months Ended
	December 31, 2009			December 31, 2008			December 31, 2009			December 31, 2008
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Operating income (loss):
Trading	$	2,063		$	8,323		$	3,971		$	12,607
Collectibles		1,541			(1,316	)		701			(4,230	)
Corporate expenses		(2,603	)		(1,741	)		(5,095	)		(2,847	)

Operating income (loss)	$	1,001		$	5,266		$	(423	)	$	5,530


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	December 31, 2009		December 31, 2008		December 31, 2009		December 31, 2008
	(in thousands)		(in thousands)		(in thousands)		(in thousands)
Depreciation and amortization:
Trading
Depreciation and amortization	$	161	$	249	$	339	$	497
Collectibles
Depreciation and amortization		239		202		522		391

Depreciation and amortization	$	400	$	451	$	861	$	888


	December 31,		June 30,
Inventories by segment/geographic region:	2009		2009
	(in thousands)		(in thousands)
Trading:
United States	$	103,343	$	91,939

Collectibles:
United States		24,125		22,256
Europe		1,590		1,277
Asia		120		182

Total Collectibles		25,835		23,715

Total inventories	$	129,178	$	115,654


	December 31,		June 30,
Total assets by segment/geographic region:	2009		2009
	(in thousands)		(in thousands)
Trading:
United States	$	162,758	$	151,986

Collectibles:
United States		39,129		38,485
Europe		16,816		19,791
Asia		1,297		1,398

Total Collectibles		57,242		59,674

Corporate and other		12,659		6,489

Total assets	$	232,659	$	218,149


	December 31		June 30
Total long term assets by segment/geographic region:	2009		2009
	(in thousands)		(in thousands)
Trading:
United States	$	10,264	$	10,451

Collectibles:
United States		4,682		4,733
Europe		860		638
Asia		142		152

Total Collectibles		5,684		5,523

Corporate and other		7,679		4,505

Total long term assets	$	23,627	$	20,479

15. FAIR VALUE MEASUREMENTS

Valuation Hierarchy

GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

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

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

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

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2009, aggregated by the level in the fair value hierarchy within which the measurements fall (in thousands):

Assets and Liabilities Measured at Fair Value on a Recurring Basis


	December 31, 2009
	( in thousands)
	Quoted Price in
	Active Markets for
	Identical			Significant Other			Significant
	Instruments			Observable Inputs			Unobservable
	(Level 1)			(Level 2)			Inputs (Level 3)		Total Balance
Assets:
Commodities	$	101,095		$	—		$	—	$	101,095
Derivative assets — open sales and purchase commitments		—			—			—		—
Derivative assets — futures contracts		—			1,202			—		1,202
Derivative assets — forward contracts		—			1,256			—		1,256

Total assets valued at fair value:	$	101,095		$	2,458		$	—	$	103,553

Liabilities:
Liability on borrowed metals	$	(32,712	)	$	—		$	—	$	(32,712	)
Liability on margin accounts		(8,248	)		—			—		(8,248	)
Derivative liabilities — open sales and purchase commitments		—			(4,737	)		—		(4,737	)

Total liabilities valued at fair value:	$	(40,960	)	$	(4,737	)	$	—	$	(45,697	)

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

Marketable Securities

Quoted prices of identical securities are available in an active market for the Company’s marketable securities. Such securities are classified in Level 1 of the valuation hierarchy.

Commodities

Commodities consisting of the precious metals component of the Company’s inventories are carried at fair value. The commemorative coins inventory totaling $2,295,000 as of December 31, 2009 is carried at cost and is thus excluded from the fair value disclosure. The fair value for commodities inventory is determined primarily using pricing and data derived from the markets on which the underlying commodities are traded. Precious metals commodities are classified in Level 1 of the valuation hierarchy.

Derivatives

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

Margin Liability

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

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

16. SUPPLEMENTAL CASH FLOW INFORMATION


	Six Months Ended			Six Months Ended
	December 31, 2009			December 31, 2008
	(in thousands)			(in thousands)
Supplemental disclosure of cash flow information:
Interest paid	$	708		$	1,320

Income taxes paid		701			166


Supplemental disclosure of non-cash transactions:
Issuance of 3,277,777 shares pursuant to legal settlement	$	(6,556	)	$	—

Accrual of Ponterio & Associates, Inc. earn-out obligation		(335	)		—

17. SUBSEQUENT EVENT

On January 1, 2010, the Company consummated the acquisition of all of the share capital of Garritsen Beheer B.V., a privately-held, Netherlands-based philatelic auction house, for cash consideration of approximately 250,000 Euros (approximately $375,000). The purchase price is potentially subject to minor adjustment, pending the resolution of certain administrative matters.

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

FORWARD LOOKING STATEMENTS

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

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

INTRODUCTION

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

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

	•		Results of operations. This section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations by comparing the results for the three months and six months ended December 31, 2009 and 2008.

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

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

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

Overview

Business

We conduct our operations in two reporting segments: Trading and Collectibles. (Our reporting segments are defined in Note 14 of the Notes to Condensed Consolidated Financial Statements.) For the quarter ended December 31, 2009, our Trading and Collectibles segments reported revenues of $1.7 billion, or 97.5%, and $43.2 million, or 2.5%, compared to $973.3 million, or 96.4%, and $35.9 million, or 3.6%, respectively, for the quarter ended December 31, 2008. These segments achieved operating profits of $2.1 million and $1.5 million contributing to a consolidated operating income of $1.0 million during the current quarter compared to operating profits/(losses) of $8.5 million and $(0.6) million contributing to a consolidated operating income of $5.3 million during the same period of the prior year.

