Gold.com, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q ("Form 10-Q") 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 Quarterly 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 Quarterly Report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q. In addition to the risks and uncertainties that may ordinarily influence our business, the Company remains exposed to the effects of the COVID-19 pandemic. The pandemic has caused significant disruption in the financial markets both globally and in the United States. The resulting macroeconomic events have contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. The Company does not know how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes contained elsewhere in this Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this Quarterly Report, particularly in “ Risk Factors .” INTRODUCTION Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying condensed consolidated financial statements and related notes to aid in the understanding of our results of operations and financial condition. Our discussion is organized as follows: • Executive overview . This section provides a general description of our business, as well as significant transactions and events that we believe are important in understanding the results of operations. • Results of operations . This section provides an analysis of our results of operations presented in the accompanying condensed consolidated statements of income by comparing the results for the respective periods presented. Included in our analysis is a discussion of six performance metrics: (i) ounces of gold and silver sold, (ii) Wholesale Sales ticket volume, (iii) Direct-to-Consumer ticket volume, (iv) number of Direct-to-Consumer customers, (v) inventory turnover ratio, and (vi) number of secured loans at period-end. • Segment results of operations . This section provides an analysis of our results of operations presented for our three segments: o Wholesale Sales & Ancillary Services o Direct-to-Consumer , and o Secured Lending for the comparable periods. • Non GAAP Measures . In addition to certain key operational metrics to assess the performance of our business, management uses the financial performance measure “ adjusted net income before provision for taxes ” that is not prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) 43 • Liquidity and financial condition . This section provides an analysis of our cash flows, as well as a discussion of our outstanding debt as of September 30, 2021 , sources of liquidity and the amount of financial capacity available to fund our future commitments and other financing arrangements. • Critical accounting policies . This section discusses critical accounting policies that are considered both important to our financial condition and results of operations and require management to make significant judgment and estimates. All of our significant accounting policies, including the critical accounting policies are also summarized in Note 2 to the Company’s condensed consolidated financial statements. • Recent accounting pronouncements . This section discusses new accounting pronouncements, dates of implementation and their expected impact on our accompanying condensed consolidated financial statements. EXECUTIVE OVERVIEW Our Business We conduct our operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales) and (iii) Secured Lending. Wholesale Sales & Ancillary Services Segment The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services, LLC ("TDS" or “Storage”), A-M Global Logistics, LLC (“AMGL” or "Logistics"), and AM&ST Associates, LLC ("AMST" or the “SilverTowne Mint"). The Wholesale Sales & Ancillary Services segment operates as a full-service precious metals company. We offer gold, silver, platinum, and palladium in the form of bars, plates, powder, wafers, grain, ingots, and coins. Our Industrial unit services manufacturers and fabricators of products utilizing or incorporating precious metals. Our Coin and Bar unit deals in over 1,000 coin and bar products in a variety of weights, shapes, and sizes for distribution to dealers and other qualified purchasers. We have a marketing support office in Vienna, Austria, and a trading center in El Segundo, California. The trading center, for buying and selling precious metals, is available to receive orders 24 hours every day, even when many major world commodity markets are closed. In addition to Wholesale Sales activity, A-Mark offers its customers a variety of ancillary services, including financing, storage, consignment, logistics, and various customized financial programs. As a U.S. Mint-authorized purchaser of gold, silver, platinum, and palladium coins, A-Mark purchases product directly from the U.S. Mint and other sovereign mints for sale to its customers. Through its wholly-owned subsidiary AMTAG, the Company promotes A-Mark's products and services to the international market. Through our wholly-owned subsidiary TDS, we offer a variety of managed storage options for precious metals products to financial institutions, dealers, investors, and collectors around the world. The Company's wholly-owned subsidiary AMGL is based in Las Vegas, Nevada, and provides our customers an array of complementary services, including receiving, handling, inventorying, processing, packing, and shipping of precious metals and custom coins on a secure basis. Through its wholly-owned subsidiary AMST, the Company designs and produces minted silver products. Our SilverTowne Mint operations allow us to provide greater product selection to our customers and greater pricing stability within the supply chain, as well as to gain increased access to silver during volatile market environments, which have historically created higher demand for precious metals products. Direct-to-Consumer The Company operates its Direct-to-Consumer segment through its wholly-owned subsidiaries JM Bullion, Inc. (“JMB”) and Goldline, Inc. (“Goldline”). JMB has four wholly-owned subsidiaries: Gold Price Group, Inc. (“GPG”), Silver.com, Inc. (“Silver.com” ), Goldline Metal Buying Corp. (“GMBC”), an d Provident Metals Corp. (“PMC”). Goldline, Inc. owns 100% of AMIP, LLC ("AMIP"), and has a 50 % ownership interest in Precious Metals Purchasing Partners, LLC ("PMPP".) As the context requires, references in this 10-Q to “JMB” may include GPG, Silver.com, GMBC and PMC, and references to “Goldline” may include AMIP and PMPP. JMB is a leading e-commerce retailer providing access to a broad array of gold, silver, copper, platinum, and palladium products through its websites and marketplaces. JMB operates five separately branded, company-owned websites targeting specific niches within the precious metals retail market, including JMBullion.com, ProvidentMetals.com, Silver.com, GoldPrice.org, and SilverPrice.org. The Company acquired the 79.5% interest in JMB that it did not previously own in March 2021. With this acquisition, we substantially expanded our e-commerce channel for precious coin and metals sales and increased the diversification of our business between wholesale and retail distribution. 44 The Company acquired Goldline in August 2017 through an asset purchase transaction with Goldline, LLC, which had been in operation since 1960. Goldline is a direct retailer of precious metals to the investor community, and markets its precious metal products on television, radio, and the internet, as well as through customer service outreach . AMIP manages Goldline’s intellectual property. PMPP was formed in in fiscal 2019 pursuant to terms of a joint venture agreement, for the purpose of purchasing precious metals from the partners' retail customers, and then reselling the acquired products back to affiliates of the partners. PMPP commenced operations in fiscal 2020. Secured Lending The Company operates its Secured Lending segment through its wholly-owned subsidiary Collateral Finance Corporation, LLC. ("CFC"). CFC has two wholly-owned subsidiaries: AM Capital Funding, LLC (“AMCF”), and CFC Alternative Investments (“CAI”). CFC is a California licensed finance lender that originates and acquires commercial loans secured by bullion and numismatic coins. CFC's customers include coin and precious metal dealers, investors, and collectors. As of September 30, 2021, CFC and AMCF had, in the aggregate, approximately $110.3 million in secured loans outstanding, of which approximately 70.6% were acquired from third parties (some of which may be customers of A-Mark) and approximately 29.4% were originated by CFC. AMCF was formed for the purpose of securitizing eligible secured loans of CFC. AMCF issued, administers, and owns Secured Senior Term Notes: Series 2018-1, Class A, with an aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0 million. The Class A Notes bear interest at a rate of 4.98%, and the Class B Notes bear interest at a rate of 5.98% (collectively referred to as the "Notes"). The Notes have a maturity date of December 15, 2023. See Note 14 to the Company’s condensed consolidated financial statements for additional information CAI is a holding company that has an equity method interest in Collectible Card Partners, LLC (“CCP”). The purpose of CCP is to provide capital to fund commercial loans secured by graded sport cards and sports memorabilia. CCP commenced operations in fiscal 2022. Our Strategy The Company was formed in 1965 and has grown into a significant participant in the bullion and coin markets, with approximately $7.6 billion in revenues for fiscal year 2021. Our strategy continues to focus on growth, including the volume of our business, our geographic presence, and the scope of complementary products, services, and technological tools that we offer to our customers. We intend to continue to grow by leveraging off the strengths of our existing integrated operations: • our expertise in e-commerce and marketing; • our expansive retail distribution network; • the depth of our customer relationships; • our access to market makers, suppliers, and sovereign and private mints; • our trading systems in the U.S. and Europe; • our network of precious metals dealers; • our depository relationships around the world; • our knowledge of secured lending; • our design and production of minted silver products; • our ability to obtain more favorable pricing and financing terms due to our size; • our distribution, storage and logistics capabilities; and • the quality and experience of our management team. Our Customers Our customers include financial institutions, bullion retailers, industrial manufacturers and fabricators, sovereign mints, refiners, coin and metal dealers, investors, collectors, and e-commerce and other retail customers. The Company makes a two-way market in its wholesale operations, which results in many customers also operating as our suppliers in that segment. This diverse base of wholesale customers purchases a variety of products from the Company in a multitude of grades, primarily in the form of coins and bars. Our Direct-to-Consumer segment sells to (and, through JMB and PMPP, buys from) retail customers, with JMB focusing on e-commerce 45 operations and Goldline marketing through various traditional channels to the investor community. The Direct-to-Consumer segment offer s these customers a variety of gold, silver, copper, platinum, and palladium products. Factors Affecting Revenues, Gross Profit, Interest Income, and Interest Expense Set forth below are the key factors affecting the Company’s revenues, gross profit, interest income, and interest expense. These factors can result from both the Company’s ongoing business activities as well as from Company acquisitions. For the three months ended September 30, 2021, the Company’s results were significantly impacted by the acquisition of JMB in March 2021. Revenues . The Company