UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended June 30, 2010

or

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

For the transition period from                      to                     

SPECTRUM GROUP INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		22-2365834
(State or other jurisdiction of		(IRS Employer Identification No.)
incorporation or organization)

18061 Fitch
Irvine, CA 92614
(Address of Principal Executive Offices)
(Zip Code)

(949) 955-1250

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o   No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if smaller reporting company)

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

As of December 31, 2009, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $21.1 million, based on the closing price of the registrant’s common stock of $1.87 per share on December 31, 2009.

As of September 13, 2010 the registrant had 32,247,756 Common Stock outstanding, par value $.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the registrant’s definitive Proxy Statement relating to the 2010 annual meeting of stockholders, which the registrant expects to file within 120 days following June 30, 2010.

 

 

SPECTRUM GROUP INTERNATIONAL, INC.
FORM 10-K ANNUAL REPORT
For the Fiscal Year Ended June 30, 2010

Table of Contents

				Page
PART I
Item 1.		Description of Business			3
Item 1A.		Risk Factors			11
Item 1B.		Unresolved Staff Comments			18
Item 2.		Properties			18
Item 3.		Legal Proceedings			19
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			21
Item 6.		Selected Financial Data			23
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			39
Item 8.		Consolidated Financial Statements and Supplementary Data			39
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			40
Item 9A.		Controls and Procedures			40
Item 9B.		Other Information			42
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			43
Item 11.		Executive Compensation			45
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			45
Item 13.		Certain Relationships and Related Transactions, and Director Independence			45
Item 14.		Principal Accountant Fees and Services			45
PART IV
Item 15.		Exhibits and Financial Statements Schedules			45
		Signatures			46
EX-3.1.1
EX-3.1.2
EX-10.3
EX-10.4
EX-10.5
EX-10.7
EX-14
EX-21
EX-31.1
EX-31.2
EX-32.1
EX-32.2

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of vision, strategy or outlook. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected by any forward-looking statements. Factors that could cause our actual results to differ materially from those projected include, but are not limited to, those discussed under the heading captioned “Risk Factors,” and elsewhere in this Annual Report on Form 10-K. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Company Overview

Spectrum Group International, Inc. (together with its subsidiaries, “we,” the “Company” or “SGI”) is a global trading and collectibles network. We are a trader of precious metals and an auctioneer of coins, stamps, wine, and antique arms, armor and historical memorabilia, serving both collectors and dealers. We are also a merchant/dealer of certain collectibles. Our collectibles offerings span the price spectrums from modest to ultra-high end. Furthermore, we offer loans to coin dealers, collectors and investors back by their precious metals, rare coin and other collectibles as collateral.

We are a Delaware company headquartered in California with 143 employees globally, as of June 30, 2010. Our executive offices are located at 18061 Fitch, Irvine, California 92614. Our telephone number is (949) 955-1250, and our website is www.spectrumgi.com. Through this website, we make available free of charge all of our filings with the Securities and Exchange Commission (the “SEC”), including those under the Exchange Act of 1934, as amended (the “Exchange Act”). In addition, copies of our Code of Business Conduct and Ethics for Employees, Code of Business Conduct and Ethics for Senior Financial and Other Officers, and Code of Business Conduct and Ethics for Directors are available through this website, along with other information regarding our corporate governance policies.

Approximately 58% of the Company’s common stock is owned by Afinsa Bienes Tangibles, S.A. (“Afinsa”), either directly or through its wholly owned subsidiary, Auctentia, S.L. (“Auctentia”). Since September 2003, Afinsa and Auctentia have collectively owned a majority of the Company’s common stock and have had two representatives on the Company’s Board of Directors.

We conduct our operations within two business segments: Trading and Collectibles. (Our business segments are defined in Note 1 of the Notes to Consolidated Financial Statements.)

Our 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, and an official distributor for many government mints throughout the world. Our products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain, and our services include financing, leasing, consignment, hedging and various customized financial programs. We own 80% of A-Mark through our 80% ownership interest in Spectrum PMI, Inc., which owns all of the common stock of A-Mark. The remaining 20% of Spectrum PMI is owned by Auctentia.

Our Collectibles business operates as an integrated network of leading companies concentrating on numismatic (coins) and philatelic (stamps) materials, rare and fine vintage wine, and antique arms, armor and historical memorabilia (militaria). We have offices and auction houses in North America, Europe and Asia. In addition to traditional live auctions, we also conduct Internet and telephoneauctions.

Before May 2009, we were known as Escala Group, Inc. (ESCL), and before September 2005, we were known as Greg Manning Auctions, Inc. (GMAI). GMAI was incorporated in New York in 1981, and made its initial public offering in May 1993.

Since 2003, we have been pursuing both an organic and acquisition growth strategy to become a global leader in rare collectibles. Over this time, SGI has completed numerous business acquisitions, each of which has fit one or more of three objectives: 1) expand our market position in a specific core collectibles market; 2) expand our geographic presence in a core market; and 3) enter a new collectibles market. As a result of this strategy, we now serve several collectibles channel and a precious metals trading market.

The trading segment looks to grow its business by expanding to new geographies and/or through new product offerings. We will continue to focus efforts in expanding business outside of the US in developed and undeveloped countries and look to offer new commodity products. We will continue to develop our domestic finance business by offering a variety of collectibles and bullion finance products.

Trading Segment

Overview

A-Mark, founded in 1965, is a full-service precious metals trading company engaged primarily in the wholesale purchase and sale of gold, silver, platinum and palladium in a variety of fabricated forms, including coins, bars, wafers and grain. In addition to trading, A-Mark offers its customers a variety of traditional precious metals merchant services including leasing, consignments and hedging. As a U.S. Mint-authorized purchaser of gold, silver and platinum Eagle coinage, A-Mark sources these products directly from the U.S. Mint for sale to its wholesale clientele. In addition to the U.S. Mint, A-Mark also has distributorships with other national mints, including Canada, Australia, South Africa, China and Austria. Customers of A-Mark include banks, financial institutions, coin dealers, jewelers, collectors, investors, investment advisors, manufacturers, refiners, mints and mines. We acquired A-Mark jointly with Auctentia in July 2005.

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

A-Mark’s business model is consistent with others in its industry, and comprises numerous purchase and sale transactions daily on which it generally earns gross margins of fractions of one percent.

A-Mark manages the value of certain specific assets and liabilities, including inventories, by employing a variety of strategies. These strategies include the management of exposure to changes in the market values of the Company’s trading inventories through the purchase and sale of a variety of derivative products such as metals forwards and futures.

The Company’s trading inventories and purchase and sale transactions consist primarily of precious metal bearing products. The value of these assets and liabilities is 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 outright 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 positions, net of open purchase and sales commitments that are subject to price risk. The Company regularly enters into metals commodity forwards 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.

Because it seeks to substantially eliminate market exposure in the underlying commodities through the use of hedging instruments, A-Mark believes its business model largely functions independently of the price movement of the underlying commodities. The financial performance of A-Mark in any given time period is driven principally by customer activity as they perceive the market conditions.

Credit and position risk limits are set by A-Mark’s management. These limits include gross position limits for counterparties engaged in purchase and sales transactions with A-Mark. They also include collateral limits for different types of purchase and sale transactions that counterparties may engage in from time to time.

A-Mark has a borrowing facility (the “Trading Credit Facility”) with a group of five financial institutions under an inter-creditor agreement, which provides for lines-of-credit of up to $115.0 million in total, including a facility for letters of credit up to a maximum of $115.0 million. A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on London Interbank Offered Rate (“LIBOR”) (0.35% at June 30, 2010) plus a margin. Amounts borrowed under the Trading Credit Facility are secured by A-Mark’s receivables and inventories. Borrowings are due on demand and totaled $45.2 million for lines of credit and $4.8 million for letters of credit at June 30, 2010. The Trading Credit Facility is cancelable by written notice from the financial institutions. Amounts available for borrowing under the Trading Credit Facility at June 30, 2010 was $65.0 million.

A-Mark’s Trading Credit Facility has certain restrictive financial covenants which require A-Mark and SGI to maintain a minimum tangible net worth (as defined) of $20.0 million and $50.0 million, respectively. A-Mark’s and SGI’s tangible net worth at June 30, 2010, was $25.7 million and $70.0 million, respectively.

The Company 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 cash or equivalent metals borrowed.

CFC started doing business in 2005. All loans made by CFC are collateralized by the delivery to us of precious metals, coins or other collectibles, with loan to value ratios (principal loan amount divided by the “liquidation value,” as conservatively estimated by the Company’s management, of the collateral) of 50% to 90%. These loans are both variable and fixed interest rate loans, with maturities from three to twelve months. These short term loans bear interest at a rate based on the prevailing rate at the time the loan is made. CFC routinely performs an analysis of the expected collectability of customer notes receivable based on several factors, including the age and extent of significant past due amounts, economic conditions or trends that may adversely affect the ability of customers to pay those notes and the value of the collateral securing the repayment of the outstanding balances and may establish an allowance for possible losses on those notes based on those analyses. The Trading Credit Facility provides funding for eligible CFC loans for a portion of the Trading Credit Facility.

On March 28, 2008, A-Mark entered into a joint venture with a marketing firm and contributed $450,000 for a 50% ownership in the joint venture. The joint venture, which is consolidated with the Company for financial reporting purposes, was formed for the purpose of purchasing, marketing, distributing and selling 2010 Vancouver Winter Olympic Bullion Coins and Olympic Commemorative Coins and other products. The joint venture’s original termination date is June 30, 2011. In May 2010, the parties agreed to a distribution, whereby all remaining funds at the time, except for $10,000, were distributed to the parties.

Supplier and Customer Concentrations

A-Mark buys a majority of its precious metals from a limited number of suppliers. The top two customers represented 28.3% and 12.0%, respectively, of trading revenues for the year ended June 30, 2010, and 23.1% and 6.2%, respectively, of trading revenues for the year ended June 30, 2009.

Trading Competition

A-Mark’s activities cover a broad spectrum of the precious metals industry, with a concentration on the consumer end of the industry. We service public, industrial and private sector consumers of precious metals which include jewelry manufacturers, industrial consumers, refiners, minting facilities, banks, brokerage houses and private investors. We face different competitors in each area and it is not uncommon for a customer and/or a supplier in one market segment to be a competitor in another. Our competitors may offer more favorable pricing or services considered to be superior to ours.

Seasonality

While our precious metals trading business is not seasonal, we believe it is directly impacted by the perception of market trends. Historically, anticipation of increases in the rate of inflation, as well as anticipated devaluation of the U.S. dollar, has resulted in higher levels of interest in precious metals as well as higher prices for such metals.

SGI’s trading presence on the Internet is through www.amark.com and www.cfccoinloans.com.

Collectibles Segment

Overview

We are a leading auctioneer of rare U.S. and foreign coins, paper currency and stamps, rare and fine vintage wine, and antique arms, armor and historical memorabilia. We are also a merchant-dealer of certain collectibles. Our activities are targeted to both collectors and dealers, and feature offerings ranging from modest to ultra-high end prices. Our collectibles companies, all of which are wholly-owned subsidiaries, are listed below.

						Date
Company		Primary Activity		Location		Acquired/Formed
Teletrade		Coins and currencies auctions via the Internet and telephone— all price points but primarily mid-level		USA		October 1998
Spectrum Numismatics International		Wholesaler of coins, currencies and other collectibles		USA		December 1999
Corinphila Auktionen		Auctions of stamps — primarily high-level and rare (collections and single items)		Switzerland		September 2003
Heinrich Köhler Briefmarkenhandel		Wholesaler of stamps — primarily high-level		Germany		September 2003
Heinrich Köhler Auktionshaus		Auctions of stamps — primarily high-level (collections and single items)		Germany		September 2003
Bowers and Merena Auctions		Auctions of coins — primarily high-value and rare; and coin retailer — primarily catalogue and Internet		USA		February 2004
H.R. Harmer Nutmeg Stamps		Auctions of stamps — entry, mid-level and high-level		USA		July 2004
John Bull Stamp Auctions		Auctions of stamps — entry, mid-level and high-level		Hong Kong		January 2005
Greg Martin Auctions		Auctions of arms and armor and historical memorabilia		USA		October 2005
Spectrum Wine Auctions		Auctions of rare and fine vintage wines		USA		February 2009
Corinphila Veilingen		Auctions of stamps — primarily high-level and rare (collections and single items)		Netherlands		January 2010

During the fiscal year ended June 30, 2009, we also operated the brand “Nutmeg Stamp Sales” in our North American stamps division. In May 2009, we merged the “Nutmeg Stamp Sales” brand into “H.R. Harmer.” In early fiscal 2011, we intended to change the name of the company to H.R, Harmer – Global Philatelic Network GmH through a transfer of assets. . In addition, during the fiscal year ended June 30, 2009, we operated North American Certified Trading (in our coins division) and Heinrich Köhler Berliner (in our European stamps division). In fiscal 2009, the retail operations formerly conducted by North American Certified Trading were assumed by Bowers and Merena, and the operations of Heinrich Köhler Berliner were discontinued.

Teletrade, which the Company bought in 1998, offers certified coins and currencies auctions via the Internet and telephone.

Spectrum Numismatics, which we have owned since 1999, is engaged in the buying and selling of coins and currencies on a wholesale basis.

Corinphila, which we also acquired as part of our 2003 transactions with Afinsa, is the oldest stamp auction house in Switzerland. It specializes in high-end philatelic single items and specialized collections.

Köhler, founded in 1913, became one of our subsidiaries in our 2003 transactions with Afinsa. It specializes in post-1945 German and old Communist Eastern Bloc countries’ philately. Köhler is one of the largest philatelic auction houses in Germany and, like our other philatelic auction houses, conducts wholesale transactions of philatelic materials. Bowers and Merena, which we acquired in 2004, is one of the leading rare coin auctioneers in the U.S. and has recently expanded into retail operations.

The auction house H.R. Harmer, which was originally based in New York and which we acquired in 2004, was founded in 1940. H.R. Harmer is one of the leading philatelic auction houses in the U.S.