For the six months ended December 31, 2009, our Trading and Collectibles segments reported revenues of $2.6 billion, or 96.6%, and $90.8 million, or 3.4%, compared to $2.0 billion, or $96.4%, and $73.6 million, or 3.6%, respectively, for the six months ended December 31, 2008. These segments achieved operating profits of $4.0 million and $0.7 million contributing to a consolidated operating loss of $(0.4) million during the current year compared to operating profits/(losses) of $12.8 million and $(3.5) million contributing to a consolidated operating income of $5.5 million during the same period of the prior year.

Trading

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

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

Collectibles

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

RESULTS OF OPERATIONS

Overview of Results of Operations for the Three Months and Six Months Ended December 31, 2009 and 2008

Condensed Consolidated Results of Operations

The operating results of our business for the three months ended December 31, 2009 and 2008 are as follows (dollars in thousands):


				% of						% of			Increase/			% of Increase/
	2009			revenue			2008			revenue			(decrease)			(decrease)
Revenue	$	1,707,504			100.0	%	$	1,009,132			100.0	%	$	698,372			69.2	%

Gross profit		14,938			0.9			23,291			2.3			(8,353	)		(35.9	)

General and administrative expenses		5,597			0.3			7,454			0.7			(1,857	)		(24.9	)
Salaries and wages		7,931			0.5			10,117			1.0			(2,186	)		(21.6	)
Depreciation and amortization		409			0.0			454			0.0			(45	)		(9.9	)

Operating income (loss)		1,001			0.1			5,266			0.6			(4,265	)		(81.0	)
Interest income		1,476			0.1			1,115			0.1			361			32.4
Interest expense		(431	)		(0.0	)		(607	)		(0.1	)		176			(29.0	)
Other income (expense), net		(458	)		0.0			31			0.0			(489	)		(1,577.4	)
Unrealized gains(loss) on foreign exchange		484			0.0			639			0.1			(155	)		(24.3	)

Income (loss) before income taxes		2,072			0.2			6,444			0.7			(4,372	)		(67.8	)


				% of						% of			Increase/			% of Increase/
	2009			revenue			2008			revenue			(decrease)			(decrease)
Income taxes (benefit)		(424	)		0.0			1,243			0.1			(1,667	)		(134.1	)

Net income		2,496			0.2			5,201			0.6			(2,705	)		(52.0	)
Less: Net profit attributable to the noncontrolling interest		(482	)		0.0			(1,325	)		(0.1	)		843			(63.6	)

Net income attributable to Spectrum Group International, Inc.	$	2,014			0.2	%	$	3,876			0.5	%	$	(1,862	)		(48.0	)%

Earnings per share attributable to Spectrum Group International, Inc.
Basic	$	0.06					$	0.12					$	(0.06	)		(50.0	)%

Diluted	$	0.06					$	0.12					$	(0.06	)		(50.0	)%

Weighted average shares outstanding
Basic		31,985						31,617

Diluted		32,953						32,318

The operating results of our business for the six months ended December 31, 2009 and 2008 are as follows (dollars in thousands):


				% of						% of			Increase/			% of Increase/
	2009			revenue			2008			revenue			(decrease)			(decrease)
Revenue	$	2,683,942			100.0	%	$	2,052,741			100.0	%	$	631,201			30.7	%

Gross profit		27,450			1.0			35,836			1.7			(8,386	)		(23.4	)

General and administrative expenses		12,956			0.5			13,354			0.6			(398	)		(3.0	)
Salaries and wages		14,047			0.5			16,061			0.8			(2,014	)		(12.5	)
Depreciation and amortization		870			0.0			891			0.0			(21	)		(2.4	)

Operating income (loss)		(423	)		0.0			5,530			0.3			(5,953	)		(107.6	)
Interest income		2,869			0.1			2,319			0.1			550			23.7
Interest expense		(800	)		(0.0	)		(1,460	)		(0.1	)		660			(45.2	)
Other income (expense), net		80			0.0			734			0.0			(654	)		(89.1	)
Unrealized gains(loss) on foreign exchange		(533	)		0.0			2,971			0.1			(3,504	)		(117.9	)

Income (loss) before income taxes		1,193			0.1			10,094			0.4			(8,901	)		(88.2	)
Income taxes (benefit)		(1,984	)		(0.1	)		1,811			0.1			(3,795	)		(209.6	)

Net income		3,177			0.2			8,283			0.3			(5,106	)		(61.6	)
Less: Net profit attributable to the noncontrolling interest		(895	)		(0.1	)		(2,056	)		(0.1	)		1,161			(56.5	)

Net income attributable to Spectrum Group International, Inc.	$	2,282			0.1	%	$	6,227			0.2	%	$	(3,945	)		(63.4	)%

Earnings per share attributable to Spectrum Group International, Inc.
Basic	$	0.07					$	0.21					$	(0.14	)		(66.7	)%

Diluted	$	0.07					$	0.20					$	(0.13	)		(65.0	)%

Weighted average shares outstanding
Basic		31,851						30,324

Diluted		32,819						31,036

Revenues and Gross Profit. For the quarter, our revenues increased by $0.7 billion, or 69.2%, to $1.7 billion in 2009 from $1.0 billion in 2008. This was due primarily to a shift in product mix in our Trading segment resulting from an increased demand for gold products.

For the six month, revenues increased $0.6 billion, or 30.7%, to $2.7 billion in 2009 from $2.1 billion in 2008. This increase was the result of a number of factors, including increased demand for gold products worldwide.

For the quarter, our Collectibles segment experienced an increase in revenues of $7.3 million, or 20.4%, to $43.2 million in 2009 from $35.9 million in 2008. Numismatics revenues increased by $9.5 million, or 37.1%, to $35.0 million in 2009 from $25.5 million in 2008 due to increased auction revenues as well as an increase in revenues in the Company’s wholesale Numismatics unit This was partially offset by a decrease in Philatelic revenues of $4.9 million, or 49.1%, and augmented by the Company’s new Wine auction business with revenues of $2.6 million.