enters into transactions to sell and deliver gold, silver, platinum, palladium, and rhodium to industrial and commercial users, coin and bullion dealers, mints, and financial institutions. The metals are investment or industrial grade and are sold in a variety of shapes and sizes. The Company also sells and delivers gold, silver, platinum, palladium, and copper products directly to customers and the investor community through its Direct-to Consumer segment. Customers may place orders over the phone or online at one of the Company’s websites. The Company also sells precious metals on forward contracts at a fixed price based on current prevailing precious metal spot prices with a certain delivery date in the future (up to six months from inception date of the forward contract). The Company also uses other derivative products (primarily futures contracts) or combinations thereof to hedge commodity risks. We enter into these forward and future contracts as part of our hedging strategy to mitigate our price risk of holding inventory; they are not entered into for speculative purposes. Forward sales contracts by their nature are required to be included in revenues, unlike futures contracts which do not impact the Company’s revenue. The decision to use a forward contract versus another derivative type of product (e.g., a futures contract) for hedging purposes is based on the economics of the transaction. Since the volume of hedging can be significant, the movement in and out of forwards can substantially impact revenues, either positively or negatively, from period to period. For this reason, the Company believes ounces sold (excluding ounces sold on forward sales contracts) is a meaningful metric to assess our top line performance. In addition, the Company earns revenue by providing storage solutions for precious metals and numismatic coins for financial institutions, dealers, investors and collectors worldwide and by providing storage and order-fulfillment services to our retail customers. The Company also earns revenue from advertisements placed on our Direct-to-Consumer websites. These revenue streams represent less than 1% of the Company’s consolidated revenues. The Company operates in a high volume/low margin industry. Revenues are impacted by three primary factors: product volume, market prices, and market volatility. A material changes in any one or more of these factors may result in a significant change in the Company’s revenues. A significant increase or decrease in revenues can occur simply based on changes in the underlying commodity prices and may not be reflective of an increase or decrease in the volume of products sold. Gross Profit . Gross profit is the difference between our revenues and the cost of our products sold. Since we quote prices based on the current commodity market prices for precious metals, we enter into a combination of forward and futures contracts to affect a hedge position equal to the underlying precious metal commodity value, which substantially represents inventory subject to price risk. We enter into these derivative transactions solely for the purpose of hedging our inventory, and not for speculative purposes. Our gross profit includes the gains and losses resulting from these derivative instruments. However, the gains and losses on the derivative instruments are substantially offset by the gains and losses on the corresponding changes in the market value of our precious metals inventory. As a result, our results of operations generally are not materially impacted by changes in commodity prices. Volatility also affects our gross profit. Greater volatility typically causes the premium spreads to widen resulting in an increase in the gross profit. Product supply constraints during extended periods of higher volatility have historically resulted in a heightening of wider premium spreads resulting in further improvement in the gross profit. Interest Income . The Company enters into secured loans and secured financing structures with its customers under which it charges interest. CFC acquires loan portfolios and originates loans that are secured by precious metal bullion and numismatic material owned by the borrowers and held by the Company for the term of the loan. Additionally, AMCF acquires certain loans from CFC that are secured by precious metal bullion to meet the collateral requirements of the Notes. Also, the Company offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products whereby the Company earns a fee based on the underlying value of the precious metal ("repurchase arrangements with customers"). Interest Expense . The Company incurs interest expense associated with its: lines of credit, notes, product financing agreements for the transfer and subsequent re-acquisition of gold, silver, and platinum at a fixed price with a third-party finance company ("product financing arrangements"), and short-term precious metal borrowing arrangements with our suppliers ("liabilities on borrowed metals"). 46 Performance Metrics In addition to financial statement indicators, management also utilizes certain key operational metrics to assess the performance of our business. Gold and Silver Ounces Sold and Delivered to Customers . We look at the number of ounces of gold and silver sold and delivered to our customers (excluding ounces recorded on forward contracts). These metrics reflect our business volume without regard to changes in commodity pricing, which also impacts revenue, but can mask actual business trends. The primary purpose of entering into forward sales transactions is to hedge commodity price risk. Although the revenues realized from these forward sales transactions are often significant, they generally have negligible impact to gross margins. As a result, the Company excludes the ounces recorded on forward contracts from its performance metrics, as the Company does not enter into forward sales transactions for speculative purposes. Wholesale Sales Ticket Volume . Another measure of our business that is unaffected by changes in commodity pricing, is ticket volume (or number of orders processed). Ticket volume for the Wholesale Sales & Ancillary Services segment measures the total number of wholesale orders processed during the period. In periods of higher volatility, there is generally increased trading in the commodity markets, causing increased demand for our products, resulting in higher business volume. During periods of heightened demand order size per ticket may increase. Direct-to-Consumer Ticket Volume. Ticket volume for the Direct-to-Consumer segment measures the total number of retail orders processed during the period. In periods of higher volatility, there is generally increased consumer demand for our products, resulting in higher business volume. Direct-to-Consumer Customers . We are focused on attracting new customers and retaining existing customers to drive revenue growth. We use the following three metrics as revenue growth indicators when assessing our customer base: • New Direct-to-Consumer Customers means the number of customers that have registered or setup a new account or made a purchase for the first time. • Active Direct-to-Consumer Customers means the number of customers that have made a purchase during the period. • Total Direct-to-Consumer Customers means the aggregate number of customers that have registered or set up an account or have made a purchase in the past. Inventory Turnover . Inventory turnover is another performance measure on which we are focused and is calculated as the cost of sales divided by the average inventory during the relevant period. Inventory turnover is a measure of how quickly inventory has moved during the period. A higher inventory turnover ratio, which we typically experience during periods of higher volatility when trading is more robust, typically reflects a more efficient use of our capital. The period of time that inventory is held by the Company varies depending upon the nature of our inventory commitments with customers and suppliers. (See Note 6 to the Company’s condensed consolidated financial statements for a description of our classifications of inventory by type.) When management analyzes inventory turnover on a period over period basis, consideration is given to each inventory type and its corresponding impact on the inventory turnover calculation. For example: • The Company enters into various structured borrowing arrangements that commit the Company's inventory (such as product financing arrangements or liabilities on borrowed metals) for an unspecified period of time. While the Company is able to obtain access to this inventory on demand, this type of inventory tends not to turn over as quickly as other types of inventory. • The Company enters into repurchase arrangements with customers under which A-Mark holds precious metals which are subject to repurchase for an unspecified period of time. While the Company has legal title to this inventory, the Company is required to hold this inventory (or like-kind inventory) for the customer until the arrangement is terminated or the material is repurchased by the customer. As a result, this type of inventory tends not to turn over as quickly as other types of inventory. Additionally, our inventory turnover ratio can be affected by hedging activity, as the period over period change of the inventory turnover ratio may be significantly impacted by a period over period change in hedging volume. For example, if trading activity were to remain constant over two periods, but there were significantly higher forward sales in the current period compared to a prior period, the calculated inventory turnover ratio would increase notwithstanding the constancy of the trading volume. Number of Secured Loans . Finally, as a measure of the size of our Secured Lending segment, we look at the number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of each quarter. Typically, the number of loans increases during periods of increasing precious metal pricing and decreases during periods of declining precious metal prices. The Company calculates a loan-to-value ("LTV") ratio for each loan as the principal amount of the loan divided by the liquidation value of the collateral, which is based on daily spot market prices of precious metal bullion. When the market price of the pledged collateral decreases and thereby increases the LTV ratio of a loan above a prescribed maximum ratio, usually 85%, the Company has 47 the option to make a margin call on the loan. As a result, a decline of precious metal market prices may cause a decrease in the number of loans outstanding in a period. Non-GAAP Financial Measures In addition to certain key operational metrics to assess the performance of our business, management uses financial performance measures that are not prepared in accordance with GAAP. One of these non-GAAP measures is “Adjusted net income before provision for income taxes”. We believe this non-GAAP measure provides useful information that can be used to evaluate our performance. Non-GAAP measures do not have standardized definitions and should not be relied upon in isolation or as a substitute for measures prepared in accordance with GAAP. For a reconciliation of this non-GAAP measure to the amounts included in our Statements of Income for the three months ended September 30, 2021 and 2020, and certain limitations inherent in such measures, refer to the “Non-GAAP Measures” section below. COVID-19 The COVID-19 outbreak has caused significant disruption in the financial markets both globally and in the United States. The resulting macroeconomic events contributed to an increase in the business conducted by the Company, but also pose certain risks and uncertainties for the Company. It is challenging to predict how long the COVID-19 pandemic will continue, the extent to which the effects that the Company has experienced from the pandemic thus far will persist, or whether other effects on the Company and its businesses will materialize in the short or long term. Macroeconomic events have positively affected the Company’s trading revenues and gross profit as the volatility of the price of precious metals and numismatics resulted in a material increase in the spread between bid and ask prices on these products. We also experienced substantially increased demand for products in each of our coin and bar, industrial and retail businesses. We attribute this to certain customers, particularly in Goldline and our recently acquired JMB retail units, seeking to assure a supply of precious metals necessary for the operation of their businesses, and other customers’ seeking the safety of investments in precious metals. In response to the heightened demand, in certain cases prices for the products we sell have also risen. Fiscal Year Our fiscal year end is June 30 each year. Unless otherwise stated, references to years in this report relate to fiscal years rather than to calendar years. 