John Bull Stamp Auctions is the oldest philatelic auction house in Hong Kong. We acquired John Bull in 2005.

We acquired Greg Martin Auctions in October 2005. That company was founded in January 2002, by three principals of Butterfields Auctioneers, one of whom, Greg Martin, has continued as the President of the company since the acquisition. Greg Martin Auctions is engaged in the sale by auction of antique arms, armor and historical memorabilia. In 2009, we relocated Greg Martin Auctions from Northern California to Irvine, California, where our corporate headquarters are located.

In December 2008, we acquired Ponterio & Associates, which is a 26 years old firm specializing in ancient and world coins and paper money. It is operated through Bowers and Merena.

We formed Spectrum Wine Auctions in February 2009. Spectrum Wine Auctions conducted its first auction of rare collectible wines in November 2009.

On January 1, 2010, Heinrich Köhler Auktionshaus Gmbh & Co KG acquired 100% of Postzegelveiling Wiggers De Vries B.V., a privately-held, Netherlands-based auction house, for cash consideration of $360,000. As part of and concurrent with the closing, the company’s name was changed to Corinphila Veilingen B.V.

We access our Collectibles markets through multiple channels. Principal among these are traditional “live” auctions featuring full electronic capabilities. Further, certain of our subsidiaries offer Internet-only auctions. We also buy and sell collectible materials on a wholesale basis as a merchant/dealer, as well as engage in a limited number of direct sales on a private treaty basis. We believe our size and access to multiple channels are competitive advantages that help us maximize prices realized for the various kinds and grades of collectible materials that we encounter.

In all of our market channels, we may be offering either owned inventories or properties that have been consigned to us by its owner. In our role as auctioneer, we match consignors (sellers) of properties with buyers of these properties through the auction process. We will then invoice the buyers for their purchases (including commissions owed by the buyers), collect payments from the buyers, and make remittances to the sellers, net of their commissions owed. The auction commissions that we typically charge to the sellers range from 0% to 20% and those charged to the buyers range from 12.5% to 19.5%.

“Traditional auctions” are live, in-person auctions conducted by a licensed auctioneer. We hold multiple auctions each year in a variety of venues, including strategically located hotels and at major trade conferences and conventions. All traditional auctions are augmented by hard copy and/or electronic catalogs, and most are augmented by one or more forms of electronic bidding, a growing trend in auction services. Our traditional auctions are based on a “full service” auction model in which we take physical possession of all items offered for sale in our auctions, inspect and describe all offerings, receive all sums due, remit sale proceeds to the seller and professionally pack and ship items to the buyer.

In our traditional auctions, prospective buyers place bids on each lot as presented in the order shown in the catalog at the time and date of the auction. Before the auction, prospective buyers may bid by lot as shown in the catalog and communicate such bids to us by mail, fax, telephone or the Internet. At the auction, the auctioneer typically opens bidding at levels based on bids received prior to auction or a percentage of previously established reserve prices. The item offered is sold to the highest bidder, whether such bid was received before the auction or at the time of sale, and such high bidder must pay the hammer price, the applicable buyer’s premium, and all applicable sales taxes. Additionally, buyers pay a shipping and handling fee if they do not accept delivery of the items at the auction venue.

The auctioneer regulates the bidding and reserves the right to refuse any bid believed by him/her not to be made in good faith. Costs involved in conducting a traditional auction include, among other things, the cost of inspecting, describing, storing and insuring the items to be offered for sale; creating, printing and the production of the catalog; transportation, auction advertising, auction venue site rental fees, security, temporary personnel, expenses of certain additional auction-related accounting and shipping functions, and credit card merchant fees.

We operate “Internet auctions” through our Teletrade, Bowers and Merena, Greg Martin Auctions, and Spectrum Wine Auctions subsidiaries. In Internet auctions, bidding takes place over the Internet and/or telephone. Depending on which technology the Company utilizes, there may be no live auctioneer and no bidders in a single physical location orally making bids. In certain types of Internet auctions, a Company employee operates the live Internet bidding software, effectively acting as the auctioneer.

Consistent with our full service traditional auction business model and its commitment to customer service, our Internet auctions feature many of the same full service amenities as our traditional auctions. Specifically, unless otherwise noted in a particular sale’s terms and conditions, we take physical possession of all items offered for sale prior to the sale, describe the items, collect all sums due, remit the sale proceeds to the seller, and professionally pack and ship the items sold to the buyer.

Costs involved in conducting our Internet auctions include, among other things, the cost of inspecting, describing, imaging, storing and insuring the items to be offered for sale. Other costs include technology development and maintenance, computer and Internet hardware procurement and maintenance, advertising, credit card merchant fees and expenses of certain additional auction-related accounting and shipping functions.

The technology operating our Internet/telephone auctions conducted on our Teletrade website is known as Interphonic™. This technology, which is owned and was developed by us, permits bidders to participate in electronic auctions either by touch-tone telephone or via the Internet.

Our collectibles presence on the Internet is through the following websites:

www.bowersandmerena.com
www.corinphila.ch
www.corinphila.nl
www.gregmartinauctions.com
www.heinrich-koehler.de
www.hrharmer.com
www.jbull.com
www.spectrumcoins.com
www.spectrumwineauctions.com
www.teletrade.com

The Company also owns over 100 other domain names, including www.coins.com, www.sportscard.com, and www.iauctions.com.

In May 2010, the Company and its three wholly-owned numismatic subsidiaries, Spectrum Numismatics International, Inc. (“SNI”), Bowers and Merena Auctions, LLC (“Bowers”), and Teletrade, Inc. (“Teletrade”), entered into a borrowing facility

with a lender, providing for a line-of-credit (the “Collectibles Credit Facility”) up to a maximum of $7.5 million. Amounts outstanding under the Collectibles Credit Facility are secured by the assets of SNI, Bowers, and Teletrade, and are further guaranteed by the Company. The Collectibles Credit Facility is repayable on demand, and interest on outstanding amounts accrue at the lender’s base rate plus additional basis point. As of June 30, 2010 SNI had borrowed $2.0 million from this Collectibles Credit Facility. Separately, A Mark, our precious metals trading company, has a Collectibles Credit Facility with this lender totaling $15.0 million, which is a component of A Mark’s Trading Credit Facility. Total borrowing capacity between SNI and A Mark cannot exceed $17.5 million with respect to this lender. As of June 30, 2010 the total amount borrowed was $7.7 million, $2.0 million by SNI and $5.7 million by A Mark. Amounts available for borrowing under this Collectibles Credit Facilities as of June 30, 2010 was $5.5 million.

Consignor Advances

Frequently, an owner consigning property to us will request a cash advance at the time the property is delivered, prior to its ultimate sale at auction or otherwise. The cash advance is in the form of a self-liquidating secured loan usually bearing interest and using the consigned property as collateral. We hold a security interest and maintain physical possession of the collateral until it is sold.

The ability to offer cash advances is often critical to our ability to obtain consignments of desirable property. In the case of property sold at auction, an owner may have to wait up to 60 days after the auction sale date for settlement and payment of the owner’s portion of the sale proceeds. In many instances, an owner’s motivation for consigning property for sale may include a need for cash on an immediate basis. Offering cash advances allows us to attract owners who desire immediate liquidity while preserving the opportunity to sell at auction at the highest available price. We believe that our ability to make consignor advances on a consistent basis has enabled us to receive regular consignments of high value lots from professional dealers and private collectors. The amount of a cash advance generally does not exceed 75% of our estimate of the value of the property to be sold at auction.

Complementary Merchant Dealer Operations; Private Treaty Sales

In order to complement and enhance our auction business, we frequently buy collectibles in our own name and resell them as a merchant/dealer or in our auctions. For a variety of reasons, some collectors require the immediate liquidation of their collections and cannot wait for an appropriate auction. Other collectors do not wish to sell by auction and prefer a negotiated, fixed price sale. In these instances, we use our knowledge of the markets and products to make what we call “opportunistic purchases.” In most instances, collectibles purchased in this manner are resold within 180 days either in one of our auctions or in a private treaty transaction. In other instances, either because the markets are not yet ripe or because the collection purchased is so large, we may conclude that the collectibles are most profitably sold over a period of time, in which case, the collectibles purchased are held in our inventory and resold over an extended time period. In addition to these opportunistic purchases, we continually search the collectibles markets for favorable buying opportunities and buy individual pieces and collections to resell to a particular collector pursuant to a specific purchase request, to fill a need for one of our auctions to make that auction more attractive to the targeted audience, or to take advantage of what we believe are favorable prices and buying opportunities. In these circumstances, items purchased are generally resold in less than 180 days, but may be held for longer periods.

We earn profits, or incur losses, on the sale of owned inventory to the extent the sale prices exceeds, or are less, than the acquisition prices paid by us. We seek to sell our owned inventory as quickly and efficiently as possible, thereby promoting a high level of inventory turnover and maintaining maximum liquidity.

In a private treaty sale, we contact known collectors and sell specific, usually high or ultra-high end items, to such collectors at a privately negotiated price. When such sales are conducted for owned items, we earn a profit based upon the sale price paid by the private buyer. We also conduct private sales of consigned items. In such instances, we earn a fee for our services. Generally, the fee is a percentage of the sale price; however, in some instances we will be paid a fixed, negotiated fee.

Private treaty sales are typically settled more promptly than auction sales with the buyer paying all or substantially all of the purchase price at the time of the sale. However, we do, from time to time, extend credit to certain long-standing customers that have demonstrated a satisfactory history of payment.

A private treaty sale is attractive to some potential consignors because it provides an opportunity for a sale at a fixed price or at a price controlled by the consignor rather than by bidders, as is the case at public auction. Often, a private treaty sale can be consummated more quickly than a sale at auction, which also provides the Company with the opportunity for higher margins because such sales involve fewer costs when compared with live auction sales.

Collectibles Competition

The auction and merchant dealer markets, both traditional and Internet, for the collectibles that we offer are highly competitive and dynamic. With the exception of the low-end and consumer-to-consumer segments of the Internet auctions market in which eBay has secured a dominant market position, no clear market leader exists. The market comprises thousands of merchant/dealers, as well as thousands of individual collectors buying and selling directly through consumer-to-consumer Internet trading platforms and at collectibles shows and conventions. Most of these competitors, however, are small, privately owned companies, and most are focused on a single collectible category and do not have a multi-category presence similar to ours.

Our principal numismatic auction and merchant/dealer competitors are Heritage Rare Coin Galleries, Stack’s Rare Coins, Ira and Larry Goldberg Coins & Collectibles, and U.S. Coins, Inc.

As a general matter (with some exceptions), the local market is preferred by sellers of philatelic materials. In other words, sellers of U.S. collections generally prefer to sell their material through U.S. auction houses, and German material is generally sold through German companies. An exception is Switzerland, where Corinphila sells specialized collections and Latin American materials along with Swiss collections.

Among our primary competitors in the domestic philatelic auction and merchant dealer business are Spink Shreves Galleries, Inc., Robert A. Siegel Auction Galleries, Inc., Mystic Stamp Company, and Regency-Superior, Ltd.

In Europe, the Company has numerous philatelic competitors that include Hanseatische Briefmarkenauktionen OHG (HBA), Auktionshaus Ulrich Felzmann GmbH & Co. KG, Wurttembergisches Auktionshaus Fur Postwertzeichen GmbH, and Philatelie Christoph Gartner GmbH in Germany; David Feldman S.A., Peter Rapp AG, Chiani-Auktionen, Giorgino Auktionen, and Rolli-Schar AG in Switzerland; Behr Philateli in France; Thomas Hoiland Auctions in Denmark; Van Dieten Postzegelveilingin B.V., and De Nederlandsche Postzegelveiling B.V. in the Netherlands; and Harmers of London, Stanley Gibbons, Grosvenor Auctions, and Bonhams in the UK.

Our major competitors in the arms and armor business are Bonhams & Butterfields, Rock Island Auction Company, Little John’s Auction Service, James D. Julia, Amoskeag Auction Company, Christie’s, and Sotheby’s Parke-Bernet.

Our competitors in the wine auction business include Christie’s, Sotheby’s, Zachys, Hart Davis Hart, and Acker Merrall & Condit.

Our competition in the Hong Kong philatelic market includes InterAsia Auctions, Spink, and Zurich Asia.

Seasonality

Our Collectibles business is not generally subject to seasonal changes, although we often schedule our auctions around major coin, stamp and gun shows.

Financial and Geographical Information about Segments

See Note 17 of the Notes to Consolidated Financial Statements for financial and geographical information about the Company’s reporting segments.

Government Regulation

Our trading and finance operations are subject to regulation, supervision and licensing requirements under various federal, state, local and foreign laws, ordinances and regulations. Our collectibles operations are not currently subject to material federal, state or local regulation.

Employees

As of June 30, 2010, we had 143 employees, with 111 located in North America, 28 in Europe, and 4 in Asia. 131 of these employees were considered full-time employees. We regard our relations with our employees as good. The table below provides a breakdown of our employees by segment as of June 30, 2010, and 2009.

		June 30, 2010				June 30, 2009
Trading			20				20
Collectibles			116				119
Corporate			7				3
Total			143				142

Website Address

The Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K through a hyperlink from its website, www.spectrumgi.com, to a website maintained by an unaffiliated third-party service. Such reports are made available on the same day that they are electronically filed with, or furnished to, the SEC.

ITEM 1A. RISK FACTORS

We face risks and uncertainties in connection with the bankruptcy proceedings of Afinsa, our majority shareholder.

Our majority shareholder, Afinsa, is currently in bankruptcy proceedings in Spain. Its wholly-owned subsidiary, Auctentia, which owns 58% of the Company’s stock directly, is no longer in bankruptcy proceedings itself, but the stock of Auctentia is among the assets of Afinsa’s bankrupt estate.