For the six months, our Collectibles segment experienced an increase in revenues of $17.2 million, or 23.4%, to $90.8 million in 2009 from $73.6 million in 2008. Numismatics revenues increased $21.0 million, or 36.8%, to $78.0 million in 2009 from $57.0 million in 2008 due to increased auction revenues as well as an increase in revenues in the Company’s wholesale Numismatics unit. This was offset slightly by a decrease in Philatelic revenues of $6.5 million, or 41.0%, and augmented by the Company’s new Wine auction business with revenues of $2.6 million.

The Company launched a new Collectibles business line, Spectrum Wine Auctions, which specializes in the sale of rare wines and held its first live auction in November 2009, generating all of the wine auction $2.6 million revenue reported in the quarter ended December 31, 2009 and the six months ended December 31, 2009.

For the quarter, our gross profit decreased by $8.4 million, or 35.9%, to $14.9 million in 2009 from $23.3 million in 2008. This was primarily due to a decrease in the gross profit of our Trading segment of $9.4 million, or 60.9%, to $6.0 million in 2009 from $15.4 million in 2008. This decrease was primarily attributable to lower premiums and margins in our precious metal products resulting largely from an increased supply of precious metal products. This was offset by an increase in the gross profit of our Collectibles segment of $1.0 million, or 12.8%, to $8.9 million in 2009 from $7.9 million in 2008 due primarily to increased auction profits and an increase in profitability in the Company’s wholesale Numismatics unit.

For the six months, gross profit decreased by $8.4 million, or 23.4%, to $27.4 million in 2009 from $35.8 million in 2008. This was primarily due to a decrease in the gross profit of our Trading segment of $12.3 million, or 54.0%, to $10.5 million in 2009 from $22.8 million in 2008. This decrease was primarily attributable to lower premiums and margins in our precious metal products resulting largely from an increased supply of precious metal products. This was offset by an increase in the gross profit in our Collectibles segment of $3.9 million, or 30.0%, to $17.0 million in 2009 from $13.1 million in 2008, due to increased auction profits and an increase in profitability in the Company’s wholesale Numismatics unit.

For the quarter, our gross profit margins decreased to 0.9% in 2009 from 2.3% in 2008. This was attributable primarily to a decrease in our Trading segment margins to 0.4% in 2009 from 1.6% in 2008. Gross profit margins in our Collectibles segment decreased to 20.6% in 2009 from 22.0% in 2008.

For the six months, gross profit margins decreased to 1.0% in 2009 from 1.7% in 2008. This was attributable primarily to a decrease in our Trading segment margins to 0.4% in 2009 from 1.2% in 2008. Gross profit margins in our Collectibles segment increased to 18.7% in 2009 from 17.8% in 2008.

For the quarter and the six months ended December 31, 2009, the premiums charged for bullion products by the Trading segment decreased significantly from the premiums charged in the comparable periods in the prior year. The Company believes the premium levels experienced in 2008 were the result of highly volatile market conditions and may not be achieved in future periods.

Operating Expenses. For the quarter, our general and administrative expenses decreased by $1.9 million or 24.9%, to $5.6 million in 2009 from $7.5 million in 2008. For the quarter, North American Philatelic general and administrative expenses decreased by 1.6 million from 2008 to 2009. For the six months, general and administrative expenses decreased by $0.4 million, or 3.0%, to $13.0 million in 2009 from $13.4 million in 2008. For the six months ended December 31, 2009, Philatelic general and administrative expenses decreased by $2.7 million from 2008 to 2009. This was offset by an increase in the Corporate expenses of $2.3 million from

2008 to 2009. The decrease in Philatelic expenses was due primarily to the shut-down of Bethel, CT. facility. The increase in the Corporate expenses is due primarily to an increase in legal and accounting charges in 2009.

For the quarter, salaries and wages decreased by $2.2 million or 21.6%, to $7.9 million in 2009 from $10.1 million in 2008. This was primarily due to a decrease in performance-based compensation expense in the Trading segment of $3.1 million, or 57.2%. This decrease is offset primarily by an increase in salaries and wages in the Company’s Collectibles segment of $0.7 million or 19.7%. This was due in part to an increase in performance-based compensation of $0.2 million or 251.7% in the Collectibles segment.

For the six months, salaries and wages decreased by $2.0 million or 12.5%, to $14.0 million in 2009 from $16.0 million in 2008. This was primarily due to a decrease in performance-based compensation expense in the Trading segment of $3.9 million or 55.1%. This decrease is offset primarily by an increase in salaries and wages in the Company’s Collectibles segment of $1.1 million or 16.9%. The Company also incurred approximately $0.1 million of severance and relocation expenses in 2009 for moving its Arms and Armor and North American Philatelic operations to its headquarters in Irvine, California as part of the Company’s plan to centralize U.S. Collectibles operations.

For the quarter and the six months, depreciation and amortization expense was consistent between 2009 and 2008.

Interest Income. For the quarter, interest income increased by $0.4 million, or 32.4%, to $1.5 million in 2009 from $1.1 million in 2008. The increase was due, in part, to the Trading segment’s CFC lending business which increased interest income by $49,000, or 12.6%, during the three-month period. The remainder is due primarily to increased finance product activity in the Company’s Trading segment.

For the six months, interest income increased by $0.6 million or 23.7% to $2.9 million in 2009 from $2.3 million in 2008. The increase was due in part to the Trading segment’s CFC lending business which increased interest income by $244,000, or 37.0%, for the six months. This increase was augmented by an increase in the Trading segment’s financing business. The remainder is due primarily to increased finance product activity in the Company’s Trading segment.

