SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period endedOR
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________.Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC. |
(Exact name of registrant as specified in its charter) |
Texas | 74-1598370 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
7900 Callaghan Road San Antonio, Texas | 78229 (Zip Code) |
(Address of principal executive offices) |
(210) 308-1234
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Class A common stock, $0.025 par value per share | GROW | NASDAQ Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒On January 29, 2018,May 2, 2024, there were 13,866,69113,866,999 shares of Registrant’s class A nonvoting common stock issued and 13,074,27011,844,295 shares of Registrant’s class A nonvoting common stock issued and outstanding; no shares of Registrant’s class B nonvoting common shares outstanding; and 2,068,8572,068,549 shares of Registrant’s class C voting common stock issued and outstanding.
PART I. FINANCIAL INFORMATION | |
PART II. OTHER INFORMATION | |
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
March 31, 2024 | June 30, 2023 | |||||||
(dollars in thousands) | (unaudited) | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 27,460 | $ | 25,401 | ||||
Restricted cash | 1,000 | 1,000 | ||||||
Investments in trading securities at fair value, current | 10,071 | 11,642 | ||||||
Accounts and other receivables (net of allowance for credit losses of $0, and $0, respectively) | 1,027 | 1,245 | ||||||
Tax receivable | 749 | 576 | ||||||
Prepaid expenses | 635 | 510 | ||||||
Total Current Assets | 40,942 | 40,374 | ||||||
Net Property and Equipment | 1,154 | 1,138 | ||||||
Other Assets | ||||||||
Deferred tax asset | 1,840 | 1,920 | ||||||
Investments in trading securities at fair value, non-current | 1,435 | 1,563 | ||||||
Investments in available-for-sale debt securities at fair value (amortized cost: $6,651, and $7,729, respectively) (net of allowance for credit losses of $0, and $0, respectively) | 5,190 | 7,008 | ||||||
Investments in held-to-maturity debt securities at amortized cost | 1,000 | 1,000 | ||||||
Less: Allowance for credit losses | (157 | ) | - | |||||
Investments in held-to-maturity debt securities, net of allowance for credit losses | 843 | 1,000 | ||||||
Other investments | 1,114 | 2,388 | ||||||
Financing lease, right of use assets | 45 | 65 | ||||||
Other assets, non-current | 209 | 217 | ||||||
Total Other Assets | 10,676 | 14,161 | ||||||
Total Assets | $ | 52,772 | $ | 55,673 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 58 | $ | 143 | ||||
Accrued compensation and related costs | 306 | 1,165 | ||||||
Dividends payable | 317 | 329 | ||||||
Financing lease liability, short-term | 31 | 28 | ||||||
Other accrued expenses | 1,629 | 1,274 | ||||||
Total Current Liabilities | 2,341 | 2,939 | ||||||
Long-Term Liabilities | ||||||||
Deferred tax liability | 20 | 4 | ||||||
Reserve for uncertain tax positions | 549 | 496 | ||||||
Financing lease liability, long-term | 16 | 38 | ||||||
Total Long-Term Liabilities | 585 | 538 | ||||||
Total Liabilities | 2,926 | 3,477 | ||||||
Commitments and Contingencies (Note 14) | ||||||||
Shareholders’ Equity | ||||||||
Common stock (class A) - $0.025 par value; nonvoting; 28,000,000 shares authorized; 13,866,999 shares issued at March 31, 2024, and June 30, 2023; 11,908,737 and 12,496,674 shares outstanding at March 31, 2024, and June 30, 2023, respectively | 347 | 347 | ||||||
Common stock (class B) - $0.025 par value; nonvoting; 4,500,000 shares authorized; no shares issued | - | - | ||||||
Convertible common stock (class C) - $0.025 par value; voting; 3,500,000 shares authorized; 2,068,549 shares issued and outstanding at March 31, 2024, and June 30, 2023 | 52 | 52 | ||||||
Additional paid-in-capital | 16,444 | 16,442 | ||||||
Treasury stock, class A shares at cost; 1,958,262 and 1,370,325 shares at March 31, 2024, and June 30, 2023, respectively | (5,456 | ) | (3,740 | ) | ||||
Accumulated other comprehensive income, net of tax | 831 | 1,348 | ||||||
Retained earnings | 37,628 | 37,747 | ||||||