The liquidation of Afinsa’s assets will include the sale, transfer or other disposition of the stock of the Company owned by it and Auctentia. A sale, transfer or other disposition of all or a substantial portion of the shares of Company stock held by Afinsa and its subsidiary will cause a change of control of the Company. A holder (or group of holders) of more than 50% of the Company’s issued and outstanding stock has sufficient voting power to control the outcome of virtually all corporate matters submitted to a vote of our stockholders. These matters could include the election of directors, amendments to our by-laws, changes in the size and composition of our Board of Directors, and mergers and other business combinations involving us. Such a holder may promote policies or transactions that may not be favored by other stockholders or impede policies or transactions that may be desirable for other stockholders. A change of control could also have adverse tax consequences to the Company by limiting our ability to utilize our net operating loss carryforwards and other related tax attributes.

Although SGI and Auctentia are parties to a registration rights agreement pursuant to which Auctentia may request that substantially all of the shares of the Company’s common stock beneficially owned by it be registered by the Company at the Company’s expense, the Company would not be able to comply with any such request until it is able to meet the SEC requirements governing registration statements, including those relating to audited financial statements. Until such time, Afinsa (and Auctentia) would not be able to sell the shares of our Company publicly, and would have to dispose of those shares in one or more private transactions. If and when the shares are registered, then they will be freely tradable immediately after any registration. Sales of such shares in the public markets in one or more “block” transactions could have a negative effect on the trading price of the Company’s common stock.

We face potential liabilities as a result of ongoing proceedings against certain of the Company’s former officers and directors.

As described in further detail below, under the heading captioned “Legal Proceedings — SEC Action,” on March 23, 2009, following a three-year investigation, the SEC filed an action in the U.S. District Court for the Southern District of New York against Greg Manning, formerly Chief Executive Officer and President of the Company and First Vice Chairman of its Board of Directors, and Larry Crawford, formerly the Chief Financial Officer of the Company, seeking a permanent injunction against future violations of certain provisions of the federal securities laws, and disgorgement and civil monetary penalties in an unspecified amount. The action against Mr. Manning was settled on August 23, 2010. The action against Mr. Crawford is ongoing.

In addition, as more fully described below under “Legal Proceedings — Spanish Criminal Investigation,” Messrs. Manning and Crawford, along with other former officers and directors of the Company and Central de Compras Coleccionables (“CdC”), a wholly-owned subsidiary of the Company, are the subject of a criminal investigation in Spain arising out of the Company’s transactions with Afinsa. The Company understands that, under Spanish law, after the end of the investigative stage, which is expected to last for years, the Spanish Investigative Court will determine whether there are grounds to bring formal charges and to continue to a trial or whether the proceedings should be dismissed. As the Company understands Spanish law, corporations cannot be charged directly with criminal acts, but face the possibility of secondary civil liability through the actions of their officers. Therefore, if any of these former officers or directors of SGI or CdC is ultimately found guilty, then, under this principle of secondary civil liability, the corporation could be held liable for certain associated penalties. However, neither SGI nor CdC is currently a party to these criminal proceedings, and the effect, if any, on the Company cannot be determined at this time.

Messrs. Manning and Crawford (and such other officers and directors) are entitled to receive advances from the Company for their legal fees and expenses in connection with the Spanish criminal proceedings. In addition, the Company is continuing to advance fees and expenses to Mr. Crawford in connection with the SEC action, and may be obligated to indemnify and reimburse Mr. Crawford for amounts paid by him in connection with money judgments, penalties or settlements in the SEC action. We are unable at this time to predict whether these developments will result in any kind of additional formal proceeding against SGI or CdC, and are unable to assess the likelihood of a favorable or unfavorable outcome of any such action, or to estimate the amount of liability in the event of an unfavorable outcome. If we are ultimately required to pay significant defense costs, damages or settlement amounts as a result of our indemnification obligations, such payments could materially and adversely affect our liquidity and results of operations.

In addition, the SEC action, the Spanish criminal proceedings and any additional charges against, or settlements by, any of our former officers, may generate negative publicity and adversely affect the investing public’s (and others’) perceptions of the Company. This, in turn, could adversely affect the market price of our common stock, our access to the capital markets and our borrowing costs, which could adversely affect our business and our results of operations.

We are subject to ongoing obligations in connection with the SEC Settlement, and our failure to comply with those obligations, including the obligation to file our Exchange Act reports for prior periods, could adversely affect our business and the liquidity of our common stock.

As described in further detail below under the heading captioned “Legal Proceedings — SEC Action,” on March 23, 2009, the Company announced that it had reached a settlement with the SEC (the “SEC Settlement”), which resolved charges filed against the Company in connection with the SEC’s investigation into the Company’s historical transactions with Afinsa. Under the terms of the SEC Settlement, which was approved by the U.S. District Court for the Southern District of New York on March 30, 2009, the Company consented, without admitting or denying the allegations made in the SEC’s complaint, to a permanent injunction against any future violations of certain provisions of the federal securities laws, including those requiring us to make all filings under the Exchange Act.

While we will endeavor to comply fully with the terms of the SEC Settlement, it is possible that the SEC’s enforcement staff may take issue with our compliance, despite our efforts. In particular, we are not currently in compliance with the requirement that we make all necessary filings under the Exchange Act; we have not filed amended Reports on Form 10-K

for the years ended June 30, 2004, and 2005 (either separately or as part of a comprehensive Report on Form 10-K); we have not filed Reports on Form 10-K for the fiscal years ended June 30, 2006, 2007 and 2008; and we have not filed Reports on Form 10-Q (or amended Reports on Form 10-Q, as the case may be) for any quarter during these fiscal years. The reason we have not been able to file these Reports on Form 10-K and 10-Q to date is that we face two major issues with completing our audit of the financial statements for our North American Philatelic Division — and therefore the audit of the Company’s consolidated financial statements — for any year prior to June 30, 2008. First, many of the accounting records for that Division for the prior periods — specifically, the supporting analyses for balance sheet and income statement accounts — are incomplete and need to be reconstructed. Second, the Company has experienced significant turnover in its accounting and corporate personnel since 2006, which has adversely impacted the Company’s ability to reconstruct these financial data.

The failure by us to comply with the SEC Settlement, or any perception that we have failed to comply with the SEC Settlement, could result in further enforcement actions by the SEC, including the imposition of sanctions or fines. In addition, the SEC could commence proceedings to suspend or revoke the registration of our common stock under Section 12(j) of the Exchange Act. The SEC could also seek to impose a trading halt in our common stock for up to ten trading days if it believes the public interest and the protection of investors requires it to do so. Should our common stock be de-registered, brokers, dealers and other market participants would be prohibited from buying or selling, making a market in, or publishing quotations or otherwise effecting transactions with respect to our common stock. As a result, public trading of our common stock would cease. This could have an adverse impact by reducing the liquidity of our common stock and preventing investors from buying or selling our common stock in the public market.

We are the subject of examinations by U.S., New York State and Spanish tax authorities.

In November 2005, Spanish tax authorities commenced an investigation of CdC, covering all periods from fiscal 2001 through fiscal 2006.

In February 2008, the Internal Revenue Service (the “IRS”) commenced an audit of SGI’s tax returns for fiscal 2004, 2005 and 2006. In March 2008, the New York State Department of Taxation and Finance began an audit of our tax returns for fiscal 2005, 2006 and 2007.

These audits are ongoing and the outcome cannot be determined at this time. An adverse outcome could have a material adverse effect on the financial condition and results of operations of the Company.

We have incurred and expect to continue to incur substantial legal, accounting and other costs and expenses arising from our relationship with Afinsa.

In addition to our advancement and indemnification obligations described above, we have also incurred significant expenses relating to the re-audit and restatement of our historical financial statements, investigation by the Audit Committee, the SEC investigation and settlement and the shareholder litigation. We may incur significant additional expenses in connection with the re-audit and restatement of our historical financial statements, the preparation of our delinquent Exchange Act reports and the Spanish criminal proceedings. In addition, these matters are likely to divert the time and attention of our management from regular business operations.

Our trading business is exposed to commodity price risks and to risks of default of our counterparties.

A-Mark’s precious metals inventories are subject to market value changes created by change in the underlying commodity price, as well as supply and demand of the individual products the Company trades. In addition, open purchase and sale commitments are subject to changes in value between the date the purchase or sale is fixed (the trade date) and the date metal is delivered or received (the settlement date). A-Mark seeks to minimize the effect of price changes of the underlying commodity through the use of financial derivative instruments, such as forward and futures contracts. A-Mark’s policy is to remain substantially hedged as to its inventory position and to its individual purchase and sale commitments. A-Mark’s management monitors its hedged exposure daily. However, there can be no assurance that these hedging activities will be adequate to protect the Company against commodity price risks associated with A-Mark’s business activities.

Furthermore, even if we are fully hedged as to any given position, there is the risk of default by our counterparties to the hedge. Any such default could have a material adverse effect on our financial position and results of operations.

A-Mark’s business is heavily dependent on its heavily concentrated customer base.

One of A-Mark’s key assets is its customer base. This base provides deep distribution of product and makes A-Mark a desirable trading partner for any precious metals product manufacturer, including a sovereign mint seeking to distribute precious metals coinage or a large refiner seeking to sell large volumes of physical precious metals. For the fiscal year ended June 30, 2010, A-Mark’s top two customers represented 28.3%, and 12.0%, respectively of our Trading revenues. Any event that would adversely affect the relationship between A-Mark and its customers, or the loss of any significant customer, would negatively impact A-Mark’s results of operations.

A-Mark’s business is heavily dependent on its credit facility and its banking relationships.

The Trading Credit Facility provides A-Mark and CFC with the liquidity to buy and sell billions of dollars of precious metals annually. The Trading Credit Facility is a demand facility, and any of the five lending institutions can cancel its portion of the Trading Credit Facility upon written notice.

The loss of a credit-line of any one of the five bank participants and the failure of A-Mark to replace that line could have a material adverse effect on the business and financial condition of A-Mark.

In addition, CFC is permitted to utilize a portion of the Trading Credit Facility to fund its loans. There can be no assurance that the cash flows from our CFC business will be sufficient to enable us to repay any borrowings under the Trading Credit Facility.

In addition, fluctuations in interest rates influence the cost of funds for borrowings under the Trading Credit Facility.

The loss of a government purchaser/distributorship arrangement could materially adversely affect A-Mark’s business and results of operations.

A-Mark’s business is heavily dependent on its purchaser/distributorship arrangements with various governmental mints. A-Mark’s ability to offer coins and bars to its customers on a competitive basis is based on its ability to purchase products directly from a government source. The loss of any authorized purchaser/distributor relationship, including with the U.S. Mint, could have a materially adverse effect on A-Mark’s business.

A-Mark’s business is heavily influenced by volatility in commodities prices.

A primary driver of A-Mark’s profitability is volatility in commodities prices. If prices were to stagnate, there would likely be a reduction in trading activity, resulting in less demand for the services A-Mark provides. Alternatively, an increase in price volatility would be likely to result in increased business activity for A-Mark. Among the factors that can impact the price of precious metals are supply and demand of gold; political, economic, and global financial events; movement of the U.S. dollar versus other currencies; and the activity of large speculators such as hedge funds.

The materials held by A-Mark and our collectibles companies are subject to loss, damage, theft or restriction on access.

There is a risk that part or all of the gold and other precious metals held by A-Mark, and the collectibles held by our collectibles companies, could be lost, damaged or stolen. In addition, access to A-Mark’s gold could be restricted by natural events (such as an earthquake) or human actions (such as a terrorist attack). Any of these events may adversely affect our operations. Although we maintain insurance on terms and conditions that we consider appropriate, we may not have adequate sources of recovery if our gold or other material is lost, damaged, stolen or destroyed, and recovery may be limited. Among other things, our insurance policies exclude coverage in the event of loss as a result of terrorist attacks or civil unrest.

Our stock is not currently traded on a recognized exchange.

In early 2007, our stock was de-listed from the NASDAQ National Market because of our failure to comply with our financial reporting obligations under the Exchange Act. Since then, our stock has traded on the “pink sheets,” and is thinly traded. While we intend to re-list on a recognized exchange as soon as we meet all applicable listing requirements, there can be no assurance that we will be successful in doing so.

Our business is influenced by political conditions and world events.

Global political conditions and world events may affect SGI through their effect on the economies of various countries, as well as on the decision of buyers and sellers to purchase and sell precious metals and collectibles and the value of such precious metals and collectibles.

Our business is subject to the risk of fraud, forgeries, fakes, lack of provenance and counterfeiting.

Both our collectibles and precious metals (particularly bullion) business are exposed to the risk of loss as a result of “materials fraud” in its various forms. We seek to minimize our exposure to this type of fraud through a number of means, including third-party authentication and verification, reliance on our internal experts and the establishment of procedures designed to detect fraud. However, there can be no assurance that we will be successful in preventing or identifying this type of fraud, or in obtaining redress in the event such fraud is detected.

We have significant operations outside the United States.

Business operations outside the U.S. are subject to political, economic and other risks inherent in operating in foreign countries, such as: the difficulty of enforcing agreements, collecting receivables and protecting inventory and other assets through foreign legal systems; trade protection measures and import or export licensing requirements; difficulty in staffing and managing widespread operations; required compliance with a variety of foreign laws and regulations; changes in the general political and economic conditions in the countries where we operate, particularly in emerging markets; threat of nationalization and expropriation; higher costs and risks of doing business in a number of foreign jurisdictions; limitations on the repatriation of earnings; fluctuations in equity, revenues and profits due to changes in foreign currency exchange rates, including measures taken by governments to devalue official currency exchange rates; and inflation levels exceeding that of the U.S.

We try to manage these risks by monitoring current and anticipated political and economic developments and adjusting operations as appropriate. Changes in the political or economic environments of the countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.

We could suffer losses with our financing operations, which could affect our liquidity and results of operations.