Interest Expense. For the quarter, our interest expense decreased by $0.2 million, or 29.0%, to $0.4 million in 2009 from $0.6 million in 2008. For the six months, our interest expense decreased by $0.7 million or 45.2%, to $0.8 million in 2009 from $1.5 million in 2008. This was related primarily due to a decrease in the Trading segment’s average effective interest rate on its line of credit. Our Trading segment utilizes their line of credit extensively for working capital requirements. For the three and six months ended December 31, 2009 and 2008, our consolidated average debt balance was approximately $49.2 million and $46.9 million, compared to $33.7 million and $48.2 million, respectively. The Company’s decrease in interest expense was also due to lower interest rates in fiscal 2010, with the Company’s base LIBOR rate decreasing to 0.25% in 2009 from 2.4% in 2008.

Other Income (Expense). Other income (net of expense) decreased by $489,000 or 1,577.4%, to ($458,000) in 2009 from $31,000 in 2008. For the six months, the Company’s other income (net of expense) decreased by $654,000 or 89.1%, to $80,000 in 2009 at from $734,000 in 2008. This change was the result of various miscellaneous items.

Provision for Income Taxes. Our income tax provision (benefit) was approximately $(0.4) million and $1.2 million for the three months ended December 31, 2009 and 2008, respectively, and approximately $(2.0) million and $1.8 million for the six months ended December 31, 2009 and 2008, respectively. Our effective tax rate was approximately (18.68)% and 19.85% for the three months ended December 31, 2009 and 2008, respectively, and approximately (138.65)% and 18.1% for the six months ended December 31, 2009 and 2008, respectively. The Company’s effective tax rate differs from the Federal statutory rate for state taxes, foreign tax rate differentials and changes in the valuation allowance for deferred tax assets. Our effective rate could be adversely affected by the relative proportions of revenue and income before taxes in the various domestic and international jurisdictions in which we operate. We are also subject to changing tax laws, regulations and interpretations in multiple jurisdictions in which we operate. Some of the Company’s net operating loss carryforwards are set to expire beginning 2010, which may impact the Company’s effective tax rate in future periods. Our effective rate can also be influenced by the tax effects of purchase accounting for acquisitions and non-recurring charges, which may cause fluctuations between reporting periods.

Noncontrolling Interests. For the quarter, net income attributable to noncontrolling interests decreased by $0.8 million or 63.6%, to $0.5 million in 2009 from $1.3 million in 2008. For the six months, net income attributable to noncontrolling interests decreased by

$1.2 million or 56.5%, to $0.9 million in 2009 from $2.1 million in 2008 primarily due to higher 2008 profits in the Trading segment, which is 20% owned by Auctentia.

Net Income. Net income decreased for the quarter by $1.9 million or 48.0%, to $2.0 million in 2009 from $3.9 million in 2008. For the six months, net income decreased by $3.9 million or 63.4% to $2.3 million in 2009 from $6.2 million in 2008 due primarily to a decrease in profitability in the Company’s Trading segment. The Trading segment’s operations experienced lower premiums and margins during the periods.

Earnings per Share. For the quarter, basic earnings per share decreased $0.06 per share to net income of $0.06 per share in 2009 from net income of $0.12 per share in 2008. Diluted earnings per share decreased $0.06 per share to net income of $0.06 per share in 2009 from net income of $0.12 per share in 2008. For the six months, basic earnings per share decreased $0.14 per share to net income of $0.07 per share in 2009 from net income of $0.21 per share in 2008. Diluted earnings per share decreased $0.13 per share to net income of $0.07 per share in 2009 from net income of $0.20 per share in 2008. The decrease in both basic and diluted earnings per share was primarily due to lower profitability in the Company’s Trading segment in 2009 as compared to 2008.

Trading Operations

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


			% of					% of			$			%
(thousands of dollars)	2009		revenue			2008		revenue			Increase/(decrease)			Increase/(decrease)

Trading revenues	$	1,664,296		100.0	%	$	973,251		100.0	%	$	691,045			71.0	%

Gross profit		6,017		0.4			15,382		1.6			(9,365	)		(60.9	)

General and administrative expenses		719		0.0			721		0.1			(2	)		(0.3	)
Salaries and wages		3,074		0.2			6,089		0.6			(3,015	)		(49.5	)
Depreciation and amortization		161		0.0			249		0.0			(88	)		(35.3	)

Operating income (loss)	$	2,063		0.2	%	$	8,323		0.9	%	$	(6,260	)		(75.2	)%

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


			% of					% of			$			%
(thousands of dollars)	2009		revenue			2008		revenue			Increase/(decrease)			Increase/(decrease)

Trading revenues	$	2,593,176		100.0	%	$	1,979,189		100.0	%	$	613,987			31.0	%

Gross profit		10,463		0.4			22,768		1.2			(12,305	)		(54.0	)

General and administrative expenses		1,389		0.0			1,310		0.1			79			6.0
Salaries and wages		4,764		0.2			8,354		0.4			(3,590	)		(43.0	)
Depreciation and amortization		339		0.0			497		0.0			(158	)		(31.8	)

Operating income (loss)	$	3,971		0.2	%	$	12,607		0.7	%	$	(8,636	)		(68.5	)%

Revenues. For the quarter, our Trading segment revenues increased by $0.7 billion, or 71.0% to $1.7 billion in 2009 from $1.0 billion in 2008. For the six months, Trading segment revenues increased by $0.6 billion or 31.0%, to $2.6 billion in 2009 from $2.0 billion in 2008. This increase was due primarily to a shift in product mix in our Trading segment resulting from an increased demand for gold products.