48 RESULTS OF OPERATIONS Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020 Consolidated Results of Operations The operating results of our business for the three months ended September 30, 2021 and 2020 are as follows: in thousands, except per share data and performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 2,013,971 100.000 % $ 1,866,116 100.000 % $ 147,855 7.9 % Gross profit 56,009 2.781 % 36,145 1.937 % $ 19,864 55.0 % Selling, general, and administrative expenses (16,677 ) (0.828 )% (9,505 ) (0.509 )% $ 7,172 75.5 % Depreciation and amortization expense (8,271 ) (0.411 )% (501 ) (0.027 )% $ 7,770 1,550.9 % Interest income 5,531 0.275 % 3,983 0.213 % $ 1,548 38.9 % Interest expense (5,473 ) (0.272 )% (4,293 ) (0.230 )% $ 1,180 27.5 % Earnings from equity method investments 1,489 0.074 % 4,126 0.221 % $ (2,637 ) (63.9 %) Other income, net 409 0.020 % 359 0.019 % $ 50 13.9 % Unrealized losses on foreign exchange (224 ) (0.011 )% (97 ) (0.005 )% $ 127 130.9 % Net income before provision for income taxes 32,793 1.628 % 30,217 1.619 % $ 2,576 8.5 % Income tax expense (6,669 ) (0.331 )% (6,511 ) (0.349 )% $ 158 2.4 % Net income 26,124 1.297 % 23,706 1.270 % $ 2,418 10.2 % Net income attributable to noncontrolling interests 100 0.005 % 623 0.033 % $ (523 ) (83.9 %) Net income attributable to the Company $ 26,024 1.292 % $ 23,083 1.237 % $ 2,941 12.7 % Basic and diluted net income per share attributable to A-Mark Precious Metals, Inc.: Per Share Data: Basic $ 2.31 $ 3.28 $ (0.97 ) (29.6 %) Diluted $ 2.17 $ 3.09 $ (0.92 ) (29.8 %) Performance Metrics: (1) Gold ounces sold (2) 669,000 721,000 (52,000 ) (7.2 %) Silver ounces sold (3) 28,127,000 24,248,000 3,879,000 16.0 % Inventory turnover ratio (4) 3.8 5.0 (1.2 ) (24.0 %) Number of secured loans at period end (5) 2,074 1,125 949 84.4 % (1) See "Results of Segments" for a description of additional metrics not listed above. (2) Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts. (3) Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts. (4) Inventory turnover ratio is the cost of sales divided by average inventory for the period presented above. This calculation excludes precious metals held under financing arrangements, which are not classified as inventory on the condensed consolidated balance sheets. (5) Number of outstanding secured loans to customers that are primarily collateralized by precious metals at the end of the period. 49 Revenues in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 2,013,971 100.000 % $ 1,866,116 100.000 % $ 147,855 7.9 % Performance Metrics Gold ounces sold 669,000 721,000 (52,000 ) (7.2 %) Silver ounces sold 28,127,000 24,248,000 3,879,000 16.0 % Revenues for the three months ended September 30, 2021 increased $147.9 million, or 7.9% to $2.014 billion from $1.866 billion in 2020. Excluding an increase of $132.5 million of forward sales, our revenues increased $15.4 million, which was due to an increase in silver ounces sold at higher selling prices, partially offset by lower gold ounces sold at lower selling prices. Gold ounces sold for the three months ended September 30, 2021 decreased 52,000 ounces, or 7.2%, to 669,000 ounces from 721,000 ounces in 2020. Silver ounces sold for the three months ended September 30, 2021 increased 3,879,000 ounces, or 16.0%, to 28,127,000 ounces from 24,248,000 ounces in 2020. On average, the selling prices for gold decreased by 3.4% and selling prices for silver increased by 13.8% during the three months ended September 30, 2021 as compared to the prior year period. JMB’s revenue activity represented 23.5% of the Company’s consolidated revenue for the three months ended September 30, 2021. JMB’s gold and silver ounces sold represented 20.1% and 22.4%, respectively, of the Company’s consolidated total of gold and silver ounces sold for the three months ended September 30, 2021. A key factor that contributed to the increase in demand for silver was the volatility in precious metal prices caused by macroeconomic and other events. A combination of price volatility, increased demand, and supply constraints led to a significant expansion in premium spreads in the precious metals market, having an onset during the second half of fiscal year 2020 and sustaining through the current fiscal year. We are uncertain of the duration of these conditions. Gross Profit in thousands, except performance metric Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Gross profit $ 56,009 2.781 % $ 36,145 1.937 % $ 19,864 55.0 % Performance Metric Inventory turnover ratio 3.8 5.0 (1.2 ) (24.0 %) Gross profit for the three months ended September 30, 2021 increased by $19.9 million, or 55.0%, to $56.0 million from $36.1 million in 2020. The overall gross profit increase was due to higher gross profits earned from the Direct-to-Consumer segment. The Company’s overall gross margin percentage for the three months ended September 30, 2021 increased by 84.4 basis points to 2.781% from 1.937% in 2020. The increase in gross margin percentage was mainly attributable to JMB’s retail market activity, which represented 44.1% of the Company’s consolidated gross profit for the three months ended September 30, 2021. Our inventory turnover rate for the three months ended September 30, 2021 decreased by 24.0%, to 3.8 from 5.0 in 2020. The decrease in our inventory turnover ratio was primarily due to higher average inventory balances related to product financing arrangements, which is a type of inventory that is typically held for longer periods, partially offset by higher volume of ounces sold on forward contracts. 50 Selling, General and Administrative Expense in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Selling, general, and administrative expenses $ (16,677 ) (0.828 )% $ (9,505 ) (0.509 )% $ 7,172 75.5 % Selling, general and administrative expenses for the three months ended September 30, 2021 increased $7.2 million, or 75.5%, to $16.7 million from $9.5 million in 2020. The change was primarily due to: (i) $6.0 million of expenses incurred by JMB (ii) $0.7 million of consulting and professional fees, (iii) higher insurance costs of $0.4 million, and (iv) increased compensation expense (including performance-based accruals) of $0.2 million. JMB’s selling, general, and administrative expenses represented 35.8% of the Company’s consolidated selling, general, and administrative expenses for the three months ended September 30, 2021. Depreciation and Amortization Expense in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Depreciation and amortization expense $ (8,271 ) (0.411 )% $ (501 ) (0.027 )% $ 7,770 1,550.9 % Depreciation and amortization expense for the three months ended September 30, 2021 increased $7.8 million, or 1,550.9%, to $8.3 million from $0.5 million in 2020. The change was primarily due to $7.7 million of JMB’s intangible asset amortization expense. JMB’s depreciation and amortization expense represented 93.9% of the Company’s consolidated depreciation and amortization expense for the three months ended September 30, 2021. Interest Income in thousands, except performance metric Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Interest income $ 5,531 0.275 % $ 3,983 0.213 % $ 1,548 38.9 % Performance Metric Number of secured loans at period-end 2,074 1,125 949 84.4 % Interest income for the three months ended September 30, 2021 increased $1.5 million, or 38.9%, to $5.5 million from $4.0 million in 2020. The aggregate increase in interest income was primarily due to higher interest income earned by our Secured Lending Segment, and higher other finance product income. The interest income from our Secured Lending segment increased by $1.0 million or by 63.2% compared with the prior year. The increase in interest income earned from the segment’s secured loan portfolio was primarily due to higher average monthly loan balances during the current period as compared to the average monthly loan balances for the prior year period. The number of secured loans outstanding increased by 84.4% to 2,074 as of September 30, 2021, from 1,125 as of September 30, 2020. The interest income from our other finance product income increased by $0.5 million in comparison to the same year-ago period. Interest Expense in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Interest expense $ (5,473 ) (0.272 )% $ (4,293 ) (0.230 )% $ 1,180 27.5 % 51 Interest expense for the three months ended September 30, 2021 increased $1.2 million, or 27.5% to $5.5 million from $4.3 million in 2020. The increase in interest expense was primarily driven by each of the following components: (i) $0.7 million related to product financing arrangements, (ii) $0.4 million associated with our Trading Credit Facility and Notes Payable (including amortization of debt issuance costs), (iii) $0.2 million of loan servicing fees, offset by a decrease of (iv) $0.2 million in interest and fees associated with liabilities on borrowed metals. Earnings from equity method investments in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Earnings from equity method investments $ 1,489 0.074 % $ 4,126 0.221 % $ (2,637 ) (63.9 %) Earnings from equity method investments for the three months ended September 30, 2021 decreased $2.6 million or 63.9% to $1.5 million from $4.1 million in 2020. The aggregate decrease was primarily due to our acquisition of JMB, which occurred in March 2021 and has subsequently been reported by the Company as a wholly owned subsidiary. Prior to the acquisition and included in the comparable period above, the Company’s share of JMB’s earnings for the three months ended September 30, 2020, was $3.7 million. The overall decrease was partially offset by increased earnings of $1.0 million associated with our other equity method investments. Other income, net in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Other income, net $ 409 0.020 % $ 359 0.019 % $ 50 13.9 % Other income, net for the three months ended September 30, 2021 increased $0.1 million, or 13.9% to $0.4 million from $0.4 million in 2020. The increase was due to higher royalties earned by our Secured Lending segment. Provision for Income Taxes in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Income tax expense $ (6,669 ) (0.331 )% $ (6,511 ) (0.349 )% $ 158 2.4 % Our income tax expense was $6.7 million and $6.5 million for the three months ended September 30, 2021 and 2020, respectively. Our effective tax rate was approximately 20.3% and 21.5% for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, our effective tax rate differs from the federal statutory rate primarily due to the excess tax benefit from share based compensation, the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures. For the three months ended September 30, 2020, the Company recorded tax expense which differed from the statutory rates primarily due to the foreign derived intangible income special deduction, offset by state taxes (net of federal tax benefit), and other normal course non-deductible expenditures . 