We offer various types of financing in our business. Our receivables from the customers with whom we trade in precious metals represent short-term, non-interest bearing amounts due from metal sales and are generally secured by the related metals maintained in the Company’s possession, by a security interest, or by a letter of credit issued on behalf of the customer. Advances on refined materials represent metals advanced to customers, secured by unrefined materials received from the customer. These advances are limited to a portion of the unrefined materials received. Wholesale trade advances are unsecured, short-term, non-interest bearing advances made to wholesale metals dealers and government mints. The Company periodically extends short-term credit through the issuance of notes receivable to approved customers at interest rates determined on a customer-by-customer basis. The amounts due from brokers principally relates to commodity hedging transactions.

SGI also frequently extends trade credit in connection with its auction sales. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The sale and auction of Company-owned inventory are, from time to time, made with extended payment terms of up to twelve months. Certain assets held by the Company collateralize these receivables.

The Company operates a financing business through CFC that makes secured loans at loan to value ratios (principal loan amount divided by the “liquidation value”, as conservatively estimated by management, of the collateral) of 40% to 85%. These loans are both variable and fixed interest rate loans, with maturities from six to twelve months.

The failure or inability of borrowers to repay their loans is an inherent risk in all lending. Our ability to minimize loan losses will depend on several factors, including (a) the loan underwriting and other policies and controls we continue to adopt and implement, which could prove to be inadequate to prevent loan losses from occurring; (b) our ability to sell collateral, when a borrower defaults in the payment of a loan, for amounts sufficient to offset loan losses, which can be affected by a number of factors outside of our control, including (i) changes in economic conditions, (ii) increases in market rates of interest and (iii) changes in the condition or value of the collateral that will secure the loans we make; and (c) the reserves we will need to establish for potential loan losses, which may prove to be inadequate, in which case we would have to incur additional charges, which would have the effect of reducing our net income and could negatively impact our financial condition. Additionally, our CFC operations are subject to certain state and federal laws and regulations, which may impose significant costs or limitations on the way we conduct or expand such a business.

Changes in our liquidity and capital requirements could limit our ability to achieve our plans.

The Company currently has no working capital facility in place, other than its Trading and Collectibles Credit Facilities., which are repayable on demand. If the cash that we generate from our business, together with cash that we may borrow under the Trading and Collectibles Credit Facilities, is not sufficient to fund our capital requirements, we will require additional debt and/or equity financing. However, we may not succeed in obtaining the requisite additional financing on terms that are satisfactory to us or at all. In addition, the Company’s ability to raise capital through the public issuance of equity or debt securities may be restricted because of its failure to file its delinquent reports under the Exchange Act.

Failure to obtain such financing could have a material adverse effect on the Company’s ability to offer cash advances to potential consignors of property (which is an important aspect of the marketing of an auction business), to acquire collectibles for sale in the Company’s business, to expand into sales of other collectibles, to expand our CFC operations, to initiate any other new business activities and to execute on any strategic growth plan we might develop. Also, the Trading and Collectibles Credit Facilities impose certain restrictive covenants, including restrictions on the payment of dividends to the parent company, which could have an adverse impact on our liquidity position and our ability to expand our business.

We are dependent on our key management personnel and our Trading and Collectibles experts.

Our performance is greatly dependent on the performance of our senior management and certain other key employees. Some of our executive officers and key employees, including Greg Roberts, our CEO and President, are experts in the collectibles and trading markets and have industry-wide reputations. The loss of these individuals could have a negative effect on our reputation for expertise in the collectibles and precious metals trading markets in which we operate and could lead to a reduction in our business. Competition for available trading and collectibles experts is intense. Accordingly, our business and our growth initiatives are heavily dependent on our ability (i) to retain our existing collectibles experts, who have developed relatively unique skills and enjoy a reputation for being experts within their fields, and (ii) to implement personnel recruiting, succession and training programs that will enable us to add trading and collectibles experts, as necessary, to grow our business and offset employee turnover that can occur from time to time. If we are not successful in retaining our existing experts or in hiring and training new experts, this could limit our ability to grow our business and adversely affect our operating results and financial condition. Moreover, some of our experts could leave our company to join a competitor or start a competing business.

We have made numerous acquisitions, which entail certain risks, as do our other growth initiatives.

We have grown in part through acquisitions and expect to continue to do so. We will consider potential acquisitions of varying sizes and may, on a selective basis, pursue acquisitions or consolidation opportunities involving other public companies or large privately-held companies. It is possible that we will not realize the expected benefits from our acquisitions or that our existing operations will be adversely affected as a result of acquisitions. The making of acquisitions entails certain risks, including: (a) unrecorded liabilities of acquired companies that we fail to discover during our due

diligence investigations; (b) difficulty in assimilating the operations and personnel of the acquired company within our existing operations or in maintaining uniform standards; (c) loss of key employees of the acquired company; and (d) strains on management and other personnel time and resources both to research and integrate acquisitions.

We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash are not sufficient to fund future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase as we implement our growth strategy. We have also spent considerable time, resources and efforts, apart from acquisitions, in attempting to grow our business operations over the past few years. These efforts place, and are expected to continue to place, strains on our management and other personnel and resources and require timely and continued investment in facilities, personnel and financial and management systems and controls. We may not be successful in implementing all of the processes that are necessary to support our growth initiatives, which could result in our expenses increasing disproportionately to our incremental revenues, causing our operating margins and profitability to be adversely affected.

We may not have successfully remediated previously identified material weaknesses in our internal controls and we may identify additional material weaknesses in the future.

As described below under heading captioned “Controls and Procedures,” we have in the past had material weaknesses in our internal control over financial reporting and, as of June 30, 2010, had two material weaknesses. We have also concluded that, as of June 30, 2010, our disclosure controls and procedures were not effective. We have adopted a plan to remediate these material weaknesses and have taken steps to address certain of the issues associated with our disclosure controls and procedures. However, there can be no assurance that the measures we have taken and will take to remediate identified weaknesses and to address our disclosure control issues will be sufficient or that we will not identify additional weaknesses in the future. Additionally, even if we believe we have effective control over financial reporting, the process for assessing the effectiveness of internal control over financial reporting requires subjective judgments and the application of standards that are relatively new and subject to questions of interpretation. If we continue to conclude that our internal control over financial reporting is not effective, the perception of our Company may be adversely affected, which could in turn adversely affect the price of our securities, our access to the capital markets and/or our borrowing costs.

The imposition of government regulations could increase our costs of doing business.

Our trading operations are subject to regulation, supervision and licensing requirements under various federal, state, local and foreign laws, ordinances and regulations. New laws and regulations could be enacted that could have a negative impact on our trading activities.

While the collectibles market is not currently subject to direct federal, state or local regulation, from time to time government authorities discuss additional regulations which could impose restrictions on the collectibles industry, such as regulating collectibles as securities or requiring collectibles dealers to meet registration or reporting requirements, or regulating the conduct of auction businesses. Adoption of laws or regulations of this nature could lead to a decline in sales and purchases of collectibles.

The weak economy has had a negative impact on our Collectibles operations.

Our Collectibles business, which is significantly affected by the amount of discretionary consumer spending, has been adversely impacted by the general economic climate, and further deterioration in global economic conditions is expected to have a negative effect on our Collectibles operations and the market value of the Collectibles inventory that we hold at any given time.

We operate in highly competitive industries.

The business of buying and selling precious metals and collectibles is highly competitive. The Company competes with a number of precious metals trading firms, auction houses, and collectibles companies throughout North America, Europe and the rest of the world, some of whom have greater financial, and other types of resources, and name recognition. Our competitors may offer services, pricing or commissions that could be deemed superior to ours.

Our stock price may fluctuate.

The market price of the Company’s common stock dropped dramatically following the events of May 9, 2006. In the past, the market price of the Company’s common stock has fluctuated and may continue to fluctuate significantly due to a number of factors, some of which may be beyond the Company’s control, including: sales of the Company’s common stock by stockholders, including Afinsa; actual or anticipated fluctuations in the Company’s operating results; the operating and stock price performance of other comparable companies; developments and publicity regarding the Spanish criminal investigation and the SEC action; and general economic conditions.

In addition, the stock market in general has experienced volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may adversely affect the trading price of the Company’s common stock, regardless of the Company’s actual performance, and could enhance the effect of any fluctuations that do relate to its operating results.

We have not paid dividends on our common stock in the past and do not anticipate paying dividends on our common stock in the foreseeable future.

We have not paid common stock dividends since our inception and do not anticipate paying dividends in the foreseeable future. Our current business plan provides for the reinvestment of earnings, with the goal of increasing sales and long-term profitability and value.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable for a smaller reporting company.

ITEM 2. PROPERTIES

Our headquarters and most of our North American Collectibles operations are located in one facility in Irvine, CA, consisting of approximately 20,000 square feet of office space. This lease expires on May 31, 2011. Our arms and armor auction operations are located nearby, in leased warehouse facilities consisting of approximately 8,000 square feet, under a lease expiring on May 31, 2011. We also lease another warehouse in Irvine under a lease expiring on August 4, 2011. Our trading operations are conducted in facilities in Santa Monica, CA, where we lease approximately 4,300 square feet of office space under a lease which expires on April 30, 2011. We also lease approximately 7,400 square feet in Zurich, Switzerland, approximately 8,900 square feet in Wiesbaden, Germany, approximately 5,400 square feet in Amstelveen, Netherlands, and approximately 1,300 square feet in Hong Kong, where we conduct our European and Hong Kong Collectibles Operations. The Zurich lease expires on May 31, 2013; the Wiesbaden lease expires on October 31, 2012; the Amstelveen lease expires on December 31, 2011; and the Hong Kong lease expires on February 21, 2013. We also lease approximately 1,900 square feet in Madrid, Spain, where we are winding down our CdC operations. The Madrid lease expires on June 30, 2011. We are currently under negotiation to renew all expiring leases.

During fiscal 2009, we also leased approximately 22,500 square feet in Bethel, CT, where our North American philatelic operations were located. We terminated this lease on August 31, 2009. Also during fiscal 2009, we owned a building in West Caldwell, NJ, where the philatelic operations had been located prior to moving such operations to Bethel, CT in 2007, and subsequently to Irvine, CA in 2009. We sold this building in April 2009, for a gross sales price of approximately $2.1 million.

ITEM 3. LEGAL PROCEEDINGS

Ongoing Legal Proceedings Against Certain of the Company’s Former Officers and Directors Relating to the Company’s Transactions with Afinsa

Spanish Criminal Investigation

In May 2006, Spanish judicial authorities shut down the operations of Afinsa and began an investigation related to alleged criminal wrongdoing, including money laundering, fraud, tax evasion and criminal insolvency. The Spanish criminal investigation initially focused on Afinsa and certain of its executives and was later expanded to include several former officers and directors of SGI and CdC, including (most recently) Messrs. Manning and Crawford. From June 2003, through May 2006, we supplied philatelic material to Afinsa, and we understand that Afinsa used the material in connection with transactions between itself and its clients, entering into contracts with investors to sell specified philatelic material. These investors would deposit funds with Afinsa for a specified period of years, and at the end of an agreed-upon contract term the investors would have the option of receiving either (i) the specified stamps or other philatelic materials set forth in the contract, or (ii) the principal sum invested, plus a contractually specified interest rate. In most cases, Afinsa maintained (at the investors’ request) physical possession of the philatelic material until the end of the contract term.

The allegations against Afinsa and the certain named individuals relate to the central claim that Afinsa’s business operations constituted a fraudulent “Ponzi scheme,” whereby funds received from later investors were used to pay interest to earlier investors, and that the stamps that were the subject of the investment contracts were highly overvalued. Spanish authorities have preliminarily alleged that Messrs. Manning and Crawford knew Afinsa’s business, and aided and abetted in its activity by, among other things, causing the Company to supply allegedly overvalued stamps to Afinsa.

Several of our other former officers and directors, including Esteban Perez, formerly the Chairman of our Board of Directors, Carlos de Figueiredo, formerly the Second Vice Chairman of our Board of Directors (and the son of one of the founders of Afinsa), and Ramon Egurbide, formerly the head of our European Operations, have testified as defendants in these proceedings. Spanish authorities are also seeking the testimony of Messrs. Manning and Crawford as defendants.

The Company understands that, under Spanish law, after the end of the investigative stage, which is expected to last for years, the Spanish Investigative Court will determine whether there are grounds to bring formal charges and to continue to a trial or whether the proceedings should be dismissed.

As the Company understands Spanish law, if any of these former officers or directors of SGI or CdC is ultimately found guilty, then, under the principle of secondary civil liability, the corporation could be held liable for certain associated penalties. However, neither SGI nor CdC is currently a party to these criminal proceedings, and the effect, if any, on the Company cannot be determined at this time.

Messrs. Manning and Crawford (and certain of the other former officers and directors of the Company who are the subject of the Spanish criminal investigation) are entitled to receive advances from the Company for their legal fees and expenses in connection with the Spanish criminal proceedings.

SEC Action

On March 23, 2009, SGI announced that it had reached a settlement, with the SEC, resolving charges filed against the Company in connection with the SEC’s three-year investigation into the Company’s historical transactions with Afinsa. The SEC’s charges were asserted in a Complaint that was also filed in the U.S. District Court for the Southern District of New York on March 23, 2009.

Under the terms of the SEC Settlement, which was approved by the Court on March 30, 2009, SGI consented, without admitting or denying the allegations made in the SEC’s complaint, to a permanent injunction against any future violations of certain provisions of the federal securities laws. No fines, civil penalties or monetary sanctions were assessed against the Company.

Also on March 23, 2009, the SEC filed an action in the U.S. District Court for the Southern District of New York against Messrs. Manning and Crawford in connection with its investigation, seeking a permanent injunction against future violations of certain provisions of the federal securities laws, and disgorgement and civil monetary penalties in an unspecified amount. The action against Mr. Manning was settled on August 23, 2010. The action against Mr. Crawford has not been settled and is on-going.

The Company is continuing to advance fees and expenses to Mr. Crawford in connection with the SEC action, and may be obligated to indemnify and reimburse Mr. Crawford for amounts paid by him in connection with judgments, penalties or settlements in the SEC action. The Company is unable to estimate the impact of this obligation on our financial position, operations or cash flow.