Gross profit. For the quarter, our Trading segment gross profit decreased by $9.4 million, or 60.9%, to $6.0 million in 2009 from $15.4 million in 2008. The decrease was primarily attributable to lower premiums and margins resulting largely from an increased supply of precious metal products generally, which caused a return to more normal premium spreads during the quarter.

For the six months, our Trading segment gross profits decreased by $12.3 million or 54.0%, to $10.5 million in 2009 from $22.8 million in 2008. The segment did not speculate in this market maintaining hedges against substantially all of its market exposure at all times, thus earning the majority of its profits from the sale of physical precious metals.

For the six months ended December 31, 2009, our Trading segment gross margin decreased by 0.7% to 0.4% in 2009 from 1.1% in 2008. This was due primarily to a substantial decrease in the premium spreads from the comparable period in the prior period.

In fiscal 2009, global economic conditions caused substantial volatility in the precious metals markets and demand for physical precious metal products. Management believes it is unlikely these conditions will recur and, as a result, there can be no assurance the performance levels attained by the Trading segment in fiscal 2009 can be achieved in future periods.

General and administrative expenses. For the quarter, our Trading segment’s general and administrative expenses remained consistent of $0.7 million in 2009 and in 2008. For the six months, our Trading segment’s general and administrative expenses increased by $0.1 million to $1.4 million in 2009 from $1.3 million in 2008.

Salaries and wages. For the quarter, our Trading segment’s salaries and wages expense decreased by $3.0 million or 49.5%, to $3.1 million in 2009 from $6.1 million in 2008. This was due primarily to lower levels of contractual performance based compensation of $3.1 million, or 57.3%.

For the six months, our Trading segment’s salaries and wages expense decreased by $3.6 million or 43.0%, to $4.8 million in 2009 from $8.4 million in 2008. This was due primarily to lower levels of contractual performance based compensation expense, which decreased by $3.9 million or 55.1%.

Depreciation and amortization. For the quarter, our Trading segment’s depreciation and amortization expense decreased to $0.1 million in 2009 from $0.2 million in 2008. For the six months, our Trading segment’s depreciation and amortization expense decreased to $0.3 million in 2009 from $0.5 million in 2008.

Collectibles Operations

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


	For the three months ended December 31,
	2009					2008					$ Increase
(thousands of dollars)	$		% to total			$		% to total			(decrease)			% to total
Collectibles Revenues	$	43,208		100.0	%	$	35,881		100	%	$	7,327			20.4	%

*Revenues by Collectible Type:*
Philatelic	$	5,127		11.9	%	$	10,070		28.1	%	$	(4,943	)		(49.1	)%
Numismatics		35,047		81.1			25,571		71.3			9,476			37.1
Militaria, wine and other		3,034		7.0			240		0.6			2,794			1,164.2

	$	43,208		100.0	%	$	35,881		100	%	$	7,327			20.4	%

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


	For the six months ended December 31,
	2009					2008					$ Increase
(thousands of dollars)	$		% to total			$		% to total			(decrease)			% to total
Collectibles Revenues	$	90,766		100.0	%	$	73,552		100	%	$	17,214			23.4	%

*Revenues by Collectible Type:*
Philatelic	$	9,404		10.4	%	$	15,933		21.7	%	$	(6,529	)		(41.0	)%
Numismatics		77,991		85.9			57,008		77.5			20,983			36.8
Militaria, wine and other		3,371		3.7			611		0.8			2,760			451.7

	$	90,766		100.0	%	$	73,552		100	%	$	17,214			23.4	%

Revenues. For the quarter, our Collectibles segment revenues increased by $7.3 million or 20.4%, to $43.2 million in 2009 from $35.9 million in 2008. The increase in revenues was attributable primarily to our Numismatics operations, where revenue increased $9.5

million or 37.1%, to $35.0 million in 2009 from $25.5 million in 2008, largely as a result of increased auction revenues as well as increased revenues in the Company’s wholesale Numismatics unit. Philatelic revenues decreased by $4.9 million or 49.1%, to $5.1 million in 2009 from $10.0 million in 2008. The decrease is offset by the Company’s new Wine auction business with revenues of $2.6 million.

For the six months, our Collectibles segment revenues increased by $17.2 million or 23.4% to $90.8 million in 2009 from $73.6 million in 2008. The increase in revenues was attributable primarily to our Numismatics operations, where revenue increased $21.0 million or 36.8%, to $78.0 million in 2009 from $57.0 million in 2008, largely as a result of increased auction revenues as well as increased revenues in the Company’s wholesale Numismatics unit. Philatelic revenues decreased by $6.5 million or 41.0%, to $9.4 million in 2009 from $15.9 million in 2008, offset by the Company’s new Wine auction business with revenues of $2.6 million.

The decrease in Philatelic revenues for the three and six-months periods is a result of management’s decision to relocate those operations to the Company’s headquarters in California, where the Company held one auction in the first quarter of 2009.

The Company established a new Collectibles business line division, Spectrum Wine Auctions, which offers live and internet based rare wine sales. The Wine division held its first auction November 2009.