52 SEGMENT RESULTS OF OPERATIONS The Company conducts its operations in three reportable segments: (i) Wholesale Sales & Ancillary Services (formerly known as Wholesale Trading & Ancillary Services), (ii) Direct-to-Consumer (formerly known as Direct Sales), and (iii) Secured Lending. Each of these reportable segments represents an aggregation of operating segments that meets the aggregation criteria set forth in the Segment Reporting Topic 280 of the FASB Accounting Standards Codification (“ASC”). Results of Operations — Wholesale Sales & Ancillary Services Segment The Company operates its Wholesale Sales & Ancillary Services segment through A-Mark Precious Metals, Inc., and its wholly-owned subsidiaries, A-Mark Trading AG (“AMTAG”), Transcontinental Depository Services ("TDS"), A-M Global Logistics, LLC ("Logistics"), and AM&ST Associates, LLC ("AMST" or "Silver Towne" or the "Mint"). Also, the Wholesale Sales & Ancillary Services segment includes the consolidating eliminations of inter-segment transactions and unallocated segment adjustments. Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020 — Wholesale Sales & Ancillary Services Segment The operating results of our Wholesale Sales & Ancillary Services segment for the three months ended September 30, 2021 and 2020 are as follows: in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 1,500,010 (a) 100.000 % $ 1,813,708 (c) 100.000 % $ (313,698 ) (17.3 %) Gross profit 25,549 1.703 % (b) 30,622 1.688 % (d) $ (5,073 ) (16.6 %) Selling, general, and administrative expenses (8,682 ) (0.579 )% (7,402 ) (0.408 )% $ 1,280 17.3 % Depreciation and amortization expense (232 ) (0.015 )% (205 ) (0.011 )% $ 27 13.2 % Interest income 3,009 0.201 % 2,438 0.134 % $ 571 23.4 % Interest expense (2,438 ) (0.163 )% (2,948 ) (0.163 )% $ (510 ) (17.3 %) Earnings from equity method investments 1,489 0.099 % 4,126 0.227 % $ (2,637 ) (63.9 %) Unrealized losses on foreign exchange (224 ) (0.015 )% (97 ) (0.005 )% $ 127 130.9 % Net income before provision for income taxes $ 18,471 1.231 % $ 26,534 1.463 % $ (8,063 ) (30.4 %) Performance Metrics: Gold ounces sold (1) 522,000 704,000 (182,000 ) (25.9 %) Silver ounces sold (2) 21,502,000 23,918,000 (2,416,000 ) (10.1 %) Wholesale Sales ticket volume (3) 26,078 35,341 (9,263 ) (26.2 %) ( a) Revenues are presented n et of i nter-segment transactions with the Direct-to-Consumer segment that totaled $440.8 million. This segment’s gross sales before eliminations of i nter-segment activity totaled $1.940 billion. (b) Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.470% for the period. (c) Revenues are presented n et of i nter-segment transactions with the Direct-to-Consumer segment that totaled $20.5 million. This segment’s gross sales before eliminations of i nter-segment activity totaled $1.834 billion. (d) Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.667% for the period. (1) Gold ounces sold represents the ounces of gold product sold and delivered to the customer during the period, excluding ounces of gold recorded on forward contracts. (2) Silver ounces sold represents the ounces of silver product sold and delivered to the customer during the period, excluding ounces of silver recorded on forward contracts. (3) Trading ticket volume represents the total number of product orders processed by A-Mark. 53 Revenues — Wholesale Sales & Ancillary Services in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 1,500,010 (a) 100.000 % $ 1,813,708 (c) 100.000 % $ (313,698 ) (17.3 %) Performance Metrics Gold ounces sold 522,000 704,000 (182,000 ) (25.9 %) Silver ounces sold 21,502,000 23,918,000 (2,416,000 ) (10.1 %) Wholesale Sales ticket volume 26,078 35,341 (9,263 ) (26.2 %) ( a) Revenues are presented n et of i nter-segment transactions with the Direct-to-Consumer segment that totaled $440.8 million. This segment’s gross sales before eliminations of i nter-segment activity totaled $1.940 billion. (c) Revenues are presented n et of i nter-segment transactions with the Direct-to-Consumer segment that totaled $20.5 million. This segment’s gross sales before eliminations of i nter-segment activity totaled $1.834 billion. Revenues for the three months ended September 30, 2021 decreased $0.314 billion, or 17.3%, to $1.5 billion from $1.814 billion in 2020. Excluding an increase in forward sales of $132.5 million, our revenues decreased $446.2 million, which was due to a decrease in gold and silver ounces sold and lower gold selling prices, partially offset by higher silver selling prices. The overall decrease in revenue and product volumes sold by the Wholesale Sales & Ancillary Services segment was primarily due to the elimination of inter-segment transactions with JMB, where no such eliminations occurred for sales to JMB during the comparable period, which was prior to its acquisition. Since the Company’s March 2021 acquisition of JMB, the wholly owned subsidiary’s results are now included in the Direct-to-Consumer Segment. The Wholesale Sales & Ancillary Services segment’s gross sales before elimination of inter-segment activity for the three months ended September 30, 2021 increased $106.0 million, or 6.0%, to $1.940 billion from $1.834 billion in 2020, which was due to an increase in silver ounces sold at higher selling prices, partially offset by lower gold ounces sold at lower selling prices. Gold ounces sold for the three months ended September 30, 2021 decreased 182,000 ounces, or 25.9%, to 522,000 ounces from 704,000 ounces in 2020. Silver ounces sold for the three months ended September 30, 2021 decreased 2,416,000 ounces, or 10.1%, to 21,502,000 ounces from 23,918,000 ounces in 2020. On average, the selling prices for gold decreased by 5.3% and selling prices for silver increased by 12.8% during the three months ended September 30, 2021 as compared to the prior year period. Gold ounces sold before eliminations of inter-segment activity for the three months ended September 30, 2021 decreased 56,000 ounces, or 7.8%, to 660,000 ounces from 716,000 ounces in 2020. Silver ounces sold before eliminations of inter-segment activity for the three months ended September 30, 2021 increased 4,075,000 ounces, or 16.9%, to 28,181,000 ounces from 24,106,000 ounces in 2020. The Wholesale Sales ticket volume for the three months ended September 30, 2021 decreased by 9,263 tickets, or 26.2%, to 26,078 tickets from 35,341 tickets in 2020. The current year ticket volume aligns with the decrease in the ounces sold as compared to the prior year period. Gross Profit — Wholesale Sales & Ancillary Services in thousands, except performance metric Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Gross profit $ 25,549 1.703 % (b) $ 30,622 1.688 % (d) $ (5,073 ) (16.6 %) Performance Metric Wholesale Sales ticket volume 26,078 35,341 (9,263 ) (26.2 %) ( b) Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.470% for the period. (d) Gross profit percentage before elimination of inter-segment sales to the Direct-to-Consumer segment was 1.667% for the period. Gross profit for the three months ended September 30, 2021 decreased by $5.1 million, or 16.6%, to $25.5 million from $30.6 million in 2020. The overall gross profit decrease was primarily due to the elimination of inter-segment transactions with JMB, as discussed in the preceding Revenues section. This segment’s profit margin percentage increased by 1.5 basis points to 1.703% from 1.688% in 2020. The increase in gross margin percentage was mainly attributable to wider premium spreads due to increased silver demand and supply constraints and the impact of increased forward sales, offset by lower trading profits . Forward sales increase revenues but are associated with negligible 54 gross margins. The Company enters into forward contracts to hedge its precious metals price risk exposure and not for speculative pu rposes . Selling, General and Administrative Expenses — Wholesale Sales & Ancillary Services in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Selling, general, and administrative expenses $ (8,682 ) (0.579 )% $ (7,402 ) (0.408 )% $ 1,280 17.3 % Selling, general and administrative expenses for the three months ended September 30, 2021 increased $1.3 million, or 17.3%, to $8.7 million from $7.4 million in 2020. The change was primarily due to increased consulting and professional fees of $0.7 million, higher insurance costs of $0.4 million, and increased compensation expense (including performance-based accruals) of $0.2 million. Interest Income — Wholesale Sales & Ancillary Services in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Interest income $ 3,009 0.201 % $ 2,438 0.134 % $ 571 23.4 % Interest income for the three months ended September 30, 2021 increased $0.6 million, or 23.4%, to $3.0 million from $2.4 million in 2020. The overall increase is primarily due to higher interest earned from repurchase agreements of $0.4 million and an increase in interest income earned from spot deferred orders of $0.2 million. Interest Expense — Wholesale Sales & Ancillary Services in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Interest expense $ (2,438 ) (0.163 )% $ (2,948 ) (0.163 )% $ (510 ) (17.3 %) Interest expense for the three months ended September 30, 2021 decreased $0.5 million, or 17.3% to $2.4 million from $2.9 million in 2020. The decrease was primarily driven by lower interest expense related to our Trading Credit Facility and Notes Payable of $0.2 million, liabilities on borrowed metals of $0.2 million, inter-segment eliminations related to JMB’s product financing activity with A-Mark of $0.8 million, partially offset by higher interest and fees from product financing arrangements of $0.7 million. Earnings from equity method investments— Wholesale Sales & Ancillary Services in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Earnings from equity method investments $ 1,489 0.099 % $ 4,126 0.227 % $ (2,637 ) (63.9 %) Earnings from equity method investments for the three months ended September 30, 2021 decreased $2.6 million, or 63.9% to $1.5 million from $4.1 million in 2020. The aggregate decrease was primarily due to our acquisition of JMB, which occurred in March 2021 and has subsequently been reported by the Company as a wholly owned subsidiary. Prior to the acquisition and included in the comparable period above, the Company’s share of JMB’s earnings for the three months ended September 30, 2020, was $3.7 million. The overall decrease was partially offset by increased earnings of $1.0 million from our other equity method investments. 55 Results of Operations — Direct-to-Consumer Segment The Company operates its Direct-to-Consumer segment through our wholly-owned subsidiaries: JM Bullion, Inc. (“JMB”), Goldline, Inc. (“Goldline”), and through our 50%-owned subsidiary Precious Metals Purchasing Partners, LLC ("PMPP"). As a result of the completion of our acquisition of JMB in March 2021 (see Note 1 of the Company’s condensed consolidated financial statements) JMB’s financial activity, including performance data, is included in the Direct-to-Consumer segment's current fiscal year quarterly results. Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020 — Direct-to-Consumer Segment The operating results of our Direct-to-Consumer segment for the three months ended September 30, 2021 and 2020 are as follows: in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 513,961 (a) 100.000 % $ 52,408 (c) 100.000 % $ 461,553 880.7 % Gross profit 30,460 5.927 % (b) 5,523 10.538 % (d) $ 24,937 451.5 % Selling, general and administrative expenses (7,539 ) (1.467 )% (1,695 ) (3.234 )% $ 5,844 344.8 % Depreciation and amortization expense (7,951 ) (1.547 )% (208 ) (0.397 )% $ 7,743 3722.6 % Interest expense (823 ) (0.160 )% — — $ 823 — Net income before provision for income taxes $ 14,147 2.753 % 3,620 6.907 % $ 10,527 290.8 % Performance Metrics: Gold ounces sold (1) 147,000 17,000 130,000 764.7 % Silver ounces sold (2) 6,625,000 330,000 6,295,000 1907.6 % Number of new customers (3) 33,800 900 32,900 3655.6 % Number of active customers (4) 117,700 3,100 114,600 3696.8 % Number of total customers (5) 1,835,800 159,300 1,676,500 1052.4 % DTC ticket volume (6) 227,061 4,607 222,454 4828.6 % (a) Includes $1.1 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment. (b) Gross profit percentage, excluding inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment, is 5.931% for the period. (c) Includes $4.7 million of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment. (d) Gross profit percentage, excluding inter-segment company sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment, is 11.563% for the period. (1) Gold ounces sold represents the ounces of gold product sold and delivered during the period. (2) Silver ounces sold represents the ounces of silver product sold and delivered during the period. (3) Number of new customers represents the number of customers that have registered or setup a new account or made a purchase for the first time during the period. ( 4) Number of active customers represents the number of customers that have made a purchase during the period. (5) Number of total customers represents the aggregate number of customers that have registered or set up an account or have made a purchase in the past. (6) Ticket volume represents the total number of product orders processed by JMB, Goldline, and PMPP during the period. Segment Results — Direct-to-Consumer Revenues — Direct-to-Consumer in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Revenues $ 513,961 100.000 % $ 52,408 100.000 % $ 461,553 880.7 % Performance Metrics: Gold ounces sold 147,000 17,000 130,000 764.7 % Silver ounces sold 6,625,000 330,000 6,295,000 1907.6 % DTC ticket volume 227,061 4,607 222,454 4828.6 % Revenues for the three months ended September 30, 2021 increased $461.6 million, or 880.7%, to $514.0 million from $52.4 million in 2020. Excluding inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment, revenues for the three months ended September 30, 2021 increased $465.1 million or 975.1% to $512.8 million from $47.7 million in 2020. The increase in revenue was primarily due to JMB activity, with revenue of $472.3 million for the three months ended September 30, 2021, while Goldline and PMPP in the aggregate had decreased revenue of $10.8 million as compared to the prior year period. 56 Gold ounces sold for the three months ended September 30, 2021 increased 130,000 ounces, or 764.7%, to 147,000 ounces from 17,000 ounces in 2020. Silver ounces sold for the three months ended September 30, 2021 increased 6,295,000 ounces, or 1907.6%, to 6,625,000 ounces from 330,000 ounces in 2020. The increase in the segment’s precious metals ounces sold was primarily due to JMB activity, which accounted for more than 90% of total gold and silver sales for the three months ended September 30, 2021 , partially offset by Goldline and PMPP activity in the aggregate, having lower ounces of precious metals sold as compared to the prior year period. On average, the selling prices for gold decreased by 13.0% and selling prices for silver decreased by 2.6% during the three months ended September 30, 2021 as compared to the prior year period. The number of new customers for the three months ended September 30, 2021 increased 32,900, or 3,655.6% to 33,800 from 900 in 2020. The number of active customers for the three months ended September 30, 2021 increased 114,600, or 3,696.8% to 117,700 from 3,100 in 2020. The number of total customers as of September 30, 2021 increased 1,676,500, or 1052.4% to 1,835,800 from 159,300 as of September 30, 2020. The increases in the customer-based metrics were primarily due to our acquisition of JMB in 2021, inclusive of its customer base. The Direct-to-Consumer ticket volume for the three months ended September 30, 2021 increased by 222,454 tickets, or 4828.6%, to 227,061 tickets from 4,607 tickets in 2020. The increase in ticket volume was primarily due to transactions generated by our newly acquired subsidiary, JMB. Gross Profit — Direct-to-Consumer in thousands, except performance metric Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Gross profit $ 30,460 5.927 % $ 5,523 10.538 % $ 24,937 451.5 % Gross profit for the three months ended September 30, 2021 increased by $24.9 million, or 451.5%, to $30.5 million from $5.5 million in 2020. The increase in gross profit was mainly due to JMB’s contribution, which accounted for $24.7 million or 99.0% of the increase. For the three months ended September 30, 2021, the Company’s profit margin percentage decreased by 461.2 basis points to 5.927% from 10.538% in 2020. Excluding the impact of inter-segment sales from the Direct-to-Consumer segment to the Wholesale Sales & Ancillary Services segment, the Direct-to-Consumer segment's gross profit margin percentage decreased by 563.2 basis points to 5.931% from 11.563% in 2020. The decrease in the profit margin percentage was mainly driven by the addition of JMB which has lower Direct-to-Consumer margins, partially offset by improved gross profit percentages at Goldline and PMPP. Selling, General and Administrative Expense — Direct-to-Consumer in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Selling, general and administrative expenses $ (7,539 ) (1.467 )% $ (1,695 ) (3.234 )% $ 5,844 344.8 % Selling, general and administrative expenses for the three months ended September 30, 2021 increased $5.8 million, or 344.8%, to $7.5 million from $1.7 million in 2020. The change was primarily due to JMB’s selling, general, and administrative activity of $6.0 million. 57 Depreciation and amortization expense — Direct-to-Consumer in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Depreciation and amortization expense $ (7,951 ) (1.547 )% $ (208 ) (0.397 )% $ 7,743 3,722.6 % Depreciation and amortization expense for the three months ended September 30, 2021, increased $7.7 million, or 3,722.6%, to $8.0 million from $0.2 million in 2020. The change was primarily due to JMB’s depreciation and amortization expense of $7.8 million. Interest expense — Direct-to-Consumer in thousands Three Months Ended September 30, 2021 2020 $ % $ % of revenue $ % of revenue Increase/ (decrease) Increase/ (decrease) Interest expense $ (823 ) (0.160 )% $ — — $ 823 — Interest expense for the three months ended September 30, 2021 increased $0.8 million to $0.8 million from $0.0 million in 2020. The increase related to JMB’s product financing activity with A-Mark. Results of Operations — Secured Lending Segment The Company operates its Secured Lending segment through its wholly-owned subsidiaries, Collateral Finance Corporation, LLC. ("CFC"), AM Capital Funding, LLC (“AMCF”), and CFC Alternative Investments (“CAI”). Overview of Results of Operations for the Three Months Ended September 30, 2021 and 2020 — Secured Lending Segment The operating results of our Secured Lending segment for the three months ended September 30, 2021 and 2020 are as follows: in thousands, except performance metrics Three Months Ended September 30, 2021 2020 $ % $ % of interest income $ % of interest income Increase/ (decrease) Increase/ (decrease) Interest income $ 2,522 100.000 % $ 1,545 100.000 % $ 977 63.2 % Interest expense (2,212 ) (87.708 )% (1,345 ) (87.055 )% $ 867 64.5 % Selling, general and administrative expenses (456 ) (18.081 )% (408 ) (26.408 )% $ 48 11.8 % Depreciation and amortization expense (88 ) (3.489 )% (88 ) (5.696 )% $ 0 (— %) Other income, net 409 16.217 % 359 23.236 % $ 50 13.9 % Net income before provision for income taxes $ 175 6.939 % $ 63 4.078 % $ 112 177.8 % Performance Metric: Number of secured loans at period end (1) 2,074 1,125 949 84.4 % (1) Number of outstanding secured loans to customers at the end of the period. Interest Income — Secured Lending in thousands, except performance metric Three Months Ended September 30, 2021 2020 $ % $ % of interest income $ % of interest income Increase/ (decrease) Increase/ (decrease) Interest income $ 2,522 100.000 % $ 1,545 100.000 % $ 977 63.2 % Performance Metric Number of secured loans at period-end 2,074 1,125 949 84.4 % 58 Interest income for the three months ended September 30, 2021 increased $1.0 million, or 63.2%, to $2.5 million from $1.5 million in 2020. The increase in interest income earned from the segment’s secured loan portfolio was primarily due to higher average monthly loan balances during the current period as compared to the average monthly loan balances for the prior year period. The number of secured loans outstanding increased by 949 or 84.4% to 2,074 from 1,125 as of September 30, 2020. Interest Expense — Secured Lending in thousands Three Months Ended September 30, 2021 2020 $ % $ % of interest income $ % of interest income Increase/ (decrease) Increase/ (decrease) Interest expense $ (2,212 ) (87.708 )% $ (1,345 ) (87.055 )% $ 867 64.5 % Interest expense for the three months ended September 30, 2021 increased $0.9 million, or 64.5% to $2.2 million from $1.3 million in 2020. The change in interest expense is driven by the value of our secured loan portfolio, which is primarily financed through our notes payable and Trading Credit Facility. As compared to the same year-ago period, interest expense related to our notes payable and Trading Credit Facility increased $0.6 million and loan servicing costs increased $0.2 million. Selling, General and Administrative Expenses — Secured Lending in thousands Three Months Ended September 30, 2021 2020 $ % $ % of interest income $ % of interest income Increase/ (decrease) Increase/ (decrease) Selling, general, and administrative expenses $ (456 ) (18.081 )% $ (408 ) (26.408 )% $ 48 11.8 % Selling, general, and administrative expenses for the three months ended September 30, 2021 increased $48.0 thousand, or 11.8%, to $456.0 thousand from $408.0 thousand in 2020. The increase was mainly driven by higher professional fees and marketing expense offset by lower compensation expense. Other Income, net — Secured Lending in thousands Three Months Ended September 30, 2021 2020 $ % $ % of interest income $ % of interest income Increase/ (decrease) Increase/ (decrease) Other income, net $ 409 16.217 % $ 359 23.236 % $ 50 13.9 % Other income, net for the three months ended September 30, 2021 increased $50.0 thousand, or 13.9% to $409.0 thousand from $359.0 thousand in 2020. The increase was due to higher royalty income earned. NON-GAAP MEASURES Adjusted net income before provision for income taxes Overview In addition to our results determined in accordance with GAAP, we believe the below non-GAAP measure is useful in evaluating our operating performance. We use the financial measure “adjusted net income before provision for income taxes” to present our pre-tax earnings from on-going business operations. This measure is not prepared in accordance with GAAP. The items excluded from this financial measure may have a material impact on our financial results. Certain of those items are non-recurring, while others are non-cash in nature. Accordingly, this non-GAAP financial measure should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with GAAP. 59 Reconciliation In our reconciliation from our reported GAAP “net income before provision for taxes” to our non-GAAP “adjusted net income before provision for taxes,” we eliminate the impact of the following three amounts: (i) acquisition expenses; (ii) amortization expenses related to intangible assets acquired; and (iii) depreciation expense. The following tables reconcile this non-GAAP financial measure to its most closely comparable GAAP measure on our financial statements for the three months ended September 30, 2021 and 2020. in thousands Three Months Ended September 30, 2021 2020 $ $ $ Increase/ (decrease) Revenues $ 2,013,971 $ 1,866,116 $ 147,855 Net income before provision for income taxes $ 32,793 $ 30,217 $ 2,576 Adjustments: Acquisition costs 44 — $ 44 Amortization of acquired intangibles 7,872 154 $ 7,718 Depreciation expense 399 347 $ 52 Adjusted net income before provision for income taxes (Non-GAAP) $ 41,108 $ 30,718 $ 10,390 Adjustments Acquisition expenses . We incur expenses for professional services rendered in connection with business combinations, which are included as a component of selling, general, and administrative expenses in the Company’s condensed consolidated statements of income. Acquisition expenses are recorded in the periods in which the costs are incurred, and the services are received. We exclude acquisition expenses when we evaluate our on-going operational performance and to facilitate comparison of period-to-period operational performance. Amortization of purchased intangibles . Amortization expense of purchased intangibles varies in amount and frequency and is significantly impacted by the timing and size of our acquisitions. Management finds it useful to exclude these charges from our operating expenses to assist in the review of a measure that more closely corresponds to cash operating income generated from our business. The use of intangible assets such as our existing customer relationships and developed technology contributed to our revenues earned during the periods presented and is expected to contribute to our revenues in future periods. Amortization of purchased intangible assets will recur in future periods. For additional information about the amortization of our purchased intangibles, see Note 8 to the Company’s condensed consolidated financial statements. Depreciation expense . Depreciation expense is calculated using a straight-line method based on the estimated useful lives of the related assets, ranging from three years to twenty-five years. Due to depreciation expense being non-cash in nature, management finds it useful to exclude these charges from our operating expenses to assist in the review of a measure that more closely corresponds to cash operating income generated from our business. LIQUIDITY AND FINANCIAL CONDITION Primary Sources and Uses of Cash Overview Liquidity refers to the availability to the Company of amounts of cash to meet all of our cash needs. Our sources of liquidity principally include cash from operations, Trading Credit Facility (see “Lines of Credit” below), and product financing arrangements. A substantial portion of our assets are liquid. As of September 30, 2021, approximately 81.0% of our assets consisted of cash, receivables, derivative assets, secured loans receivables, precious metals held under financing arrangements and inventories, measured at fair value. Cash generated from the sales or financing of our precious metals products is our primary source of operating liquidity. Among other things, these include our product financing arrangements and liabilities on borrowed metals. Typically, the Company acquires its inventory by: (i) purchasing inventory from its suppliers by utilizing our own capital and lines of credit; (ii) borrowing precious metals from its suppliers under short-term arrangements which may bear interest at a designated rate, and (iii) repurchasing inventory at an agreed-upon price based on the spot price on the specified repurchase date. In addition to selling inventory, the Company generates cash from earning interest income. The Company enters into secured loans and secured financing structures with its customers under which it charges interest. The loans are secured by precious metals and numismatic material owned by the borrowers and held by the Company as security for the term of the loan. The Company also offers a number of secured financing options to its customers to finance their precious metals purchases including consignments and other structured inventory finance products. Furthermore, our customers may enter into agreements whereby the customer agrees to 60 repurchase our precious metals at the prevailing spot price for delivery of the product at a specific point in time in the future; interest income is earned from the contract date until the material is delivered and paid for in full. We may also raise funds through the public or private offering of equity or debt securities, although there is no assurance that we will be able to do so at the times and in the amounts required. We have an effective universal shelf registration statement, on file with the Securities and Exchange Commission for this purpose, under which we may issue approximate ly $69.5 million worth of securities at this time. We continually review our overall credit and capital needs to ensure that our capital base, both stockholders’ equity and available credit facilities, can appropriately support our anticipated financing needs. The Company also continually monitors its current and forecasted cash requirements and draws upon and pays down its lines of credit so as to minimize interest expense. (See Note 14 to the Company’s condensed consolidated financial statements.) Lines of Credit in thousands September 30, 2021 June 30, 2021 September 30, 2021 Compared to June 30, 2021 Lines of credit $ 194,000 $ 185,000 $ 9,000 Effective March 26, 2021, through an amendment and restatement of the applicable credit documents, A-Mark renewed its uncommitted demand borrowing facility ("Trading Credit Facility") with a syndicate of banks. Under the agreements, Coöperatieve Rabobank U.A. acts as lead lender and administrative agent and Macquarie Bank Limited acts as syndication agent. As of September 30, 2021, the Trading Credit Facility provided the Company with access up to $330.0 million, featuring a $280.0 million base, with a $50.0 million accordion option. The maturity date of the credit facility is March 25, 2022. The Trading Credit Facility was initially entered into on March 31, 2016, and the Company has successfully amended and extended the terms of the Trading Credit Facility each year since its inception. A-Mark routinely uses funds drawn under the Trading Credit Facility to purchase metals from its suppliers and for other operating cash flow purposes. Our CFC subsidiary also uses the funds drawn under the Trading Credit Facility to finance its lending activities. Notes Payable in thousands September 30, 2021 June 30, 2021 September 30, 2021 Compared to June 30, 2021 Notes payable $ 93,446 $ 93,249 $ 197 On September 14, 2018, AM Capital Funding, LLC (“AMCF”), a wholly owned subsidiary of CFC, completed an issuance of Secured Senior Term Notes, Series 2018-1, Class A in the aggregate principal amount of $72.0 million and Secured Subordinated Term Notes, Series 2018-1, Class B in the aggregate principal amount of $28.0 million. The Class A Notes bear interest at a rate of 4.98% and the Class B Notes bear interest at a rate of 5.98%. The Notes have a maturity date of December 15, 2023. As of September 30, 2021, the consolidated aggregate carrying balance of the Notes was $93.4 million (which excludes the $5.0 million Note that the Company retained), and the remaining unamortized loan cost balance was approximately $1.6 million, which is amortized using the effective interest method through the maturity date. (See Note 14 to the Company’s condensed consolidated financial statements.) 61 Liabilities on Borrowed Metals in thousands September 30, 2021 June 30, 2021 September 30, 2021 Compared to June 30, 2021 Liabilities on borrowed metals $ 74,618 $ 91,866 $ (17,248 ) We borrow precious metals from our suppliers and customers under short-term arrangements using other precious metal from our inventory or precious metals held under financing arrangements as collateral. Amounts under these arrangements require repayment either in the form of precious metals or cash. Liabilities also arise from unallocated metal positions held by customers in our inventory. Typically, these positions are due on demand, in a specified physical form, based on the total ounces of metal held in the position. Product Financing Arrangements in thousands September 30, 2021 June 30, 2021 September 30, 2021 Compared to June 30, 2021 Product financing arrangements $ 219,420 $ 201,028 $ 18,392 The Company has agreements with financial institutions and other third parties that allow the Company to transfer its gold and silver inventory to the third party at an agreed-upon price based on the spot price, which provides alternative sources of liquidity. During the term of the agreement both parties intend for inventory to be returned at an agreed-upon price based on the spot price on the termination (repurchase) date. The third parties charge monthly interest as a percentage of the market value of the outstanding obligation; such monthly charges are classified as interest expense. These transactions do not qualify as sales and therefore are accounted for as financing arrangements and reflected in the Company’s condensed consolidated balance sheets as product financing arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing arrangements and the underlying inventory (which is entirely restricted) are carried at fair value, with changes in fair value included as a component of cost of sales. Secured Loans Receivable in thousands September 30, 2021 June 30, 2021 September 30, 2021 Compared to June 30, 2021 Secured loans receivable $ 110,323 $ 112,968 $ (2,645 ) CFC is a California licensed finance lender that makes and acquires commercial loans secured by bullion and numismatic coins that affords our customers a convenient means of financing their inventory or collections. (See Note 5 to the Company’s condensed consolidated financial statements.) AMCF also purchases and holds secured loans from CFC to meet its collateral requirements related to the Notes (See Note 14 to Company’s condensed consolidated financial statements.) Most of the Company's secured loans are short-term in nature. The renewal of these instruments is at the discretion of the Company and, as such, provides us with some flexibility in regard to our capital deployment strategies. 