Total Shareholders’ Equity | 49,846 | 52,196 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 52,772 | $ | 55,673 |
Assets | December 31, 2017 | June 30, 2017 | ||||||
(dollars in thousands) | (UNAUDITED) | |||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 2,977 | $ | 3,958 | ||||
Restricted cash | 1,000 | 1,000 | ||||||
Investment securities - trading, at fair value | 7,433 | 9,720 | ||||||
Accounts and other receivables | 1,177 | 520 | ||||||
Note receivable | 1,977 | 1,952 | ||||||
Prepaid expenses | 399 | 315 | ||||||
Total Current Assets | 14,963 | 17,465 | ||||||
Net Property and Equipment | 2,092 | 2,212 | ||||||
Other Assets | ||||||||
Investment securities - available-for-sale, at fair value | 22,372 | 3,401 | ||||||
Other investments | 2,109 | 2,130 | ||||||
Equity method investment | 3,252 | - | ||||||
Note receivable, long term | 234 | 234 | ||||||
Other assets, long term | 53 | 78 | ||||||
Total Other Assets | 28,020 | 5,843 | ||||||
Total Assets | $ | 45,075 | $ | 25,520 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 198 | $ | 118 | ||||
Accrued compensation and related costs | 425 | 390 | ||||||
Dividends payable | 114 | 114 | ||||||
Other accrued expenses | 827 | 544 | ||||||
Total Current Liabilities | 1,564 | 1,166 | ||||||
Long-Term Liabilities | ||||||||
Deferred tax liability | 3,923 | - | ||||||
Total Long-Term Liabilities | 3,923 | - | ||||||
Total Liabilities | 5,487 | 1,166 | ||||||
Commitments and Contingencies (Note 11) | ||||||||
Shareholders’ Equity | ||||||||
Common stock (class A) - $0.025 par value; nonvoting; authorized, 28,000,000 shares; issued, 13,866,691 shares and 13,866,601 shares at December 31, 2017, and June 30, 2017, respectively | 347 | 347 | ||||||
Common stock (class B) - $0.025 par value; nonvoting; authorized, 4,500,000 shares; no shares issued | - | - | ||||||
Convertible common stock (class C) - $0.025 par value; voting; authorized, 3,500,000 shares; issued, 2,068,857 shares and 2,068,947 shares at December 31, 2017, and June 30, 2017, respectively | 52 | 52 | ||||||
Additional paid-in-capital | 15,647 | 15,646 | ||||||
Treasury stock, class A shares at cost; 790,421 and 751,303 shares at December 31, 2017, and June 30, 2017, respectively | (1,876 | ) | (1,760 | ) | ||||
Accumulated other comprehensive income, net of tax | 13,703 | 264 | ||||||
Retained earnings | 11,112 | 9,321 | ||||||
Total U.S. Global Investors Inc. Shareholders’ Equity | 38,985 | 23,870 | ||||||
Non-Controlling Interest in Subsidiary | 603 | 484 | ||||||
Total Shareholders’ Equity | 39,588 | 24,354 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 45,075 | $ | 25,520 |
The accompanying notes are an integral part of these consolidated financial statements.Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Operating Revenues | ||||||||||||||||
Advisory fees | $ | 8,458 | $ | 11,663 | $ | 2,566 | $ | 3,591 | ||||||||
Administrative services fees | 86 | 101 | 27 | 33 | ||||||||||||
Total Operating Revenues | 8,544 | 11,764 | 2,593 | 3,624 | ||||||||||||
Operating Expenses | ||||||||||||||||
Employee compensation and benefits | 3,445 | 3,569 | 1,209 | 1,264 | ||||||||||||
General and administrative | 4,725 | 4,489 | 1,733 | 1,477 | ||||||||||||
Advertising | 291 | 297 | 97 | 91 | ||||||||||||
Depreciation | 163 | 183 | 41 | 61 | ||||||||||||
Interest | 2 | 3 | 1 | 1 | ||||||||||||
Total Operating Expenses | 8,626 | 8,541 | 3,081 | 2,894 | ||||||||||||
Operating Income (Loss) | (82 | ) | 3,223 | (488 | ) | 730 | ||||||||||
Other Income (Loss) | ||||||||||||||||
Net investment income (loss) | 1,363 | (189 | ) | 460 | 1,155 | |||||||||||
Other income (loss) | 183 | 184 | 68 | 61 | ||||||||||||
Total Other Income (Loss) | 1,546 | (5 | ) | 528 | 1,216 | |||||||||||
Income (Loss) Before Income Taxes | 1,464 | 3,218 | 40 | 1,946 | ||||||||||||
Provision for Income Taxes | ||||||||||||||||
Tax expense (benefit) | 446 | 698 | 75 | 326 | ||||||||||||
Net Income (Loss) | $ | 1,018 | $ | 2,520 | $ | (35 | ) | $ | 1,620 | |||||||
Earnings (Loss) Per Share | ||||||||||||||||