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


			% of						% of			$			% of
(thousands of dollars)	2009		revenue			2008			revenue			Increase/(decrease)			Increase/(decrease)

Collectibles revenue	$	43,208		100.0	%	$	35,881			100.0	%	$	7,327			20.4	%

Gross profit		8,921		20.6			7,909			22.0			1,012			12.8

Selling, general and administrative expenses		3,060		7.1			5,667			15.8			(2,607	)		(46.0	)
Salaries and wages		4,077		9.4			3,355			9.4			722			21.5
Impairment of goodwill and intangible assets		—		0.0			—			0.0			—			0.0
Depreciation and amortization		243		0.6			203			0.6			40			19.7

Operating income (loss)	$	1,541		3.5	%	$	(1,316	)		(3.8	)%	$	2,857			(217.1	)%

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


			% of						% of			$			% of
(thousands of dollars)	2009		revenue			2008			revenue			Increase/(decrease)			Increase/(decrease)

Collectibles revenue	$	90,766		100.0	%	$	73,552			100.0	%	$	17,214			23.4	%

Gross profit		16,987		18.7			13,068			17.8			3,919			30.0

Selling, general and administrative expenses		8,105		8.9			10,355			14.1			(2,250	)		(21.7	)
Salaries and wages		7,659		8.4			6,552			8.9			1,107			16.9
Impairment of goodwill and intangible assets		—		0.0			—			0.0			—			0.0
Depreciation and amortization		522		0.6			391			0.5			131			33.5

Operating income (loss)	$	701		0.8	%	$	(4,230	)		(5.7	)%	$	4,931			(116.6	)%

Gross profit. For the quarter, our Collectibles segment’s gross profit increased for the quarter by $1.0 million or 12.8%, to $8.9 million in 2009 from $7.9 million in 2008. For the six months, gross profit increased by $3.9 million or 30.0%, to $17.0 million in 2009 from $13.1 million in 2008. This increase was primarily attributable to increased auction profits and an increase in profitability in the Company’s wholesale Numismatics division.

General and administrative expense. For the quarter, general and administrative expense in our Collectibles segment decreased $2.6 million or 46.0%, to $3.0 million in 2009 from $5.6 million in 2008. For the six months, our Collectibles segment’s general and administrative expense decreased $2.2 million or 21.7% to $8.1 million in 2009 from $10.3 million in 2008. This was due primarily to the Company centralizing its U.S. Collectibles operations at the Company’s headquarters and managing those operations more

effectively. The move of the Arms and Armor business was completed in the third quarter of fiscal 2009; the relocation of the North American Philatelic operations was completed in July 2009.

Salaries and wages. For the quarter, our Collectibles segment’s salaries and wages expense increased by $0.7 million or 19.7%, to $4.1 million in 2009 from $3.4 million in 2008. For the six months, our Collectibles segment’s salaries and wages expense increased by $1.0 million or 16.0%, to $7.7 million in 2009 from $6.7 million in 2008. This is due primarily to performance based compensation which increased by $0.2 million or 251.7% and $0.5 million or 335.7% for the three months and six months ended December 31, 2009. The Company also incurred certain severance charges in its Philatelic business line related to its shut down of the Bethel, CT. facility and the costs associated with the Company’s Wine Auction business.

Depreciation and amortization. For the quarter, our Collectibles segment’s depreciation and amortization expense increased by $40,000 or 19.7% to $243,000 in 2009 from $203,000 in 2008. For the six months, our Collectibles segment’s depreciation and amortization expenses increased by $131,000 or 33.5%, to $522,000 in 2009 from $391,000 in 2008.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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


(thousands of dollars)	2009			2008
Cash provided by (used in) operating activities	$	(16,248	)	$	48,532
Cash provided by (used in) investing activities		2,708			(8,051	)
Cash (used in) financing activities		12,102			(52,262	)

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

Operating activities required $16.2 million in cash during the six months ended December 31, 2009 compared to $48.5 million in sources of cash during the six months ended December 31, 2008. A primary use of our 2009 operating cash flows was increases in our inventories of $(13.8) million, offset by $3.2 million in net income, and further decreased by non-cash items of $2.6 million. The other items which impacted our cash flows from operations during the six months ended December 31, 2009 were increases in accounts receivable and consignor advances of $(0.4) million, increases in receivables and secured loans of $(1.8) million, increases in our prepaid expenses and other assets of $(0.4) million, increases in our accounts payable accrued expenses and other liabilities of $(2.5) million, and changes in our income taxes, net of $(3.1) million.

The primary contributors to our six months ended December 31, 2008 source of cash from operations were net decreases in our inventories of $30.8 million and net income of $8.3 million increased by non-cash items of $2.1 million. The other items which impacted our cash flows from operations during the six months ended December 31, 2008 were increases in accounts receivable and consignor advances of $(1.4) million, increases in receivables and secured loans of $(8.2) million, collecting of our litigation settlement receivable of $6.0 million, decreases in our accounts payable accrued expenses and other liabilities $12.7 million, changes in our income taxes, net of $3.7 million and the accrual of our litigation settlement of $(7.0) million.

Our investing activities provided cash in the six months ended December 31, 2009 of $2.7 million compared to use of cash of $(8.1) million in the six months ended December 31, 2008. The fluctuation is primarily a result of the maturity of short-term certificates of deposits and sale of marketable securities of $1.9 million during the six months ended December 31, 2009 versus the maturity of short term certificates of deposits and the purchase of marketable securities of $(4.9) million in the six months ended December 31, 2008.

Our financing activities provided cash during the six months ended December 31, 2009 of $12.1 million versus use of cash of $(52.3) million during the six months ended December 31, 2008. This was due primarily to the Trading segment’s borrowings of metals of $4.4 million for the six months ended December 31, 2009 versus borrowings of $48.5 million for the six months ended December 31, 2008, offset by a decrease of $17.6 million in liability on borrowed metals for the six months ended December 31, 2009 as compared to an increase of $3.7 million for the comparative 2008 period. Our other sources of cash from financing activities were the Trading segment’s payment of a dividend of $1.0 million to the noncontrolling interest holder during the six months ended December 31, 2009.