62 Dividends On August 30, 2021, the Company's Board of Directors declared a non-recurring special dividend of $2.00 per common share to stockholders of record at the close of business on September 20, 2021. The dividends were paid on September 24, 2021 and totaled $22.6 million. Cash Flows The majority of the Company’s trading activities involve two-day value trades under which payment is received in advance of delivery or product is received in advance of payment. The combination of sales volume, inventory turnover, and precious metals price volatility can cause material changes in the sources of cash used in or provided by operating activities on a daily basis. The Company manages these variances through its liquidity forecasts and counterparty limits by maintaining a liquidity reserve to meet the Company’s cash needs. The Company uses various short-term financial instruments to manage the cycle of our trading activities from customer purchase order to cash collections and product delivery, which can cause material changes in the amount of cash used in or provided by financing activities on a daily basis. The following summarizes components of our condensed consolidated statements of cash flows for the three months ended September 30, 2021 and 2020: in thousands Year Ended September 30, 2021 September 30, 2020 September 30, 2021 Compared to September 30, 2020 Net cash used in operating activities $ (69,733 ) $ (98,072 ) $ 28,339 Net cash used in investing activities $ (7,366 ) $ (25,269 ) $ 17,903 Net cash provided by financing activities $ 5,303 $ 95,386 $ (90,083 ) For the periods presented, our principal capital requirements have been to fund (i) working capital and (ii) investing activity. Our working capital requirements fluctuated with market conditions, the availability of precious metals, and the volatility of precious metals commodity pricing. The primary reason for the decrease in net cash used in operating activities was due to changes in working capital as well as increased cash generated from net income, adjusted for noncash items. Net cash used in investing activities decreased as a result of lower loan origination and acquisition activity, partially offset by an increase in purchases of long-term investments. The primary reason for the decrease in net cash provided by financing activities was due to a decrease in the use of short-term debt financing as well a higher amount of dividends paid. Net cash (used in) provided by operating activities Operating activities used $69.7 million and $98.1 million in cash for the three months ended September 30, 2021 and 2020, respectively, representing a $28.3 million decrease in the use of cash used compared to the three months ended September 30, 2020. The decrease in cash used was primarily due to changes in working capital, which includes the balances of derivative assets and liabilities, receivables, and precious metals held under financing arrangements, as well as increased net income, adjusted for noncash items, partially offset by changes in the balances of accounts payable and other current liabilities and inventories. Net cash (used in) provided by investing activities Investing activities used $7.4 million and $25.3 million in cash for the three months ended September 30, 2021 and 2020, respectively, representing a $17.9 million decrease in the use of cash compared to the three months ended September 30, 2020. This period over period decrease in cash used was primarily due to the lower investing cash outflows of $24.4 million associated with the acquisition and origination of secured loans during the period, partially offset by an increase of cash outflows of $6.3 million in connection with the purchase of long term investments. Net cash provided by (used in) financing activities Financing activities provided $5.3 million and $95.4 million in cash for the three months ended September 30, 2021 and 2020, respectively, representing a $90.1 million decrease in the source of cash compared to the three months ended September 30, 2020. This period over period decrease was primarily due to the change in cash provided by the Trading Credit Facility of $70.0 million, a higher special dividend paid by $12.1 million, and the change in cash provided by product financing arrangements of $8.5 million. 63 C apital Resources We believe that our current cash availability under the Trading Credit Facility, product financing arrangements, financing derived from borrowed metals and the cash we anticipate generating 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. CONTRACTUAL OBLIGATIONS, CONTINGENT LIABILITIES AND COMMITMENTS Counterparty Risk We manage our counterparty risk by setting credit and position risk limits with our trading counterparties. These limits include gross position limits for counterparties engaged in sales and purchase transactions and inventory consignment transactions with us. They also include collateral limits for different types of sale and purchase transactions that counterparties may engage in from time to time. Commodities Risk and Derivatives We use a variety of strategies to manage our risk including fluctuations in commodity prices for precious metals. Our inventory consists of, and our trading activities involve, precious metals and precious metal products, for which prices are linked to the corresponding precious metal commodity prices. Inventory purchased or borrowed by us is subject to price changes. Inventory borrowed is a natural hedge, since changes in value of the metal held are offset by the obligation to return the metal to the supplier or deliver metals to the customer. Open sale and purchase commitments in our trading activities 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). We seek to minimize the effect of price changes of the underlying commodity through the use of forward and futures contracts. Our open sale and purchase commitments generally settle within 2 business days, and for those commitments that do not have stated settlement dates, we have the right to settle the positions upon demand. Our policy is to substantially hedge our underlying precious metal commodity inventory position. We regularly enter into metals commodity forward and futures contracts with financial institutions to hedge price changes that would cause changes in the value of our physical metals positions and purchase commitments and sale commitments. We have access to all of the precious metals markets, allowing us to place hedges. We also maintain relationships with major market makers in every major precious metals dealing center, which allows us to enter into contracts with market makers. Our forwards contracts open at September 30, 2021 are scheduled to settle within 60 days. Futures positions do not have settlement dates. The Company typically uses futures contracts for its shorter-term hedge positions and forward contracts for longer term hedge positions. The Company enters into these derivative transactions solely for the purpose of hedging our inventory holding risk, and not for speculative market purposes. Due to the nature of our hedging strategy, we are not using hedge accounting as defined under, Derivatives and Hedging Topic 815 of the Accounting Standards Codification ("ASC".) Unrealized gains or losses resulting from our futures and forward contracts are reported as cost of sales with the related amounts due from or to counterparties reflected as derivative assets or liabilities. The Company adjusts the derivatives to fair value on a daily basis until the transactions are settled. When these contracts are net settled, the unrealized gains and losses are reversed and the realized gains and losses for forward contracts are recorded in revenue and cost of sales and the net realized gains and losses for futures are recorded in cost of sales. The Company’s net gains (losses) on derivative instruments for the three months ended September 30, 2021 and 2020, totaled $3.1 million and ($26.6) million, respectively. These net gains (losses) on derivative instruments were substantially offset by the changes in fair market value of the underlying precious metals inventory and open sale and purchase commitments, which is also recorded in cost of sales in the condensed consolidated statements of income. 64 The purpose of the Company's hedging policy is to substantially match the change in the value of the derivative financial instrument to the change in the value of the underlying hedged item. The following table summarizes the results of our hedging activities, showing the precious metal commodity inventory position, net of open sale and purchase commitments, which is subject to price risk, compared to change in the value of the derivative instruments as of September 30, 2021 and June 30, 2021 : in thousands September 30, 2021 June 30, 2021 Inventories $ 565,705 $ 458,019 Precious metals held under financing arrangements 130,618 154,742 696,323 612,761 Less unhedgeable inventories: Commemorative coin inventory, held at lower of cost or net realizable value (709 ) (406 ) Premium on metals position (16,035 ) (11,017 ) Precious metal value not hedged (16,744 ) (11,423 ) 679,579 601,338 Commitments at market: Open inventory purchase commitments 598,731 987,926 Open inventory sales commitments (383,666 ) (590,156 ) Margin sale commitments (6,257 ) (7,322 ) In-transit inventory no longer subject to market risk (22,674 ) (16,707 ) Unhedgeable premiums on open commitment positions 4,504 8,638 Borrowed precious metals (74,618 ) (91,866 ) Product financing arrangements (219,420 ) (201,028 ) Advances on industrial metals 289 287 (103,111 ) 89,772 Precious metal subject to price risk 576,468 691,110 Precious metal subject to derivative financial instruments: Precious metals forward contracts at market values 226,868 175,352 Precious metals futures contracts at market values 347,938 514,240 Total market value of derivative financial instruments 574,806 689,592 Net precious metals subject to commodity price risk $ 1,662 $ 1,518 We are exposed to the risk of default of the counterparties to our derivative contracts. Significant judgment is applied by us when evaluating the fair value implications. We regularly review the creditworthiness of our major counterparties and monitor our exposure to concentrations. At September 30, 2021, we believe our risk of counterparty default is mitigated based on our evaluation of the creditworthiness of our major counterparties, the strong financial condition of our counterparties, and the short-term duration of these arrangements. Commitments and Contingencies Refer to Note 15 to the Company’s condensed consolidated financial statements for information relating Company's commitments and contingencies. 65 OFF-BALANCE SHEET ARRANGEMENTS As of September 30, 2021 and June 30, 2021, we had the following outstanding sale and purchase commitments and open forward and future contracts, which are normal and recurring, in nature: in thousands September 30, 2021 June 30, 2021 Purchase commitments $ 598,731 $ 987,926 Sales commitments $ (383,666 ) $ (590,156 ) Margin sale commitments $ (6,257 ) $ (7,322 ) Open forward contracts $ 226,868 $ 175,352 Open futures contracts $ 347,938 $ 514,240 Foreign exchange forward contracts $ 13,784 $ 6,541 The notional amounts of the commodity forward and futures contracts and the open sales and purchase orders, as shown in the table above, are not reflected at the notional amounts in the condensed consolidated balance sheets. The Company records commodity forward and futures contracts at the fair value, which is the difference between the market price of the underlying metal or contract measured on the reporting date and the trade amount measured on the date the contract was transacted. The fair value of the open derivative contracts are shown as a component of derivative assets or derivative liabilities in the accompanying condensed consolidated balance sheets. The Company enters into the derivative forward and future transactions solely for the purpose of hedging its inventory holding risk, and not for speculative market purposes. The Company’s gains (losses) on derivative instruments are substantially offset by the changes in fair market value of the underlying precious metals inventory position, including our open sale and purchase commitments. The Company records the derivatives at the trade date, and any corresponding unrealized gains or losses are shown as a component of cost of sales in the condensed consolidated statements of income. We adjust the carrying value of the derivatives to fair value on a daily basis until the transactions are physically settled. (See Note 11 to the Company’s condensed consolidated financial statements.) CRITICAL ACCOUNTING POLICIES The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In connection with the preparation of our financial statements, we are required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time the Company’s condensed consolidated financial statements are prepared. On a regular basis, we review our accounting policies, assumptions, estimates and judgments to ensure that the Company’s condensed consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could materially differ from our