Basic Net Income (Loss) per share | $ | 0.07 | $ | 0.17 | $ | (0.00 | ) | $ | 0.11 | |||||||
Diluted Net Income (Loss) per share | $ | 0.07 | $ | 0.17 | $ | (0.00 | ) | $ | 0.11 | |||||||
Basic weighted average number of common shares outstanding | 14,278,691 | 14,862,893 | 14,077,042 | 14,747,537 | ||||||||||||
Diluted weighted average number of common shares outstanding | 14,278,777 | 14,863,188 | 14,077,042 | 14,747,637 |
Six Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
(dollars in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating Revenues | ||||||||||||||||
Advisory fees | $ | 3,362 | $ | 3,460 | $ | 1,929 | $ | 1,569 | ||||||||
Administrative services fees | 121 | 163 | 64 | 73 | ||||||||||||
3,483 | 3,623 | 1,993 | 1,642 | |||||||||||||
Operating Expenses | ||||||||||||||||
Employee compensation and benefits | 2,041 | 1,886 | 1,140 | 899 | ||||||||||||
General and administrative | 1,862 | 1,733 | 914 | 863 | ||||||||||||
Advertising | 86 | 80 | 27 | 51 | ||||||||||||
Depreciation and amortization | 122 | 127 | 61 | 63 | ||||||||||||
4,111 | 3,826 | 2,142 | 1,876 | |||||||||||||
Operating Loss | (628 | ) | (203 | ) | (149 | ) | (234 | ) | ||||||||
Other Income | ||||||||||||||||
Investment income | 452 | 502 | 243 | 249 | ||||||||||||
Income from equity method investment | 2,731 | - | 1,218 | - | ||||||||||||
Other income | 17 | - | 14 | - | ||||||||||||
3,200 | 502 | 1,475 | 249 | |||||||||||||
Income Before Income Taxes | 2,572 | 299 | 1,326 | 15 | ||||||||||||
Provision for Income Taxes | ||||||||||||||||
Tax expense (benefit) | 452 | 10 | 442 | (10 | ) | |||||||||||
Net Income | 2,120 | 289 | 884 | 25 | ||||||||||||
Less: Net Income Attributable to Non-Controlling Interest | 101 | 18 | 135 | 17 | ||||||||||||
Net Income Attributable to U.S. Global Investors, Inc. | $ | 2,019 | $ | 271 | $ | 749 | $ | 8 | ||||||||
Earnings Per Share Attributable to U.S. Global Investors, Inc. | ||||||||||||||||
Basic | $ | 0.13 | $ | 0.02 | $ | 0.05 | $ | - | ||||||||
Diluted | $ | 0.13 | $ | 0.02 | $ | 0.05 | $ | - | ||||||||
Basic weighted average number of common shares outstanding | 15,171,620 | 15,229,845 | 15,160,589 | 15,218,734 | ||||||||||||
Diluted weighted average number of common shares outstanding | 15,171,620 | 15,229,845 | 15,160,589 | 15,218,734 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Net Income (Loss) | $ | 1,018 | $ | 2,520 | $ | (35 | ) | $ | 1,620 | |||||||
Other Comprehensive Income (Loss) | ||||||||||||||||
Unrealized gains (losses) on available-for-sale securities arising during period, net of tax | 199 | (939 | ) | 79 | 80 | |||||||||||
Less: reclassification adjustment for gains included in net income (loss), net of tax | (716 | ) | (1,026 | ) | (211 | ) | (311 | ) | ||||||||
Net change from available-for-sale securities | (517 | ) | (1,965 | ) | (132 | ) | (231 | ) | ||||||||
Other Comprehensive Income (Loss) | (517 | ) | (1,965 | ) | (132 | ) | (231 | ) | ||||||||
Total Comprehensive Income (Loss) | $ | 501 | $ | 555 | $ | (167 | ) | $ | 1,389 |
Six months ended December 31, | Three Months Ended December 31, | |||||||||||||||
(dollars in thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Income Attributable to U.S. Global Investors, Inc. | $ | 2,019 | $ | 271 | $ | 749 | $ | 8 | ||||||||
Other Comprehensive Income (Loss), Net of Tax: | ||||||||||||||||
Unrealized gains (losses) on available-for-sale securities arising during period | 13,417 | 369 | 4,277 | (308 | ) | |||||||||||
Less: reclassification adjustment for gains/losses included in net income | (31 | ) | (15 | ) | (24 | ) | (31 | ) | ||||||||
Net change from available-for-sale investments, net of tax | 13,386 | 354 | 4,253 | (339 | ) | |||||||||||
Foreign currency translation adjustment | 71 | (54 | ) | 17 | (39 | ) | ||||||||||
Other Comprehensive Income (Loss) | 13,457 | 300 | 4,270 | (378 | ) | |||||||||||
Comprehensive Income (Loss) | 15,476 | 571 | 5,019 | (370 | ) | |||||||||||
Less: Comprehensive Income (Loss) Attributable to Non-Controlling Interest | 18 | (19 | ) | - | (14 | ) | ||||||||||