Tax Investigation in Spain

On November 17, 2005, the Spanish tax authorities commenced a tax examination of CdC. This examination, which now covers all periods from fiscal 2001, through fiscal 2006, is ongoing and the outcome cannot be determined at this time.

Greg Manning v. SGI

On or about August 7, 2007, Mr. Manning commenced arbitration against the Company before the American Arbitration Association, asserting claims for breach of contract and defamation, based on his allegation that the Company wrongfully terminated his consultancy for cause in April 2007. On or about March 28, 2008, the Company filed counterclaims against Mr. Manning for breach of contract, breach of fiduciary duty and unjust enrichment, based on Mr. Manning’s breaches of his contractual and fiduciary obligations in connection with the Company’s transactions with Afinsa.

On July 8, 2010, the Company entered into a settlement agreement with Mr. Manning, pursuant to which it agreed to pay approximately $2.7 million in cash to Mr. Manning of which $300,000 was to be placed into an escrow account to satisfy certain of the Company’s continuing advancement/indemnification obligations. The Company paid all amounts due under the settlement agreement in August 2010 (subject to certain continuing indemnification obligations).

IRS and New York State Tax Audits

In February 2008, the IRS commenced an audit of SGI’s tax returns for fiscal 2004, 2005 and 2006. In March 2008, the New York State Department of Taxation and Finance began an audit of our tax returns for fiscal 2005, 2006 and 2007.

These audits are ongoing and the outcome cannot be determined at this time.

Securities Class Action and Shareholder Derivative Lawsuit

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 $5.5 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 $6.0 million in cash and 4.0 million 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. The Company has no further obligation or liability under the settlement agreement.

For a description of the accounting treatment of this settlement, see Note 15 to the Notes to Consolidated Financial Statements.

Seymour Ehrenpreis v. Nutmeg Stamps, et al

In May 2009, Seymour Ehrenpreis commenced an action against a subsidiary of the Company and certain of its officers for breach of contract and other matters, all based on allegations of failure to fulfill oral commitments. The plaintiff seeks compensatory damages of at least $1.3 million and punitive damages of at least $1.3 million. This action is in its early stages and the Company cannot currently estimate the likelihood of an adverse outcome. The Company intends to assert a vigorous defense against this action.

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of the Company is traded on the Pink OTC Markets Inc. (“Pink Sheets”) under the symbol SPGZ.PK. Prior to January 2007, our stock was traded on NASDAQ’s National Market under the symbol ESCL. In January 2007, our stock was de-listed from the NASDAQ National Market because of our failure to comply with our financial reporting obligations under the Exchange Act.

As of September 13, 2010, there were 1,015 stockholders of record of our common stock and the last reported sale price of our stock as reported by the Pink Sheets was $1.90.

The following tables set forth the range of high and low closing prices for our common stock, for each of the periods indicated, as reported by the Pink Sheets. These quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

		2010
Quarter		High				Low
First		$	2.99			$	2.00
Second		$	3.30			$	1.81
Third		$	1.95			$	1.67
Fourth		$	2.25			$	1.70

		2009
Quarter		High				Low
First		$	2.80			$	1.65
Second		$	2.65			$	1.70
Third		$	2.95			$	0.86
Fourth		$	2.99			$	1.85

Dividend Policy

We have never declared or paid any cash dividends on our stock. We currently anticipate that any future earnings will be retained by the Company to support our growth strategy. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, contractual restrictions and general business conditions.

In addition, 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 $20.0 million and $50.0 million, respectively. SGI’s ability to pay dividends, if it were to desire to do so, could be limited as a result of these restrictions.

Equity Compensation Plan Information

The following table provides information as of June 30, 2010, with respect to the shares of our common stock that may be issued under existing equity compensation plans.

(c)

Number of securities

(a)

remaining available for

Number of securities

(b)

future issuance under

to be issued upon

Weighted average

equity compensation

exercise of

exercise price of

plans (excluding

outstanding options,

outstanding options,

securities reflected in

Plan category

warrants and rights

warrants and rights

column (a))

Equity compensation plans approved by security holders (1)

1,481,386

$

2.48

711,999

Equity compensation plans not approved by security holders (2)

—

—

—

Total

1,481,386

$

2.48

711,999

ITEM 6. SELECTED FINANCIAL DATA

Not applicable for a smaller reporting company.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Annual Report on Form 10-K contains statements that are considered forward-looking statements. Forward-looking statements give the Company’s current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, including statements regarding the Company’s future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company’s current plans, and the Company’s actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this annual report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this annual report.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K.

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 our 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 fiscal 2010, to fiscal 2009.

•

Financial condition, liquidity and capital resources. This section provides an analysis of our cash flows, working capital and financial commitments, as well as a discussion of our outstanding debt that existed as of June 30, 2010, and 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 2 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 within two business segments: Trading and Collectibles. For the fiscal year ended June 30, 2010, our Trading and Collectibles segments represented $5.8 billion, or 97%, and $177.7 million, or 3%, respectively, of our total revenues, and achieved operating income/(loss) of $7.1 million and $(2.2) million, respectively. This was offset by net corporate expenses in the amount of $13.3 million which contributed to a total operating (loss) for the year of $(8.3) million.

For the fiscal year ended June 30, 2009, our Trading and Collectibles segments represented $4.1 billion, or 96%, and $164.9 million, or 4%, respectively, of our total revenues, and achieved operating income/(loss) of $26.2 million and ($7.6) million, respectively. This was offset by net corporate expenses in the amount of $10.3 million which contributed to total operating income for the year of $8.4 million.

The corporate expenditures for both fiscal years 2010 and 2009 related primarily to the consolidation of the corporate accounting department, and legal fees and other professional fees associated with our historical legal and accounting issues (relating primarily to our transaction with Afinsa). In addition, in fiscal 2010, we settled the litigation with Mr. Manning, and in fiscal year 2009, we settled the shareholder litigation.

Trading Segment

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 Segment

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 numismatic (coins) and philatelic (stamps) materials, rare and fine vintage wines, and antique arms, armor and historical memorabilia (militaria). We primarily sell these materials, both owned and consigned, through our auction subsidiaries and through wholesale merchant/dealer relationships.

RESULTS OF OPERATIONS

Year ended June 30, 2010, Compared with Year Ended June 30, 2009

Consolidated Results of Operations

Our operating results for the years ended June 30, 2010, and 2009 are as follows:

						% of				2009(1)				% of				$ Increase/				% of Increase/
(thousands of dollars)		2010				revenue				(as restated)				revenue				(decrease)				(decrease)
Revenues		$	6,012,438				100.0	%		$	4,286,029				100.0	%		$	1,726,409				40.3	%
Gross profit			53,839				0.9				70,800				1.6				(16,961	)			(24.0	)%
General and administrative expenses			28,982				0.5				29,963				0.7				(981	)			(3.3	)%
Salaries and wages			26,467				0.5				29,814				0.7				(3,347	)			(11.2	)%
Depreciation and amortization			1,699				0.0				1,807				0.0				(108	)			(6.0	)%
Impairment of goodwill and intangible assets			2,271				0.0				860				0.0				1,411				164.1	%
Legal settlement			2,697				0.0				—				0.0				2,697				100.0	%
Operating (loss) income			(8,277	)			(0.1	)			8,356				0.2				(16,633	)			(199.1	)%
Interest income			6,390				0.1				5,614				0.2				776				13.8	%
Interest expense			(2,267	)			(0.0	)			(2,373	)			(0.1	)			(106	)			(4.5	)%
Other income (expense), net			648				0.0				(393	)			0.0				1,041				264.9	%
Unrealized gains on foreign exchange			3,304				0.0				3,068				0.1				236				7.7	%
Income/(Loss) before taxes			(202	)			(0.0	)			14,272				0.4				(14,474	)			(101.4	)%
Income tax (provision) benefit			640				0.0				(3,137	)			0.1				3,777				120.4	%
Net income			438				(0.0	)			11,135				0.3				(10,697	)			(96.1	)%
Less: Net income attributable to the non-controlling interests			(1,490	)			(0.0	)			(3,999	)			(0.1	)			2,509				62.7	%
Net (loss) income attributable to Spectrum Group International, Inc.		$	(1,052	)			(0.0	)%		$	7,136				0.2	%		$	(8,188	)			(114.7	)%
Earnings (Loss) per share
Basic		$	(0.03	)						$	0.23							$	(0.26	)			(113.0	)%
Diluted		$	(0.03	)						$	0.23							$	(0.26	)			(113.0	)%
Weighted average shares outstanding
Basic			31,939								30,934
Diluted			31,939								31,649

Revenues and Gross Profit

Revenues increased by $1.7 billion, or 40.3%, to $6.0 billion in 2010, from $4.3 billion in 2009. This was due primarily to increased activity in our Trading segment. Our Trading segment experienced an increase in revenues of $1.7 billion, or 42.0%, to $5.8 billion in 2010, from $4.1 billion in 2009. This increase was the result of a number of factors, including higher precious metal prices and increased demand for precious metal products worldwide.

Our Collectibles segment experienced an increase in revenues of $12.9 million, or 7.8%, to $177.7 million in 2010, from $164.9 million in 2009. The increase was primarily due to favorable economic conditions in fiscal 2010 when compared to 2009 and was attributable to numismatic revenue, which increased $24.1 million or 18.3% to $156.2 million in fiscal year 2010. Our Wine, Philatelic, Arms and Armor businesses experienced a decrease in revenues of $11.2 to $21.6 million in fiscal 2010 from $32.8 million in 2009. This decrease was driven by the Philatelic business which experienced $13.2 million decrease in sales and offset by an increase in sales from our Wine business which contributed $1.2 million and our Arms and Armor business which contributed $0.8 million in fiscal year 2010.

Our gross profit decreased by $17.0 million, to $53.8 million in 2010, from $70.8 million in 2009. This was primarily due to the decrease in our Trading segment margins resulting from the contraction of silver coin premiums in fiscal year 2010 as compared to fiscal 2009, when silver coin premiums had greatly expanded as a result of supply constraints and financial market fears. Also contributing to the Trading segment’s lower margin was the decrease in sales ratio of silver products to gold products, which produce lower margins. As such, the gross profit in our Trading segment decreased by $22.9 million to $20.3 million in 2010 from $43.2 million in 2009. This was partially offset by an increase in the gross profit of our Collectibles segment of $5.9 million, or 21.5%, to $33.6 million in 2010, from $27.6 million in 2009. The increase was primarily attributable to the improve economy in fiscal year 2010, which contributed to the Numismatic division’s overall increase revenue as well as the performance of our new Spectrum Wine Auction division.

Our gross profit margins decreased to 0.9% in 2010, from 1.6% in 2009. This decrease was attributable primarily to a decrease in our gross profit margins in our Trading segment to 0.3% in 2010 from 1.0% in 2009, for the reasons described above. This gross profit margin decrease was partially offset by an increase in our gross profit margins in our Collectibles segment to 18.9% in 2010, from 16.8% in 2009 driven by better economic condition in 2010.

Operating Expenses

General and administrative expenses decreased $1.0 million, or 3.3%, to $29.0 million in 2010, from $30.0 million in 2009. The decrease was from a variety of general and administrative expense categories. In 2009, we incurred expenses in relocating the Arms and Amor and the North American Philatelic operation to Irvine, California.

The Company records direct auction related expenses such as commissions, catalog expenses, auction site fees, security, and other related costs associated with running an auction in general and administration expenses. These costs are shared amongst other operating divisions and not tracked specifically by each auction.

Salaries and wages expenses decreased $3.3 million, or 11.2%, to $26.5 million in 2010, from $29.8 million in 2009. The decrease was primarily due to the Trading segment, which decreased approximately $5.0 million because of decreases in performance related compensation. This decrease was partially offset by an increase mainly in corporate salary expense of $0.6 million. We are building our corporate team to improve our financial reporting to remove our material weakness and to reduce the use of consultants.

Impairment expense increased to $2.3 million in 2010, from $0.9 million in 2009, due to recognition of a goodwill impairment charge of $0.4 million, a trademarks impairment charge of $1.1 million, and a customer lists impairment charge of $0.8 million, all relating to the Company’s Collectibles segment.

Depreciation and amortization expenses were $1.7 million and $1.8 million in 2010, and 2009, resulting in a decreased of $0.1 million.

Interest Income

Interest income increased by $0.8 million, to $6.4 million in 2010, from $5.6 million in 2009. The increase is primarily due to an increase in the Trading segment’s interest income of $1.1 million, to $6.0 million in 2010, from $4.9 million in 2009, in part due to the increased activities in CFC’s lending business, which represented a $0.5 million increase in interest income.

Interest Expense

Interest expense decreased by $0.1 million, or 4.5%, to $2.3 million in 2010, from $2.4 million in 2009. This was related primarily to the Trading segment’s lines-of-credit facility usage. Our Trading segment utilizes their lines-of-credit extensively for working capital requirements. For the year ended June 30, 2010, our consolidated average debt balance was approximately $45.5 million, compared to $59.3 million for the year ended June 30, 2009. The Company’s decrease in interest expense was due primarily to lower average debt outstanding which was offset by a slight increase in interest rates in fiscal 2010 with the Company’s base LIBOR rate increasing to 0.35% in 2010, from 0.32% in 2009.

Other Income

Other income (net of expense) increased by $1.0 million, to $0.6 million in 2010, from $(0.4) million in 2009. This change was the result of various small items.

Legal Settlement

The Company’s legal settlement totaling $2.7 million relates to the legal settlement with Mr. Manning, the Company’s former CEO, who had commenced an arbitration action against the Company, alleging that the Company had wrongfully terminated his consultancy for cause in April 2007.