estimates. Our significant accounting policies are discussed in Note 2 to the Company’s condensed consolidated financial statements. We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors. Revenue Recognition The Company accounts for its metals and sales contracts using settlement date accounting. Pursuant to such accounting, the Company recognizes the sale or purchase of the metals at settlement date. During the period between the trade and settlement dates, the Company has entered into a forward contract that meets the definition of a derivative in accordance with the Derivatives and Hedging Topic 815 of the ASC. The Company records the derivative at the trade date with any corresponding unrealized gain (loss), shown as component of cost of sales in the condensed consolidated statements of income. The Company adjusts the derivatives to fair value on a daily basis until the transactions are settled. When these contracts are settled, the unrealized gains and losses are reversed, and revenue is recognized for contracts that are physically settled. For contracts that are net settled, the realized gains and losses are recorded in cost of sales, with the exception of forward contracts, where their associated realized gains and losses are recorded in revenue and cost of sales, respectively. Also, the Company recognizes its storage, logistics, licensing, advertising revenue, and other services revenues in accordance with the FASB's release ASU 2014-09 Revenue From Contracts With Customers Topic 606 and subsequent related amendments ("ASC 606"), which follows five basic steps to determine whether revenue can be recognized: (i) identify the contract with a customer; (ii) 66 identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Inventories The Company's inventory, which primarily consists of bullion and bullion coins, is acquired and initially recorded at cost and then marked to fair market value. The fair market value of the bullion and bullion coins comprises two components: (i) published market values attributable to the cost of the raw precious metal, and (ii) the premium paid at acquisition of the metal, which is attributable to the incremental value of the product in its finished goods form. The market value attributable solely to such premium is readily determinable by reference to multiple reputable published sources. The precious metal component of the inventory may be hedged through the use of precious metal commodity positions, while the premium component of our inventory is not a commodity that may be hedged. The Company’s inventory, except for certain lower of cost or net realizable value basis products (as described below), is subsequently recorded at their fair market values. The daily changes in the fair market value of our inventory are offset by daily changes in the fair market value of hedging derivatives that are taken with respect to our inventory positions; both the change in the fair market value of the inventory and the change in the fair market value of these derivative instruments are recorded in cost of sales in the condensed consolidated statements of income. While the premium component included in inventory is marked-to-market, our commemorative coin inventory, including its premium component, is held at the lower of cost or net realizable value, because the value of commemorative coins is influenced more by supply and demand determinants than on the underlying spot price of the precious metal content of the commemorative coins. Unlike our bullion coins, the value of commemorative coins is not subject to the same level of volatility as bullion coins because our commemorative coins typically carry a substantially higher premium over the spot metal price than bullion coins. Additionally, neither the commemorative coin inventory nor the premium component of our inventory is hedged. Inventory includes amounts borrowed from suppliers and customers arising from various arrangements including unallocated metal positions held by customers in the Company’s inventory, amounts due to suppliers for the use of consigned inventory, metals held by suppliers as collateral on advanced pool metals, as well as shortages in unallocated metal positions held by the Company in the supplier’s inventory. Unallocated or pool metal represents an unsegregated inventory position that is due on demand, in a specified physical form, based on the total ounces of metal held in the position. Amounts under these arrangements require delivery either in the form of precious metals or cash. The Company mitigates market risk of its physical inventory and open commitments through commodity hedge transactions. (See Note 11 to the Company’s condensed consolidated financial statements.) The Company enters into product financing agreements for the transfer and subsequent option or obligation to reacquire its gold and silver inventory at an agreed-upon price based on the spot price with a third party finance company. This inventory is restricted and is held at a custodial storage facility in exchange for a financing fee, charged by the third party finance company. During the term of the financing agreement, the third party company holds the inventory as collateral, and both parties intend for the inventory to be returned to the Company at an agreed-upon price based on the spot price on the termination (repurchase) date. The third party charges a monthly fee as percentage of the market value of the outstanding obligation; such monthly charge is classified as interest expense. These transactions do not qualify as sales and have been accounted for as financing arrangements in accordance with ASC 470-40 Product Financing Arrangements, and are reflected in the Company’s condensed consolidated balance sheets as product financing arrangements. The obligation is stated at the amount required to repurchase the outstanding inventory. Both the product financing and the underlying inventory (which is restricted) are carried at fair value, with changes in fair value included in cost of sales in the Company’s condensed consolidated statements of income. The Company periodically loans metals to customers on a short-term consignment basis. Such inventory is removed at the time the customer elects to price and purchase the metals, and the Company records a corresponding sale and receivable. The Company enters into financing arrangements with certain customers under which A-Mark purchases precious metals products that are subject to repurchase by the customer at the fair value of the product on the repurchase date. The Company or the counterparty may typically terminate any such arrangement with 14 days' notice. Upon termination the customer’s rights to repurchase any remaining inventory is forfeited. Business Combinations We completed the acquisition of JMB during the third quarter of fiscal year 2021. The accounting for a business combination requires tangible and intangible assets acquired and liabilities assumed to be recorded at estimated fair value. We valued intangible assets at their estimated fair values at the acquisition date based upon assumptions related to the future cash flows and discount rates utilizing the then currently available information, and in some cases, valuation results from independent valuation specialists. The use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows derived from the asset and the expected period of time over which those cash flows will occur and to determine an appropriate discount rate. 67 We make certain judgments and estimates when determining the fair value of assets acquired and liabilities assumed in a business combination. Those judgments and estimates also include determining the lives assigned to acquired intangibles, the resulting amortization period, what indicators will trigger an impairment, whether those indicators are other than temporary, what economic or competitive factors affect valuation, valuation methodology, and key assumptions including discount rates and cash flow estimates. Goodwill and Other Purchased Intangible Assets We evaluate goodwill and other indefinite-lived intangibles for impairment annually in the fourth quarter of the fiscal year (or more frequently if indicators of potential impairment exist) in accordance with the Intangibles - Goodwill and Other Topic 350 of the ASC. Other finite-lived intangible assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be recoverable. We may first qualitatively assess whether relevant events and circumstances make it more likely than not that the fair value of the reporting unit's goodwill is less than its carrying value. If, based on this qualitative assessment, we determine that goodwill is more likely than not to be impaired, a quantitative impairment test is performed. This step requires us to determine the fair value of the business and compare the calculated fair value of a reporting unit with its carrying amount, including goodwill. If through this quantitative analysis the Company determines the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is considered not to be impaired. If the Company concludes that the fair value of the reporting unit is less than its carrying value, a goodwill impairment will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company also performs impairment reviews on its indefinite-lived intangible assets (i.e., trade names and trademarks). In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the Company is not required to perform any additional tests in assessing the asset for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform a quantitative analysis to determine if the fair value of an indefinite-lived intangible asset is less than its carrying value. If through a quantitative analysis the Company determines the fair value of an indefinite-lived intangible asset exceeds its carrying amount, the indefinite-lived intangible asset is considered not to be impaired. If the Company concludes that the fair value of an indefinite-lived intangible asset is less than its carrying value, an impairment will be recognized for the amount by which the carrying amount exceeds the indefinite-lived intangible asset’s fair value. Income Taxes As part of the process of preparing the Company’s condensed consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the Income Taxes Topic 740 of the ASC ("ASC 740"). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Significant judgment is required in determining the Company's annual tax rate and in evaluating uncertainty in its tax positions. The Company has adopted the provisions of ASC 740-10, which clarifies the accounting for uncertain tax positions. ASC 740-10 requires that the Company recognizes the impact of a tax position in the financial statements if the position is not more likely than not to be sustained upon examination based on the technical merits of the position. The Company recognizes interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in the Company’s condensed consolidated balance sheets. See Note 12 to the Company’s condensed consolidated financial statements for more information on the Company’s accounting for income taxes. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company's forecast of the reversal of temporary differences, future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company's effective tax rate on future earnings. Based on our assessment, it appears more likely than not that all of the net deferred tax assets will be realized through future taxable income. 68 RECENT ACCOUNTING PRONOUNCEMENTS For a description of accounting changes and recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial position or results of operations, see Note 2 to the Company’s condensed consolidated financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable to smaller reporting companies.