Comprehensive Income (Loss) Attributable to U.S. Global Investors, Inc. | $ | 15,458 | $ | 590 | $ | 5,019 | $ | (356 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY (UNAUDITED)
Common Stock | Convertible Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||
(class A) | (class C) | Additional | Other | |||||||||||||||||||||||||||||||||||||
Paid-in | Comprehensive | Retained | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Shares | Par Value | Shares | Par Value | Capital | Shares | Cost | Income (Loss) | Earnings | Total | ||||||||||||||||||||||||||||||
Balance at June 30, 2023 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,442 | 1,370,325 | $ | (3,740 | ) | $ | 1,348 | $ | 37,747 | $ | 52,196 | ||||||||||||||||||||||
Impact of ASU 2016-13 adoption, net of tax (Note 2) | - | - | - | - | - | - | - | - | (183 | ) | (183 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2023 (as adjusted for change in accounting principle) | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,442 | 1,370,325 | $ | (3,740 | ) | $ | 1,348 | $ | 37,564 | $ | 52,013 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A), including excise tax | - | - | - | - | - | 198,213 | (617 | ) | - | - | (617 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | 2 | (5,494 | ) | 15 | - | - | 17 | |||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (322 | ) | (322 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (214 | ) | - | (214 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | (176 | ) | (176 | ) | ||||||||||||||||||||||||||||
Balance at September 30, 2023 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,444 | 1,563,044 | $ | (4,342 | ) | $ | 1,134 | $ | 37,066 | $ | 50,701 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A), including excise tax | - | - | - | - | - | 196,295 | (566 | ) | - | - | (566 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | - | (6,100 | ) | 17 | - | - | 17 | |||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (320 | ) | (320 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (171 | ) | - | (171 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | 1,229 | 1,229 | ||||||||||||||||||||||||||||||
Balance at December 31, 2023 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,444 | 1,753,239 | $ | (4,891 | ) | $ | 963 | $ | 37,975 | $ | 50,890 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A), including excise tax | - | - | - | - | - | 211,282 | (582 | ) | - | - | (582 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | - | (6,259 | ) | 17 | - | - | 17 | |||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (312 | ) | (312 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (132 | ) | - | (132 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | (35 | ) | (35 | ) | ||||||||||||||||||||||||||||
Balance at March 31, 2024 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,444 | 1,958,262 | $ | (5,456 | ) | $ | 831 | $ | 37,628 | $ | 49,846 |
Six Months Ended December 31, | ||||||||
(dollars in thousands) | 2017 | 2016 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 2,120 | $ | 289 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 122 | 127 | ||||||
Net recognized (gain) loss on securities | 675 | (15 | ) | |||||
Net income from equity method investment | (2,731 | ) | - | |||||
Provision for deferred taxes | 417 | - | ||||||
Stock bonuses | 14 | 3 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and notes receivable | (678 | ) | 122 | |||||
Prepaid and other assets | (58 | ) | (109 | ) | ||||
Trading securities | 1,551 | 425 | ||||||
Accounts payable and accrued expenses | 391 | (124 | ) | |||||
Total adjustments | (297 | ) | 429 | |||||
Net cash provided by operating activities | 1,823 | 718 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of equity method investment | (501 | ) | - | |||||
Purchase of available-for-sale securities | (2,420 | ) | (457 | ) | ||||
Purchase of other investments | - | (776 | ) | |||||
Proceeds on sale of available-for-sale securities | 401 | 649 | ||||||
Return of capital on investment | 22 | 29 | ||||||
Net cash used in investing activities | (2,498 | ) | (555 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Issuance of common stock | 3 | 3 | ||||||