A-Mark has a borrowing facility (“Credit Facility”) with a group of financial institutions under an inter-creditor agreement, which provides for lines of credit of up to $85.0 million including a facility for letters of credit up to a maximum of $85.0 million. A-Mark routinely uses the Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) plus a margin. The One Month LIBOR rate was approximately 0.23% and 0.32% as of December 31, 2009 and as of June 30, 2009, respectively. Borrowings are due on demand and totaled $48.3 million and $52.8 million for lines of credit and $4.8 million and $4.8 million for letters of credit at December 31, 2009 and at June 30, 2009, respectively. Amounts borrowed under the Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Credit Facility are formula based and totaled $31.9 million at December 31, 2009 and $27.5 million at June 30, 2009. The Credit Facility also limits the ability of A-Mark to pay dividends to SGI. The Credit Facility is cancelable by written notice of the financial institutions.

A-Mark’s Credit Facility has certain restrictive financial covenants which require A-Mark and SGI to maintain a minimum tangible net worth, as defined, of $12.5 million and $50.0 million, respectively. A-Mark’s and SGI’s tangible net worth at December 31, 2009

were $35.2 million and $84.5 million, respectively. The Company’s ability to pay dividends, if it were to elect to do so, could be limited as a result of these restrictions.

A-Mark also borrows metals from several of its suppliers under short-term agreements bearing interest at a designated rate. Amounts under these agreements are due at maturity and require repayment either in the form of metals borrowed or cash. A-Mark had borrowed metals included in inventories with market values totaling $32.7 million and $15.1 million at December 31, 2009 and at June 30, 2009, respectively. Certain of these metals are secured by letters of credit issued under A-Mark’s Credit Facility, which totaled $4.8 million and $4.8 million at December 31, 2009 and at June 30, 2009, respectively.

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

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

We believe that our current cash and cash equivalents, marketable securities, revolving credit facility and cash we anticipate to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital needs, capital expenditures, meet our investment requirements and commitments through at least the next twelve months. Certain of the Company’s foreign subsidiaries have nominal statutory restricted capital requirements. The Company’s liquidity could be impacted by the potential adverse outcomes, if any, relating to its open contingent matters, including, an ongoing Internal Revenue Service examination, a foreign tax inspection and certain litigation as described in Part II, Item 1: Legal Proceedings of this document.

As of December 31, 2009, our Trading segment had cash and cash equivalents and marketable securities of $22.3 million, compared to $26.4 million as of June 30, 2009. The Company’s working capital increased by $9.0 million, or 10.0%, to $79.4 million in the six months ended December 31, 2009, from $70.4 million at June 30, 2009.

Contractual Obligations, Contingent Liabilities, and Commitments

As of December 31, 2009, we have known cash commitments over the next several years as follows:


	Payment due by period
					2 to 3		3 to 4		4 to 5		5 years and
(thousands of dollars)	Total		1 year		years		years		years		thereafter
Borrowings under line of credit	$	48,350	$	48,350	$	—	$	—	$	—	$	—
Operating lease obligations		2,243		587		1,073		366		217		—

Total	$	50,593	$	48,937	$	1,073	$	366	$	217	$	—

On April 9, 2008, in connection with the WGBV joint venture Agreement, A-Mark entered into a series of agreements with the Royal Canadian Mint to purchase a minimum amount of bullion and commemorative coins in exchange for certain exclusive distribution rights. On July 21, 2009, A-Mark signed an amendment with the Royal Canadian Mint to reduce its minimum purchase commitment of Olympic Numismatics Coin Products. Under the terms of this agreement, as amended, A-Mark is required to purchase 12,750 One Ounce Gold Bullion Coins and 93,000 One Ounce Silver Bullion. A-Mark is also required to purchase $5.7 million (Canadian Dollars) in commemorative coins. A-Mark is required to meet these commitments by February 26, 2010. Because the prices for the bullion coins are based on market prices on the date the order is placed, the amount of the commitment cannot be determined. As of December 31, 2009 A-Mark has fulfilled its contractual obligation.

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

The Company’s policy is to substantially hedge its inventory position, net of open purchase and sales commitments, that is subject to price risk The Company regularly enters into metals commodity forward and futures contracts with major financial institutions to hedge price changes that would cause changes in the value of its physical metals positions and purchase commitments and sale commitments. The Company has access to all of the precious metals markets, allowing it to place hedges. However, the Company also maintains relationships with major market makers in every major precious metals dealing center.

Due to the nature of the Company’s global hedging strategy, the Company is not using hedge accounting as defined in the derivatives and hedging topic of the FASB Accounting Standards Codification. Gains or losses resulting from the Company’s futures and forward contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as a derivative asset or liability (see Note 6). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodity contracts. Net (gain) loss on derivative instruments in the consolidated statements of operations of $(14,427,000) and $2,108,000 for the six months ended December 31, 2009 and 2008, respectively, includes both realized and unrealized amounts.

At December 31, 2009 and at June 30, 2009, the Company had outstanding purchase and sale commitments arising in the normal course of business totaling $215,262,000 and $97,984,000, $131,844,000 and $38,370,000, respectively; purchase and sale commitments related to open forward contracts totaling $54,292,000 and $27,731,000; and purchase and sale commitments relating to open futures contracts totaling $113,764,000 and $132,651,000, respectively. The Company uses forward contracts and futures contracts to protect its inventories from market exposure.

The Company entered into an earn-out agreement in connection with the purchase of Ponterio & Associates where the Company may pay an increased purchase price based on performance provisions of qualified earnings from December 1, 2008 through November 30, 2009.

CRITICAL ACCOUNTING ESTIMATES

During the quarter ended December 31, 2009, there were no changes in the critical accounting policies or estimates that were described in Item 7 of our Annual Report on Form 10-K, filed with the SEC, for the fiscal year ended June 30, 2009. Readers of this report are urged to read that Section of that Annual Report for a more complete understanding of our critical accounting policies and estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable for smaller reporting companies

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Our principal executive officer and principal financial officer, with the assistance of other members of our management, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal control over financial reporting (as described in “Management’s Report on Internal Control over Financial Reporting” in our 2009 annual report on Form 10-K).