Provision for Income Taxes

The Company’s income tax provision decreased by $3.8 million, to $0.6 million benefit in 2010, from an expense of $3.1 million in 2009. Our effective tax rates on income/(loss) before taxes for the years ended June 30, 2010, and 2009, were approximately (316.8%), and 22.0%, respectively. A reconciliation of the income tax provision to the amount computed by applying the statutory federal income tax rate of 34% to the income (loss) before income tax provision for the years ended June 30, 2010, and 2009, as follows:

		2010				2009
		(in thousands)				(in thousands)
Statutory income tax		$	69			$	(4,852	)
State and local income taxes, net of federal tax benefit			(119	)			(1,132	)
Foreign taxes at rates different for U.S. rates			156				(68	)
Tax on unrepatriated foreign earnings			(298	)			10
Deferred tax asset write-offs/adjustments			(563	)			—
Valuation allowance			3,104				3,298
Uncertain tax positions			(1,993	)			(81	)
Other			284				(312	)
Income tax benefit (expense)		$	640			$	(3,137	)

For the year ended June 30, 2010, the net tax benefit of $0.6 million predominantly includes: a tax benefit of $1.7 million related to a carryback claim for losses incurred in the U.S. during fiscal 2010; a tax benefit of $1.5 million related to an additional five-year carryback claim for losses incurred in the U.S. during fiscal 2008; partially offset by an (increase) in unrecognized tax benefits of $(2.0) million; and partially offset by a foreign income tax (provision) of $(0.8) million. Our effective tax rate for the year ended June 30, 2010 was significantly impacted by an increase in the valuation allowance of $3.1 million, partially offset by deferred tax asset adjustments of $(0.6) million.

For the year ended June 30, 2009, the net tax (provision) of $(3.1) million predominantly includes a tax (provision) of $(2.7) million for U.S. federal and State taxes related to taxable profits earned in the U.S. during fiscal 2009, and a foreign income tax (provision) of $(0.4) million. Our effective tax rate for the year ended June 30, 2009 was significantly impacted by an increase in the valuation allowance of $3.3 million.

Non-Controlling Interests

Income attributable to non-controlling interests decreased $2.5 million, to $1.5 million in 2010, from $4.0 million in 2009, primarily due to lower 2010 profits in the Trading segment, which is 20% owned by Auctentia.

Net Income

Net income decreased $8.2 million, to a net (loss) of $(1.1) million in 2010, from a net income of $7.1 million in 2009, due primarily to decreased profits in the Company’s Trading segment. The Trading segment’s operations benefited in 2009 from a number of factors, including higher precious metals prices, precious metals market volatility, and increased demand for precious metal products worldwide.

Earnings (Loss) per Share

Basic earnings per share decreased $0.26 per share to net (loss) of $(0.03) per share in 2010, from net income of $0.23 per share in 2009. Diluted earnings per share also decreased $0.26 per share to net (loss) of $(0.03) per share in 2010, from net income of $0.23 per share in 2009. The decrease in both basic and diluted earnings per share was primarily due to lower profits in the Company’s Trading segment in 2010.

Trading Segment

The operating results of our Trading segment for the year ended June 30, 2010, and 2009 are as follows:

						% of				2009(1)				% of				$				%
(thousands of dollars)		2010				revenue				(as restated)				revenue				Increase/(decrease)				Increase/(decrease)
Trading revenues		$	5,834,712				100.0	%		$	4,121,159				100.0	%		$	1,713,553				41.6	%
Gross profit			20,256				0.3				43,162				1.0				(22,906	)			(53.1	)%
General and administrative expenses			3,562				0.0				2,838				0.1				724				25.5	%
Salaries and wages			8,904				0.2				13,082				0.3				(4,178	)			(31.9	)%
Depreciation and amortization			671				0.0				997				0.0				(326	)			(32.7	)%
Operating income		$	7,119				0.1	%		$	26,245				0.6	%		$	(19,126	)			(72.9	)%

Trading Revenues

Our Trading segment’s revenues increased by $1.7 billion, to $5.8 billion in 2010, from $4.1 billion in 2009. This increase was the result of a number of factors, including higher precious metal prices, and increased demand for precious metal products worldwide.

Gross Profit

The Trading segment’s gross profit decreased by $22.9 million, to $20.3 million in 2010 from $43.2 million in 2009. This decrease was primarily a result of the contraction of the silver coin premium in fiscal year 2010 as compared to fiscal year 2009, when silver coin premiums had greatly expanded as a result of supply constraints and investor uncertainty in the financial markets. Contributing further to this decline was a decrease in the sales ratio of our silver products to our gold products, which produce lower margins.

General and Administrative Expenses

Our Trading segment’s general and administrative expenses increased by $0.7 million, to $3.6 million in 2010, from $2.8 million in 2009. The increase was driven by professional and legal fees.

Salaries and Wages

Salaries and wages expenses decreased by $4.2 million, to $8.9 million in 2010, from $13.1 million in 2009. This was due primarily to lower levels of contract performance based compensation expenses, which decreased by $5.0 million in fiscal 2010 from 2009.

Depreciation and Amortization

Depreciation and amortization expenses decreased $0.3 million, to $0.7 million in 2010, from $1.0 million in 2009.

Collectibles Segment

The revenues in our operations by Collectibles type for the years ended June 30, 2010, and 2009 are as follows:

		For the Years Ended June 30,
		2010								2009(1)
										(as restated)
																		$				% of
																		Increase/				Increase/
(thousands of dollars)		$				% to total				$				% to total				(decrease)				(decrease)
Collectibles revenues		$	177,726				100.0	%		$	164,870				100.0	%		$	12,856				7.8	%
Revenues by Collectibles Type:
Numismatic		$	156,174				87.9	%		$	132,070				80.1	%		$	24,104				18.3	%
Philatelic			17,804				10.0				31,024				18.8				(13,220	)			(42.6	)%
Militaria, Wine and other			3,748				2.1				1,776				1.1				1,972				111.0	%
		$	177,726				100.0	%		$	164,870				100.0	%		$	12,856				7.8	%

Collectibles Revenues

Our Collectibles segment’s revenues increased by $12.9 million, or 7.8%, to $177.7 million in 2010, from $164.9 million in 2009. The increase in revenue was driven by an increase in our Numismatics business by $24.1 million or 18.3% to 156.2 million in 2010, from $132.1 million in 2009. Militaria, Wine and other had an increase in revenues of $2.0 million, or 111.0%, to $3.7 million in 2010, from $1.8 million in 2009, of which $1.2 million related to wine auction business, which held its first auction in November 2009. Our Philatelic revenue decreased by $13.2 million to $17.8 million in 2010 from $31.0 million in 2009, a decrease that we had anticipated as a result of the implementation of our plan to consolidate our U.S stamp operations.

The operating results of our Collectibles segment for the years ended June 30, 2010, and 2009 are as follows:

																		$				%
						% of				2009(1)				% of				Increase/				Increase/
(thousands of dollars)		2010				revenue				(as restated)				revenue				(decrease)				(decrease)
Collectibles revenue		$	177,726				100.0	%		$	164,870				100.0	%		$	12,856				7.8	%
Gross profit			33,583				18.9				27,638				16.8				5,945				21.5	%
General and administrative expenses			18,083				10.2				19,309				11.7				(1,226	)			(6.3	)%
Salaries and wages			14,445				8.0				14,262				8.7				183				1.3	%
Depreciation and amortization			1,009				0.6				802				0.5				207				25.8	%
Impairment of goodwill and intangible assets			2,271				1.3				860				0.5				1,411				164.1	%
Operating loss		$	(2,225	)			(1.3	)%		$	(7,595	)			(4.6	)%		$	5,370				(70.7	)%

Gross Profit

Gross profit increased $6.0 million, or 21.5%, to $33.6 million in 2010, from $27.6 million in 2009. The increase was primarily attributable to the improved economy in fiscal year 2010, which contributed to the Numismatic division’s overall increased revenue as well as the performance of our new Spectrum Wine Auctions division, which contributed $1.1 million or 0.6% to the Company’s Collectibles segment’s gross profit.

General and Administrative Expenses

General and administrative expenses in our Collectibles segment decreased $1.2 million, or 6.3%, to $18.1 million in 2010, from $19.3 million in 2009. This decrease resulted from the Company’s cost-cutting efforts in its North American Collectible operations, including the consolidation of the North American Philatelic division.

Salaries and Wages

Salaries and wages increased $0.2 million, or 1.3%, to $14.5 million in 2010, from $14.3 million in 2009. Salaries and wages were held consistent with prior year however the slight increase was primarily due to severance payments as a result of consolidation efforts of the worldwide Philatelic business.

Impairment of Goodwill and Other Purchased Intangible Assets

Impairment of goodwill and intangible assets increased to $2.3 million in 2010, from $0.9 million in 2009, due to recognition of a goodwill impairment charge of $0.4 million, a trademark impairment charge of $1.1 million and a customer lists impairment charges of $0.8 million, in 2010, all related to the Company’s Collectibles segment.

Depreciation and Amortization

Depreciation and amortization expenses were consistent with the prior year, increasing slightly by $0.2 million, or 25.8%, to $1.0 million in 2010, from $0.8 million in 2009.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The following details cash flows components for the years ended June 30, 2010, and 2009:

(thousands of dollars)		2010				2009(1)
Cash provided by operating activities		$	12,981			$	6,334
Cash provided by (used in) investing activities		$	1,171			$	(8,321	)
Cash used in financing activities		$	(7,964	)		$	(14,293	)

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, our precious metal trading activities, the availability of philatelic and numismatic materials, and the timing of our auctions.

Our operating activities provided $13.0 million in cash for fiscal 2010, versus $6.3 million in fiscal 2009. The primary contribution of cash in fiscal 2010 was primarily due to the Trading segment’s net increase in its borrowed metals position of $25.7 million offset by net purchases of inventory of $(23.6) million, lower receivables of $1.6 million, and an increase in other non-cash items of $8.8 million.

In fiscal year 2009, our operating activities provided cash of $6.3 million driven by $11.1 million in net income and further increased by the reduction of inventory by $13.9 million as well as reduction in prepaid expenses and other assets by $2.3 million and non-cash of $5.8 million. Offsetting the increase were reductions in accounts payable by $6.2 million, as well as an increase in receivables and secured loans of $(20.6) million.

Our investing activities provided cash in 2010, of $1.2 million versus $(8.3) million used in fiscal 2009, primarily as a result of cash proceeds from the sales of marketable securities of $1.0 million, maturities of short-term investments of $0.8 million, and the decrease in restricted cash of $0.7 million, offset by the investment in property plant and equipment totaling $(0.7) million.

Our investing activities used $(8.3) million cash in 2009, were primarily a result of the investment in property plant and equipment totaling $(1.6) million, cash paid for the acquisition of Ponterio and Associates of $(0.6) million, cash used to purchase short term investments and marketable securities of $(8.7) million, an increase in our restricted cash of $(0.7) million. This was offset in part due to the sale of a property owned by the Company in New Jersey which was sold in fiscal 2009, generating proceeds of $2.1 million and offset by the sales of marketable securities generating proceeds of $1.2 million.

Our financing activities used cash in 2010, of $(8.0) million versus $(14.3) million used in fiscal 2009. This was due primarily to the Trading segment’s net decrease in its lines of credit of $(5.6) million, distributions related to Winter Bullion Games Venture (“WBGV”) of $(1.3) million, and a dividend paid of $(1.0) million to our non-controlling interest shareholder.

Our use of cash from financing activities in 2009 was $(14.3) million, primarily related to net pay down under our lines-of-credit of $(13.0) million, and repurchased shares issued for the class action settlement which used cash of $(1.3) million.

A-Mark has a borrowing facility (“Trading Credit Facility”) with a group of five financial institutions under an inter-creditor agreement, which provides for lines-of-credit of up to $115.0 million including a facility for letters of credit up to a maximum of $115.0 million. A-Mark routinely uses the Trading Credit Facility to purchase metals from its suppliers and for operating cash flow purposes. Amounts under the Trading Credit Facility bear interest based on the London Interbank Offered Rate (“LIBOR”) plus a margin. The 1-Month LIBOR rate was approximately 0.35% and 0.32% as of June 30, 2010, and 2009, respectively. Borrowings are due on demand and totaled $45.2 million and $52.8 million for lines-of-credit, and $4.8 million and $4.8 million for letters of credit at June 30, 2010, and 2009, respectively. Amounts borrowed under the Trading Credit Facility are secured by A-Mark’s receivables and inventories. The amounts available under the Trading Credit Facility are formula based and totaled $65.0 million at June 30, 2010. The Trading Credit Facility also limits the ability of A-Mark to pay dividends to SGI. The Trading Credit Facility is cancelable by written notice from the financial institutions.

A-Mark’s Trading Credit Facility has certain restrictive financial covenants which require A-Mark and SGI to maintain a minimum tangible net worth, as defined, of $20.0 million and $50.0 million, respectively. A-Mark’s and SGI’s tangible net worth at June 30, 2010, were $25.7 million and $70.0 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.

In May 2010, the Company and its three wholly-owned numismatic subsidiaries, Spectrum Numismatics International, Inc. (“SNI”), Bowers and Merena Auctions, LLC (“Bowers”), and Teletrade, Inc. (“Teletrade”), entered into a borrowing facility with a lender in May 2010, providing for a line-of-credit (the “Collectibles Credit Facility”) up to a maximum of $7.5 million. Amounts outstanding under the Collectibles Credit Facility, $2.0 million at June 30, 2010, are secured by the assets of SNI, Bowers, and Teletrade, and are further guaranteed by the Company. The Company’s obligations under the guaranty are secured by the pledge of SNI shares owned by it. The Collectibles Credit Facility is repayable on demand and interest on outstanding amounts accrue at the lender’s base rate plus a per annum basis point. Separately, the Company’s precious metals trading company, has a line of credit with this lender totaling $15.0 million, which is a component of A-Mark’s Trading Credit Facility. Total borrowing capacity between SNI and A-Mark cannot exceed $17.5 million with respect to this lender as of June 30, 2010 the total amount borrowed was $7.7 million, $2.0 million by SNI and $5.7 million by A-Mark. Amounts available for borrowing under this Collectibles Credit Facility as of June 30, 2010 was $5.5 million

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 $40.8 million and $15.1 million at June 30, 2010, and 2009, respectively. Certain of these metals are secured by letters of credit issued under A-Mark’s Trading Credit Facility, which totaled $4.8 million and $4.8 million at June 30, 2010, and 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 may be 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, Trading and Collectibles Credit Facilities, and cash we anticipate to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital needs, capital expenditures, investment requirements and commitments through at least the next twelve months. Certain of 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 Item 3: Legal Proceedings of this document.