Repurchases of common stock | (131 | ) | (80 | ) | ||||
Dividends paid | (227 | ) | (228 | ) | ||||
Net cash used in financing activities | (355 | ) | (305 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 49 | (50 | ) | |||||
Net decrease in cash and cash equivalents | (981 | ) | (192 | ) | ||||
Beginning cash and cash equivalents | 3,958 | 3,993 | ||||||
Ending cash and cash equivalents | $ | 2,977 | $ | 3,801 | ||||
Supplemental Disclosures of Cash Flow Information | ||||||||
Cash paid for income taxes | $ | - | $ | 12 |
The accompanying notes are an integral part of these consolidated financial statements.
U.S. GLOBAL INVESTORS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED) (UNAUDITED)
Common Stock | Convertible Common Stock | Treasury Stock | Accumulated | |||||||||||||||||||||||||||||||||||||
(class A) | (class C) | Additional | Other | |||||||||||||||||||||||||||||||||||||
Paid-in | Comprehensive | Retained | ||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | Shares | Par Value | Shares | Par Value | Capital | Shares | Cost | Income (Loss) | Earnings | Total | ||||||||||||||||||||||||||||||
Balance at June 30, 2022 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,438 | 978,049 | $ | (2,599 | ) | $ | 3,624 | $ | 35,923 | $ | 53,785 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A) | - | - | - | - | - | 39,965 | (133 | ) | - | - | (133 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | 3 | (3,983 | ) | 10 | - | - | 13 | |||||||||||||||||||||||||||||
Share-based compensation, adjustment for forfeitures, net of tax | - | - | - | - | (1 | ) | - | - | - | - | (1 | ) | ||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (335 | ) | (335 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (486 | ) | - | (486 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | 53 | 53 | ||||||||||||||||||||||||||||||
Balance at September 30, 2022 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,440 | 1,014,031 | $ | (2,722 | ) | $ | 3,138 | $ | 35,641 | $ | 52,896 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A) | - | - | - | - | - | 87,407 | (249 | ) | - | - | (249 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | 1 | (4,898 | ) | 13 | - | - | 14 | |||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (335 | ) | (335 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (1,248 | ) | - | (1,248 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | 847 | 847 | ||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,441 | 1,096,540 | $ | (2,958 | ) | $ | 1,890 | $ | 36,153 | $ | 51,925 | ||||||||||||||||||||||
Repurchases of shares of Common Stock (class A) | - | - | - | - | - | 193,040 | (556 | ) | - | - | (556 | ) | ||||||||||||||||||||||||||||
Issuance of stock under ESPP of shares of Common Stock (class A) | - | - | - | - | 1 | (5,486 | ) | 15 | - | - | 16 | |||||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (329 | ) | (329 | ) | ||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax | - | - | - | - | - | - | - | (231 | ) | - | (231 | ) | ||||||||||||||||||||||||||||
Net income (loss) | - | - | - | - | - | - | - | - | 1,620 | 1,620 | ||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 13,866,999 | $ | 347 | 2,068,549 | $ | 52 | $ | 16,442 | 1,284,094 | $ | (3,499 | ) | $ | 1,659 | $ | 37,444 | $ | 52,445 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended March 31, | ||||||||
(dollars in thousands) | 2024 | 2023 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | 1,018 | $ | 2,520 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation, amortization and accretion | (103 | ) | (198 | ) | ||||
Net recognized (gain) loss on disposal of fixed assets | - | 3 | ||||||
Net realized (gains) losses on securities | 5,928 | (1,286 | ) | |||||
Unrealized (gains) losses on securities | (5,594 | ) | 2,504 | |||||
Investment basis adjustment | - | (5 | ) | |||||
Provision for deferred taxes | 282 | (265 | ) | |||||
Allowance for credit losses | (75 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts and other receivables | 45 | 754 | ||||||