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Greg Manning v. SGI

The arbitration hearings that were originally scheduled to take place in December 2009 were postponed by agreement of the parties. We are in the process of selecting new dates for the hearings.

Shareholder Litigation

In May 2006, the Company and certain of its current and former officers were sued in connection with the Company’s transactions with Afinsa. In the derivative lawsuit commenced in the United States District Court for the Southern District of New York, In Re Escala Group, Inc. Derivative Litigation, the plaintiffs generally made claims against the defendants for breach of fiduciary duty, mismanagement, waste of corporate assets and unjust enrichment. In the securities class action, which was also commenced in the United States District Court for the Southern District of New York, In re Escala Group, Inc. Securities Litigation, the plaintiffs alleged that the defendants participated in a scheme with Afinsa that caused the Company’s reported revenues, gross profit, net income and inventory to be materially overstated, and that the defendants made materially false and misleading statements in the Company’s publicly filed financial reports.

Both of these matters were settled in December 2008. Under the court-approved settlements, all claims asserted in both actions were dismissed with prejudice and without any admission of liability or wrongdoing.

As part of the settlement of the derivative lawsuit, the Company recovered $5.50 million from insurers on behalf of certain of the named defendants in one or both proceedings. The Company also agreed to adopt (and has since adopted) certain corporate governance policies and procedures relating to revenue recognition, our internal audit function, codes of ethics, and board and committee composition and continuing education, among other things. The Company also paid all of plaintiffs’ court-approved attorneys’ fees of $925,000, together with approved expenses of $70,000. The Company’s insurer funded $475,000 of these amounts.

Under the settlement of the securities class action, SGI was required to contribute an aggregate of $6 million in cash and 4,000,000 newly issued shares of its stock to a settlement fund for the benefit of the class members. These amounts also covered the legal fees and expenses of the plaintiffs’ counsel in the action. During the year ended June 20, 2008, the Company contributed the full $6 million in cash to the fund, a substantial portion of which was funded by insurers. After taking into account recoveries, the Company’s net cash payment obligations under both settlements was approximately $1.1 million.

As part of its order relating to the securities class action, the court awarded attorneys’ fees to plaintiffs’ counsel of $3.25 million, of which 44.5% was to be paid in common stock of the Company. Accordingly, on January 14, 2009, the Company issued to plaintiffs’ counsel a total of 772,430 shares of the Company’s common stock, based upon a value of $1.87 per share. (The date of the issuance of the shares and the calculation of the value of the shares to be issued was determined in accordance with the settlement agreement.) Thereafter, in February 2009, SGI repurchased those shares at a purchase price of $1.55 per share. The shares have since been cancelled and returned to the status of authorized but unissued shares.

On October 1, 2009, the Company issued the remaining 3,277,777 shares of common stock to the settlement fund. These shares have been distributed to the claimants. The Company has no further obligation or liability under the settlement agreement.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in Part I, Item 1A, of our 2009 Annual Report, which are incorporated by reference into this filing, except as follows:

Greg Manning v. SGI

The arbitration hearings that were originally scheduled to take place in December 2009 were postponed by agreement of the parties. We are in the process of selecting new dates for the hearings.

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

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

The Annual Meeting of Shareholders was held on December 17, 2009 to elect three directors to serve for terms of one year and until their respective successors have been duly elected and qualified; to elect two directors to serve for terms of two years and until their respective successors have been duly elected and qualified; to elect two directors to serve for terms of three years and until their respective successors have been duly elected and qualified; and to ratify the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the fiscal year ending June 30, 2010.

Set forth below is information concerning the voting results of matters voted upon at the Annual Meeting:

1. The election of the following persons as directors to serve for terms of one year and until their respective successors have been duly elected and qualified.


Antonio Arenas	For: 25,873,000	Withheld: 1,291,000
George Lumby	For: 25,873,000	Withheld: 1,291,000
Jess Ravich	For: 26,845,000	Withheld: 319,000

2. The election of the following persons as directors to serve for terms of two years and until their respective successors have been duly elected and qualified.


Greg Roberts	For: 26,842,000	Withheld: 323,000
Christopher W. Nolan	For: 26,845,000	Withheld: 320,000

3. The election of the following persons as directors to serve for terms of three years and until their respective successors have been duly elected and qualified.


Jeffrey Benjamin	For: 26,845,000	Withheld: 320,000
John U. Moorhead	For: 26,842,000	Withheld: 323,000

4. The ratification of the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm for the fiscal year ended June 30, 2010.

For: 26,959,000 Against: 86,000 Abstain: 120,000

ITEM 5. OTHER INFORMATION.

ITEM 6. EXHIBITS.


Exhibit 31.1		Certification of Chief Executive Officer Under Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of Chief Financial Officer Under Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Chief Executive Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Chief Financial Officer Certification Under Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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


Date: February 12, 2010	SPECTRUM GROUP INTERNATIONAL, INC.
	By:	/s/ Gregory N. Roberts
		Name:	Gregory N. Roberts
		Title:	President and Chief Executive Officer

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


Signatures	Title(s)	Date

/s/ Gregory N. Roberts Gregory N. Roberts	President, Chief Executive Officer and Director (Principal Executive Officer)	February 12, 2010

/s/ Thor Gjerdrum Thor Gjerdrum	Chief Financial Officer and Executive Vice President (Principal Financial Officer)	February 12, 2010

SPECTRUM GROUP INTERNATIONAL, INC. - FORM 10-Q - February 12, 2010

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