As of June 30, 2010, we had cash and cash equivalents and marketable securities of $28.8 million, compared to $26.4 million as of June 30, 2009. The Company’s working capital increased by $8.0 million, or 12.0%, to $78.4 million in 2010, from $70.4 million in fiscal 2009.

In June 2010, the Company’s majority-owned subsidiary, Spectrum PMI, declared a $12.5 million dividend. This resulted in payments of $10.0 million to the Company and $2.5 million to Afinsa in July 2010.

In July 2009, the Company’s majority-owned subsidiary, Spectrum PMI, paid a $5.0 million dividend. This resulted in a $4.0 million payment to the Company and a $1.0 million payment to Auctentia.

CONTRACTURAL OBLIGATIONS, CONTINGENT LIABILITIES, AND COMMITMENTS

As of June 30, 2010, we have known cash commitments over the next several years as follows:

		Payments due by period
																						5 years and
(thousands of dollars)		Total				1 year				2 years				3 years				4 years				thereafter
Borrowings under lines-of-credit — Collectibles		$	2,000			$	2,000			$	—			$	—			$	—			$	—
Borrowings under lines-of-credit — Trading		$	45,200			$	45,200			$	—			$	—			$	—			$	—
Operating lease obligations			1,755				1,168				362				224				—				—
Total		$	48,955			$	48,368			$	362			$	224			$	—			$	—

On April 9, 2008, in connection with a Joint Venture Limited Liability Company Agreement (the “JV Agreement”) with a third party marketing company, 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 Numismatic Coin Products. Under the terms of this agreement, as amended, A-Mark was required to purchase 20,750 One Ounce Gold Bullion Coins and 150,000 One Ounce Silver Bullion. A-Mark was also required to purchase $7.0 million (Canadian Dollars) in commemorative coins. A-Mark met these requirements by February 2010 and as a result in May 2010,

the parties agreed to a partial distribution, whereby all remaining funds at the time, except for $10,000, were distributed to the parties.

The Company manages the value of certain specific assets and liabilities of its trading business, including trading inventories 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 purchases and sales of a variety of derivative products such as metals forwards and futures.

The Company’s trading inventories, and purchase and sale transactions consist primarily of precious metals 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 metals held are offset by the obligation to return the metals to the suppliers. Open purchase and sale commitments are subject to changes in value between the dates the purchases or sale prices are fixed (the trade date) and the date the metals are received or delivered (the settlement date). The Company seeks to minimize the effect of price changes of the underlying commodities through the use of forwards 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 forwards 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.

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.

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’s (Financial Accounting Standards Board) Accounting Standards Codification (“ASC”). Gains or losses resulting from the Company’s futures and forwards contracts are reported as unrealized gains or losses on commodity contracts with the related unrealized amounts due from or to counterparties reflected as derivative assets or liabilities (see Note 6). Gains or losses resulting from the termination of hedge contracts are reported as realized gains or losses on commodities contracts. Net (gains)/losses on derivative instruments in the consolidated statements of operations of $(18.5) million and $2.6 million for the years ended June 30, 2010, and 2009, respectively, includes both realized and unrealized amounts.

At June 30, 2010, and 2009, the Company had outstanding purchase and sale commitments arising in the normal course of business totaling $153,215,000 and $131,844,000, and $(56,903,000) and $(38,370,000), respectively; purchase and sale commitments related to open forwards contracts totaling $49,985,000 and $27,731,000; and purchase and sale commitments relating to open futures contracts totaling $105,769,000 and $132,651,000, respectively. The Company uses forwards and futures contracts to protect its inventories from market exposure.

The contract amounts of these forwards and futures contracts and the open purchases and sales orders are not reflected in the accompanying consolidated balance sheets. The differences between the market prices of the underlying metals or contracts and the trade amounts are recorded at fair value. The Company’s open purchases and sales commitments generally settle within two 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 June 30, 2010, are scheduled to settle within 90 days.

The Company is exposed to the risk of failure of the counter parties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications. The Company regularly reviews the creditworthiness of

its major counterparties and monitors its exposure to concentrations. At June 30, 2010, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Notes 1 and 2, Basis of Presentation and Summary of Significant Accounting Policies, respectively, of the Notes to Consolidated Financial Statements that are included in Item 8, Consolidated Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

Revenue Recognition

Trading Segment. The Company records sales of precious metals upon shipment and transfer of title (see further discussion below). The Company records revenues from its metal assaying and melting services after the related services are completed. Commodity futures and forwards contract transactions are recorded at fair value on the trade dates. Open futures and forwards contracts are reflected in Receivables and Secured Loans, Net — Trading Operations in the consolidated balance sheets as the difference between the original contract values and the market values; or at fair value. The change in unrealized gains (losses) on open contracts from one period to the next is reflected in net (gains) losses on derivative instruments, which is a component of Cost of Precious Metals Sold in the consolidated statements of operations. Financing revenue is recorded over the terms of the related receivable and consists of interest and related fees.

The Company accounts for its metals and sales contracts using settlement date accounting. Pursuant to such accounting, the Company recognizes the sales or purchases of the metals at their settlement dates. During the period between the trade and settlement dates, the Company has essentially entered into forwards contracts that meet the definition of derivatives in accordance with ASC 815 Derivatives and Hedging. The Company records the derivatives at the trade date with corresponding unrealized gains (losses) which are reflected in the Cost of Precious Metals Sold in the consolidated statements of operations. The Company adjusts the derivatives to fair values on a daily basis until the transactions are settled. Sales which are physically settled are recognized in gross on the consolidated statements of operations.

Collectibles Segment. The Company’s collectibles segment derives revenues from two primary sources: auctions and private treaty sales.

Auction Sales. In its role as auctioneer, the Company generally functions as an agent accepting property on consignment from its selling clients. The Company sells property as agent of the consignor, billing the buyer for property purchased, receiving payment from the buyer and remitting to the consignor the consignor’s portion of the buyer’s payment after deducting the Company’s commissions, expenses and applicable taxes. The Company’s commissions include those earned from the buyer (“buyer’s premium revenue”) and those earned from the consignor (“seller’s commission revenue”), both of which are calculated as a percentage of the value of the final bid at auction (the “hammer price”) of property sold at auction. The Company recognizes revenues from the buyer’s premium and seller’s commission upon delivery of the property sold at auction, which generally occurs upon cash receipt..

The Company also sells its own inventory at auction. Revenue from the sales of owned inventory at auction is recognized upon receipt of cash and is recorded at the hammer price on a gross basis, with corresponding product cost recorded as a direct cost of sale. In addition, the Company recognizes a commission on the hammer price, which is paid by the buyer. Sales returns have not been material.

The Company does not provide any guarantee with respect to the authenticity of property offered for sale at its live auctions; however it does authenticate the materials sold via Internet auctions. All property presented for sale at live auction is sold as genuine and as described by the Company in its auction catalogues. In the event that auctioned property is deemed to be other than authentic (in the opinion of a competent authority mutually acceptable to the buyer and the Company), the Company refunds the purchase price if returned within a specified time period. Historically, returns have not been material and the Company generally sells large collections on an “as is” basis. Critical estimates related to revenue recognition are not considered significant because the Company recognizes revenue from auction sales upon delivery of the property, , which generally occurs upon cash receipt.

Private Treaty Sales. The Company engages in private treaty sales of both consigned property and sales of owned inventory to third parties (merchant/dealer relationships and direct to consumer sales). Private treaty sales of consigned property occur when an owner of property arranges with the Company to sell such consigned property to a third party at a privately negotiated price. In such a transaction, the owner may set selling price parameters for the Company or the Company may solicit selling prices for the owner, and the owner may reserve the right to reject any selling price. The Company does not guarantee a fixed price to the owner, which would be payable regardless of the actual sales price ultimately received. The Company recognizes private treaty sales of consigned property at an amount equal to a percentage of the sales price. Such amounts of revenue are recorded on a net basis as commissions earned and are recognized upon delivery of the property sold, which generally occurs upon cash receipt. Critical estimates related to revenue recognition are not considered significant because the Company recognizes private treaty sales of owned property upon receipt of cash, which generally occurs upon delivery of the property.

Stock Based Compensation

SGI has certain stock option plans that provide for the issuance of options and restricted stock grants to key employees and directors to purchase shares of common stock of the Company. See Note 16 to the Notes to Consolidated Financial Statements.

Effective, July 1, 2005, the Company accounts for stock-based compensation under ASC 718 Compensation-Stock Compensation and ASC 505-50 Equity-Based Payments to Non-Employees. This standard uses the modified prospective method, which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. Further, under the modified prospective method, the fair value associated with the unvested portion of the prior grants remaining at the date of adoption is recorded to stock compensation expense over the future requisite service period. During fiscal 2009, the Company granted no stock options; however, the Company granted restricted stock. The fair value of restricted stock grants is based on quoted market price at the date of grant and is expensed over the vesting period net off estimated forfeitures. All of the options granted are valued using the Black-Scholes valuation model, which is consistent with the Company’s valuation techniques previously utilized for options in footnote disclosures required under ASC 718. The Black-Scholes valuation model requires the input of subjective assumptions including estimating the length of time employees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of the common stock price over the expected term, and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized as an expense on the consolidated statements of operations. As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value employee stock-based awards granted in future periods. The values derived from using Black-Scholes model are recognized as expense over the vesting period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may materially differ from the Company’s current estimates.

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 ASC 740 Income Taxes. 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. Significant judgment is applied when assessing the need for valuation allowances. Areas of estimation include the Company’s consideration of future taxable income and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization 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 Company adopted the provisions for Accounting for Uncertainty in Income Taxes under ASC 740 Income Taxes. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 740, and prescribes a recognition threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on de-recognition, classification, interest, and penalties, accounting in interim periods, disclosure, and transition. Significant judgment is required to identify all pertinent facts and circumstance and to estimate potential outcomes of investigations by tax authorities. We believe we have adequately provided for any uncertain tax positions in accordance with ASC 740. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period assessments are made or resolved or when statutes of limitation on potential assessments expire.

Fair Value Measurements

The Company carries a portion of its assets and liabilities at fair value. The majority of such assets and liabilities are carried at fair value on a recurring basis. In addition, certain assets are carried at fair value on a nonrecurring basis, including goodwill and purchased intangible assets accounted for at fair value that are only subject to fair value adjustments under certain circumstances.

We adopted ASC 820 Fair Value Measurements and Disclosures. This standard established a three-level valuation hierarchy for disclosure of fair value measurements. An instrument’s categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Therefore, for instruments classified in levels 1 and 2 of the hierarchy, where inputs are principally based on observable market data, there is less judgment applied in arriving at a fair value measurement. For instruments classified within level 3 of the hierarchy, judgments are more significant.

For instruments classified within level 3 of the hierarchy, judgments may be significant. In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, due to the lack of significant inputs, management must assess all relevant empirical data in deriving valuation inputs including but not

limited to projected future cash flows, discount rates, royalty rates, interest rates, customer attrition rates and foreign exchange rates. Imprecision in estimating unobservable market inputs can impact the carrying amount of assets in the balance sheet. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain assets could result in a different estimate of fair value at the reporting date.

Financial 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. The Company is exposed to the risk of failure of the counter parties to its derivative contracts. Significant judgment is applied by the Company when evaluating the fair value implications, if any, resulting from this risk. The Company regularly reviews the creditworthiness of its major counterparties and monitors its exposure to concentrations. At June 30, 2010, the Company believes its risk of counterparty default is mitigated as a result of such evaluation and the short-term duration of these arrangements.

Goodwill and Other Purchased Intangible Assets

The FASB issued ASC 805 Business Combinations, and ASC 350 Intangibles — Goodwill and Others, both of which were effective for fiscal years beginning after December 15, 2001. Under these rules, goodwill is no longer amortized but is subject to annual impairment tests in accordance with ASC 350. Other identifiable intangible assets continue to be amortized over their useful lives. The Company regularly reviews business conditions and other relevant factors to determine whether impairment conditions exist and performs its annual impairment test at year-end each year. The Company utilizes the discounted cash flow method to determine the fair value of each of its reporting units, which include the individual operating entities of the trading and collectible reporting segments. If the carrying amount of a reporting unit exceeds its fair value, the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of goodwill to its carrying amount. In calculating the implied fair value of the reporting unit goodwill, the present value of the reporting unit’s expected future cash flows is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the present value of the reporting unit’s expected future cash flows over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. Estimates critical to these calculations include projected future cash flows, discount rates, royalty rates, customer attrition rates and foreign exchange rates. Imprecision in estimating unobservable market inputs can impact the carrying amount of assets in the balance sheet. Furthermore, while we believe our valuation methods are appropriate, the use of different methodologies or assumptions to determine the fair value of certain assets could result in a different estimate of fair value at the reporting date. Refer to Note 18 for a further discussion of the methodology and inputs used to arrive at our impairment to goodwill and other purchased intangible assets.