Prepaid expenses and other assets | (97 | ) | (146 | ) | ||||
Accounts payable and other accrued liabilities | (551 | ) | (1,252 | ) | ||||
Total adjustments | (165 | ) | 109 | |||||
Net cash provided by (used in) operating activities | 853 | 2,629 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchase of property and equipment | (179 | ) | (14 | ) | ||||
Purchase of trading securities at fair value, non-current | (219 | ) | - | |||||
Purchase of other investments | - | (663 | ) | |||||
Proceeds on sale of trading securities at fair value, current | 1,600 | 350 | ||||||
Proceeds on sale of trading securities at fair value, non-current | 179 | - | ||||||
Proceeds from principal paydowns of available-for-sale debt securities at fair value | 2,250 | 2,250 | ||||||
Return of capital on other investments | 259 | - | ||||||
Net cash provided by (used in) investing activities | 3,890 | 1,923 | ||||||
Cash Flows from Financing Activities: | ||||||||
Principal payments on financing lease | (22 | ) | (20 | ) | ||||
Issuance of common stock | 51 | 43 | ||||||
Repurchases of common stock | (1,748 | ) | (938 | ) | ||||
Dividends paid | (965 | ) | (1,004 | ) | ||||
Net cash provided by (used in) financing activities | (2,684 | ) | (1,919 | ) | ||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | 2,059 | 2,633 | ||||||
Beginning cash, cash equivalents, and restricted cash | 26,401 | 23,314 | ||||||
Ending cash, cash equivalents, and restricted cash | $ | 28,460 | $ | 25,947 | ||||
Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
Dividends declared but not paid | $ | 317 | $ | 332 | ||||
Excise tax liability accrued on stock repurchases | $ | 17 | $ | - | ||||
Unsettled purchases of other investments | $ | - | $ | 186 | ||||
Unsettled class A common stock repurchases | $ | 11 | $ | - | ||||
Supplemental Disclosures of Cash Flow Information | ||||||||
Cash paid for income taxes | $ | 250 | $ | 470 |
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. REVISION OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the preparation of its Consolidated Financial Statements for the fiscal year ended June 30, 2023, the Company determined that its previously issued Consolidated Financial Statements as of and for the three and nine months ended March 31, 2023, contained an error. Specifically, the Company did not record certain liabilities as required by FASB Interpretation No.48 “Accounting for Uncertainty in Income Taxes” (codified under ASC 740-10). Based on management’s evaluation of the accounting error under the SEC Staff’s Accounting Bulletins Nos. 99 and 108 and interpretations thereof, the Company concluded the error is not material, on an individual or aggregate basis, to the Company’s previously reported financial statements. The Company has corrected this accounting error in the accompanying Consolidated Financial Statements as of and for the three and nine months ended March 31, 2023, as a revision to those financial statements.
The following table sets forth the impact of correcting this error in the Company’s previously issued Consolidated Financial Statements.
Nine Months Ended March 31, 2023 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||
As | As | |||||||||||||||||||||||
Previously | Immaterial | As | Previously | Immaterial | As | |||||||||||||||||||
(dollars in thousands, except per share data) | Reported | Revisions | Revised | Reported | Revisions | Revised | ||||||||||||||||||
Tax expense (benefit) | $ | 602 | $ | 96 | $ | 698 | $ | 306 | $ | 20 | $ | 326 | ||||||||||||
Net Income (Loss) | $ | 2,616 | $ | (96 | ) | $ | 2,520 | $ | 1,640 | $ | (20 | ) | $ | 1,620 | ||||||||||
Earnings Per Share | ||||||||||||||||||||||||
Basic Net Income (Loss) per Share | $ | 0.18 | $ | (0.01 | ) | $ | 0.17 | $ | 0.11 | $ | (0.00 | ) | $ | 0.11 | ||||||||||
Diluted Net Income (Loss) per Share | $ | 0.18 | $ | (0.01 | ) | $ | 0.17 | $ | 0.11 | $ | (0.00 | ) | $ | 0.11 |
In addition to the changes listed above, the Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, and impacted footnote disclosures have also been revised to reflect the error correction.
NOTE 2. BASIS OF PRESENTATION
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has prepared the consolidated financial statements pursuant toConsolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The financial information included herein reflects all adjustments (consisting solely of normal recurring adjustments), which are, in management’s opinion, necessary for a fair presentation of results for the interim periods presented. The Company has consistently followed the accounting policies set forth in the notes to the consolidated financial statementsConsolidated Financial Statements in the Company’s Form 10-K10-K for the fiscal year ended June 30, 2017,2023 ("Form 10-K"), except for the adoption of the new accounting pronouncementspronouncement discussed below.
The consolidated financial statementsConsolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries, U.S. Global Brokerage, Inc., U.S. Global Investors (Bermuda) Limited, U.S. Global Investors (Canada) Limited (“USCAN”), and U.S. Global Indices, LLC, and its 65 percent interest in Galileo Global Equity Advisors Inc. (“Galileo”). U.S. Global Brokerage, Inc. ceased operations in December 2015.
There are two primary consolidation models in U.S. GAAP, the variable interest entity (“VIE”) and voting interest entity models. The Company’s evaluation for consolidation includes whether entities in which it has an interest or from which it receives fees are VIEs and whether the Company is the primary beneficiary of any VIEs identified in its analysis. A VIE is an entity in which either (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b) the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns and consolidates the VIE on the basis of having a controlling financial interest.
The Company holds variable interests in, but is not deemed to be the primary beneficiary of, certain funds it advises, specifically, certain funds in U.S. Global Investors Funds (“USGIF” or the “Funds”) and one of the offshore funds.. The Company’s interests in these VIEs consist of the Company’s direct ownership therein and any fees earned but uncollected. See further information about these funds in Notes 23 and 3.4. In the ordinary course of business, the Company may choose to waive certain fees or assume operating expenses of the funds it advises for competitive, regulatory or contractual reasons (see Note 34 for information regarding fee waivers). The Company has not provided financial support to any of these entities outside the ordinary course of business. The Company’s risk of loss with respect to these VIEs is limited to the carrying value of its investments in, and fees receivable from, the entities. The Company is not deemed to be the primary beneficiary because it does not have the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns. The Company does not consolidate these VIEs because it is not the primary beneficiary. The Company’s total exposure to unconsolidated VIEs, consisting of the carrying value of investment securities and receivables for fees, was $8.9$10.9 million at DecemberMarch 31, 2017,2024, and $11.3$12.5 million at June 30, 2017.2023.
The Company holds a variable interestcarrying amount of assets and liabilities recognized in a fund advised by Galileo, but this fund does not qualifythe Consolidated Balance Sheets related to the Company's interests in these non-consolidated VIEs were as a VIE. follows:
Carrying Value and Maximum Exposure to Loss | ||||||||
(dollars in thousands) | March 31, 2024 | June 30, 2023 | ||||||
Investments in securities at fair value, current | $ | 10,071 | $ | 11,642 | ||||
Investments in equity securities at fair value, non-current | 830 | 785 | ||||||
Other receivables | 29 | 45 | ||||||
Total VIE assets, maximum exposure to loss | $ | 10,930 | $ | 12,472 |
Since the fundCompany is not a VIE, the primary beneficiary of the above funds it advises, the Company evaluated if it should consolidate the fund under the voting interest entity model. Under the voting interest model, for legal entities other than partnerships, the usual condition for control is ownership, directly or indirectly, of more than 50 percent of the outstanding voting shares over an entity. The Company does not have control of any of the fund and,above funds it advises; therefore, does not consolidate the fund. However, the Company owns approximately 30 percentdoes not consolidate any of the fund, and is considered to have the ability to exercise significant influence. Thus, the investment is accounted for under the equity method of accounting. See further information about this investment in Note 2.