Long-Lived Assets

Long-lived assets, other than goodwill, are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of these assets and its eventual disposition is less than its carrying amount. Intangible assets are primarily evaluated on an annual basis, generally in conjunction with the Company’s evaluation of goodwill balances. Impairment, if any, is assessed by using internally developed discounted cash flows estimates, and independent appraisals to determine fair value. The determination of whether or not long-lived assets have become impaired involves a significant level of judgment in the assumptions underlying the approach used to determine the estimated future cash flows expected to result from the use of those assets. Changes in the Company’s strategy, assumptions and/or market conditions could significantly impact these judgments and require adjustments to recorded amounts of long-lived assets.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued ASC 805 Business Combinations. This standard is effective for business combinations for which the acquisition date is on, or after, the beginning of the first annual reporting period beginning on, or after,

December 15, 2008. This standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. This standard was adopted on July 1, 2009. The adoption did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued ASC 810 Consolidation. This standard requires that non-controlling (minority) interests be reported as a component of equity, that net income attributable to the parent and to the non-controlling interest be separately identified in the income statement, that changes in a parent’s ownership interest while the parent retains its controlling interest be accounted for as equity transactions, and that any retained non-controlling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. This standard is an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements, and related interpretations. This standard was adopted on July 1, 2009. The adoption resulted in a change in the reporting presentation of minority interest, now classified as non-controlling interest, in the consolidated balance sheet and consolidated statement of operations, stockholders’ equity and cash flows. The 2009 consolidated financial statements have been restated to reflect this change in presentation.

In March 2008, the FASB issued ASC 815 Derivatives and Hedging. This standard expanded the disclosure requirements about an entity’s derivative instruments and hedging activities. The disclosure provisions apply to all entities with derivative instruments originally subject to ASC 815, and its related interpretations. The provisions also apply to related hedged items, bifurcated derivatives, and non-derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to ASC 815 must provide more robust qualitative disclosures and expanded quantitative disclosures. Such disclosures, generally will need to be presented for every annual and interim reporting period. This standard was adopted on July 1, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.

In May 2009, the FASB issued ASC 855 Subsequent Events. This standard sets forth: (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This standard is effective for interim and annual periods ending after June 15, 2009. The Company adopted this standard at June 30, 2009. This standard did not impact the consolidated financial results other than requiring additional disclosures. See Note 19 of the Notes to Consolidated Financial Statements for subsequent events impacting the Company.

In June 2009, the FASB issued ASC 860 Transfers and Servicing. This standard removes the exemption from consolidation for Qualifying Special Purpose Entities (“QSPEs”), and also limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The Company adopted this standard for interim and annual reporting periods beginning on July 1, 2009. The adoption of this standard did not have any material impact on the consolidated financial statements.

In June 2009, the FASB issued ASC 810 Consolidation. This standard amends FASB Interpretation 46(R) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This standard will become effective for the Company on July 1, 2010. The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements.

In October 2009, the FASB updated accounting standards for Multiple-Deliverable Revenue Arrangements in ASC 605 Revenue Recognition. This update addresses the unit of accounting for arrangements involving multiple deliverables and how to allocate arrangement consideration to one or more units of accounting. It eliminates the criteria that objective and reliable evidence of the fair value of any undelivered items must exist for the delivered items to be considered separate units of

accounting. This standard will become effective for the Company on July 1, 2010. The Company is evaluating the potential impact of adopting this standard on the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SPECTRUM GROUP INTERNATIONAL, INC.
FINANCIAL STATEMENTS
INDEX

		Page
Reports of Independent Registered Public Accounting Firms			F-2
Consolidated Balance Sheets as of June 30, 2010, and 2009			F-4
Consolidated Statements of Operations for the Years Ended June 30, 2010, and 2009			F-5
Consolidated Statements of Stockholders’ Equity for the Years Ended June 30, 2010, and 2009			F-6
Consolidated Statements of Cash Flows for the Years Ended June 30, 2010, and 2009			F-7
Notes to Consolidated Financial Statements			F-8

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Spectrum Group International, Inc.

We have audited the accompanying consolidated balance sheets of Spectrum Group International, Inc. (the “Company”) as of June 30, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the combined financial statements of the European Operations of Spectrum Group International, Inc. (the “European Operations”). Such European Operations comprised approximately $15,673,000 or 6.6% and $19,791,000 or 9.1% of total assets as of June 30, 2010 and 2009, respectively, and $9,232,000 or 0.2% and $9,680,000 or 0.2% of total revenues and $7,397,000 or 13.7% and $5,863,000 or 8.3% of gross profit for the years then ended, respectively. The combined financial statements of the European Operations were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the European Operations, is based solely on the report of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Spectrum Group International, Inc. as of June 30, 2010 and 2009, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements, effective July 1, 2009, the Company changed the manner in which it accounts for non-controlling interest and business combinations. The 2009 consolidated financial statements have been restated to reflect this change in presentation.

As further discussed in Note 3 to the accompanying consolidated financial statements, the Company has restated its 2009 consolidated statements of operations and cash flows to correct for certain errors in classification.

/s/ BDO USA, LLP

Costa Mesa, California

September 16, 2010

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholder
Spectrum Group International, Inc.

We have audited the accompanying combined balance sheets of the European Operations of Spectrum Group International, Inc. (as defined in Footnote 1, the “Companies”) as of June 30, 2010 and 2009, and the related combined statements of operations, stockholder’s equity, and cash flows for the years then ended. These combined financial statements are the responsibility of the Companies’ management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. The Companies are not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Companies included in the European Operations of Spectrum Group International, Inc. as of June 30, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Fabregas/Mercade

Barcelona, Spain

September 16, 2010

SPECTRUM GROUP INTERNATIONAL, INC.

		June 30,				June 30,
		2010				2009
						(as restated)
ASSETS
Current assets:
Cash and cash equivalents		$	22,320			$	17,545
Restricted cash			—				650
Short-term investments and marketable securities			6,433				8,175
Receivables and secured loans, net — trading operations			42,901				46,214
Accounts receivable and consignor advances, net — collectibles operations			6,127				7,006
Inventories,			138,077				115,654
Prepaid expenses and other assets			1,333				2,028
Total current assets			217,191				197,272
Property and equipment, net			2,277				2,668
Goodwill			5,942				5,960
Other purchased intangibles, net			5,948				8,301
Other assets			259				126
Income taxes receivable			4,974				3,424
Deferred tax assets			144				398
Total assets		$	236,735			$	218,149
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and consignor payables		$	30,397			$	20,788
Liabilities on borrowed metals			40,841				15,100
Accrued expenses, accrued compensation and other current liabilities			13,411				23,161
Accrued legal settlement			2,697				6,556
Income taxes payable			825				6,582
Lines-of-credit			47,200				52,750
Deferred tax liability			934				1,920
Dividend payable to Auctentia			2,500				—
Total current liabilities			138,805				126,857
Deferred and other long term tax liabilities			7,794				189
Total liabilities			146,599				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 June 30, 2010, and 2009, respectively			319				283
Additional paid-in capital			241,615				233,385
Accumulated other comprehensive income			3,529				8,419
Accumulated deficit			(162,350	)			(161,298	)
Total Spectrum Group International, Inc. stockholders’ equity			83,113				80,789
Non-controlling interests			7,023				10,314
Total stockholders’ equity			90,136				91,103
Total liabilities and stockholders’ equity		$	236,735			$	218,149

See reports of Independent Registered Public Accounting Firms and accompanying notes to consolidated financial statements.

SPECTRUM GROUP INTERNATIONAL, INC.

		Year Ended June 30,				Year Ended June 30,
		2010				2009
						(as restated)
Revenues:
Sales of precious metals		$	5,834,712			$	4,121,159
Collectibles revenues:
Sales of inventories			154,943				144,320
Commissions earned			22,783				20,550
Total revenue			6,012,438				4,286,029
Cost of sales:
Cost of precious metals sold			5,814,456				4,077,997
Cost of collectibles sold			144,143				137,232
Total cost of sales			5,958,599				4,215,229
Gross profit			53,839				70,800
Operating expenses:
General and administrative			28,982				29,963
Salaries and wages			26,467				29,814
Depreciation and amortization			1,699				1,807
Goodwill and intangible asset impairments			2,271				860
Legal settlement			2,697				—
Total operating expenses			62,116				62,444
Operating (loss) income			(8,277	)			8,356
Interest and other income (expense):
Interest income			6,390				5,614
Interest expense			(2,267	)			(2,373	)
Other income (expense), net			648				(393	)
Unrealized gains on foreign exchange			3,304				3,068
Total interest and other income (expense), net			8,075				5,916
(Loss) Income before income taxes			(202	)			14,272
Income tax (provision)benefit			640				(3,137	)
Net income			438				11,135
Less: Net income attributable to the non-controlling interests			(1,490	)			(3,999	)
Net (loss) income attributable to Spectrum Group International, Inc.		$	(1,052	)		$	7,136
(Loss)Earnings per share attributable to Spectrum Group International, Inc.
Basic		$	(0.03	)		$	0.23
Diluted		$	(0.03	)		$	0.23
Weighted average shares outstanding
Basic			31,939				30,934
Diluted			31,939				31,649

See reports of Independent Registered Public Accounting Firms and accompanying notes to consolidated financial statements.

SPECTRUM GROUP INTERNATIONAL, INC.

																										Total
																										Spectrum
																										Group
														Accumulated												International,
		Common				Common				Additional				Other								Non-				Inc.
		Stock				Stock				Paid-in				Comprehensive				Accumulated				controlling				Stockholders’				Comprehensive
		in Shares				in $				Capital				Income (Loss)				Deficit				Interests				Equity				Income/(Loss)
Balance, June 30, 2008 (restated)			28,209			$	282			$	232,123			$	13,141			$	(168,434	)		$	6,315			$	83,427			$	—
Net income			—				—				—				—				7,136				3,999				11,135				11,135
Less: Total comprehensive income attributable to non-controlling interest			—				—				—				—				—				—				—				(3,999	)
Unrealized gain on marketable securities, net of tax			—				—				—				313				—				—				313				313
Change in cumulative foreign currency translation adjustment			—				—				—				(5,035	)			—				—				(5,035	)			(5,035	)
Comprehensive income																														$	2,414
Issuance of stock for class action settlement			772				8				1,437				—				—				—				1,445
Repurchase of stock issued for class action settlement			(772	)			(8	)			(1,190	)			—				—				—				(1,198	)
Taxes paid in exchange for cancellation of restricted stock			—				—				(98	)			—				—				—				(98	)
Stock based compensation			—				—				1,114				—				—				—				1,114
Issuance of common stock for restricted stock grants			100				1				(1	)			—				—				—				—
Balance, June 30, 2009 (restated)			28,309				283				233,385				8,419				(161,298	)			10,314				91,103
Net (loss) income			—				—				—				—				(1,052	)			1,490				438				438
Less: Total comprehensive income attributable to non-controlling interest			—				—				—				—				—				—				—				(1,490	)
Unrealized loss on marketable securities, net of tax			—				—				—				(173	)			—				—				(173	)			(173	)
Change in cumulative foreign currency translation adjustment			—				—				—				(4,717	)			—				—				(4,717	)			(4,717	)
Comprehensive loss																														$	(5,942	)
Dividend paid to Auctentia			—				—				—				—				—				(1,000	)			(1,000	)
Dividend declared to Auctentia			—				—				—				—				—				(2,500	)			(2,500	)
Distribution paid to a non-controlling interest			—				—				—				—				—				(1,281	)			(1,281	)
Issuances of common stock for legal settlement			3,278				33				6,523				—				—				—				6,556
Taxes paid in exchange for cancellation of restricted stock			—				—				(133	)			—				—				—				(133	)
Stock based compensation			—				—				1,843				—				—				—				1,843
Issuance of common stock for restricted stock grants			306				3				(3	)			—				—				—				—
Balance, June 30, 2010			31,893			$	319			$	241,615			$	3,529			$	(162,350	)		$	7,023			$	90,136

See reports of Independent Registered Public Accounting Firms and accompanying notes to consolidated financial statements.

SPECTRUM GROUP INTERNATIONAL, INC.

		Year Ended				Year Ended
		June 30,				June 30,
		2010				2009
						(as restated)
Cash flows from operating activities:
Net (loss) income		$	438			$	11,135
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized loss on derivative instruments			5,110				4,696
Unrealized (gain) on foreign currency			(3,304	)			(3,000	)
Depreciation and amortization			1,699				1,807
Loss on abandonment of property and equipment			144				—
Goodwill and other purchased intangibles impairment charge			2,271				860
Provision for bad debts			(22	)			440
Provision for inventory reserves			1,221				1,356
Stock based compensation			1,843				1,115
Legal settlement			2,697				—
Gain on sale of land and building			—				(432	)
Gains on sales of marketable securities			(135	)			(254	)
Changes in assets and liabilities:
Receivables and secured loans — trading operations			1,598				(20,629	)
Accounts receivable and consignor advances — collectibles operations			918				(432	)
Litigation settlement receivable			—				5,975
Inventories			(23,644	)			13,911
Liabilities on borrowed metals			25,741				(3,688	)
Prepaid expenses and other assets			562				2,309
Accounts payable, accrued expenses and other liabilities			(3,722	)			(6,233	)
Income taxes			(468	)			4,651
Deferred taxes			34				(12	)
Accrued litigation settlement			—				(7,241	)
Net cash (used in) provided by operating activities			12,981				6,334
Cash flows from investing activities:
Capital expenditures for property and equipment			(699	)			(1,595	)
Proceeds from disposition of assets			—				2,072
Cash paid for acquisitions, net of cash acquired			(657	)			(592	)
Net sales (purchases) of short-term investments and marketable securities			827				(8,734	)
Proceeds from sales of marketable securities			1,050				1,178
Decrease (increase) in restricted cash			650				(650	)
Net cash provided by (used in) investing activities			1,171				(8,321	)
Cash flows from financing activities:
Net borrowings under lines-of-credit			(5,550	)			(12,997	)
Repurchase of stock issued for class action settlement			—				(1,198	)
Dividend paid to a non-controlling interest			(1,000	)			—
Distribution paid to a non-controlling interest			(1,281	)			—
Taxes paid on behalf of employees with respect to vesting of restricted stock			(133	)			(98	)
Net cash provided by (used in) financing activities			(7,964	)			(14,293	)
Effects of exchange rates on cash			(1,413	)			(2,035	)
Net increase (decrease) in cash and cash equivalents			4,775				(18,315	)
Cash and cash equivalents, beginning of year			17,545				35,860
Cash and cash equivalents, end of year		$	22,320			$	17,545
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense		$	1,473			$	2,159
Income taxes		$	1,001			$	4,582