All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. Due to rounding, the year-to-date amount may not be the exact sum of the quarterly amounts. The results of operations for the six months ended December 31, 2017,interim periods disclosed herein are not necessarily indicative of the results to be expectedthe Company may expect for the entire year.
The unaudited interim financial information in these condensed financial statementsConsolidated Financial Statements should be read in conjunction with the consolidated financial statementsConsolidated Financial Statements contained in the Company’s annual report.
Use of Estimates
Preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may materially differ from those estimates.
Adoption of New Accounting Pronouncements
In June 2016, the Period
Recent Accounting Pronouncements
In June 2022, the FASB issued ASU 2016-13 is effective2022-03,Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, and to introduce new disclosure requirements for public business entitiesequity securities subject to contractual sale restrictions that are SEC filersmeasured at fair value. ASU 2022-03 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Earlier application is permitted only for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances the disclosures required for reportable segments in annual and interim consolidated financial statements.statements, including additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2023-07 on its Consolidated Financial Statements.
In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. ASU 2023-09 will be effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of the pending adoption of ASU 2023-09 on its Consolidated Financial Statements.
Significant Accounting Policies
As a result of the adoption of an accounting pronouncement during the current fiscal year, the following accounting policies have been updated. For a complete listing of the Company's significant accounting policies, please refer to the Annual Report on Form 10-K for the year ended June 30, 2023.
Investments in Debt Securities. The Company classifies debt investments based on the Company’s intent to sell the security or its intent and ability to hold the debt security to maturity. Debt securities classified as trading are acquired with the intent to sell in the near term and are carried at fair value with changes reported in earnings. Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are measured at amortized cost. All other debt securities are classified as available-for-sale and are carried at fair value, and changes in unrealized gains and losses are reported net of tax in accumulated other comprehensive income (loss), except for declines in fair value determined to be a result of credit loss, which are reported in earnings. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income (loss) to net investment income (loss). Both available-for-sale and held-to-maturity debt securities are subject to an allowance for credit losses.
Allowance for Credit Losses (Held-to-Maturity Debt Securities). For held-to-maturity debt securities, the Company is required to utilize the CECL methodology to estimate expected credit losses. Securities are evaluated on an individual basis. The individual assessment and determination of expected credit losses is generally based on the discounted cash flow method. Under the discounted cash flow method, the allowance for credit losses reflects the difference between the amortized cost basis and the present value of the expected cash flows. The Company adjusts the discount rate utilized to determine the present value of the expected cash flows quarterly for subsequent fluctuations in market interest rates. Changes in the present value attributable to the passage of time are those solely due to changes in the present value of the expected cash flows as the instrument approaches maturity rather than expectations of cash flow timing or amounts, and are included in interest income within net investment income (loss) on the Consolidated Statements of Operations. Changes in the allowance attributable to expectations of cash flow timing or amounts are recorded as a provision (or release) for credit losses and are included within other income (loss) on the Consolidated Statements of Operations. Held-to-maturity debt securities, or portions thereof, are charged against the allowance when management believes the uncollectible status of a held-to-maturity security is confirmed. Accrued interest receivable is excluded from the allowance for credit losses. For more information about held-to-maturity debt securities, see Note 3, Investments.
Allowance for Credit Losses (Available-for-Sale Debt Securities). The impairment model for available-for-sale debt securities differs from the CECL methodology applied for held-to-maturity debt securities because available-for-sale debt securities are measured at fair value rather than amortized cost. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities where neither of the criteria is met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses and are included within other income (loss) on the Consolidated Statements of Operations. Losses are charged against the allowance when management believes the uncollectible status of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable is excluded from the allowance for credit losses. See Note 3, Investments, for more information about available-for-sale debt securities.
Credit Quality Indicators. The Company monitors the credit quality of debt securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying organization.
Receivables and Allowance for Credit Losses. Receivables consist primarily of advisory and other fees owed to the Company by clients. The Company records an expense based on a forward-looking current expected credit loss model to maintain an allowance for credit losses. When determining the allowance for receivables, the probability of recoverability of the receivable based on past experience, taking into account current collection trends and general economic factors, including bankruptcy rates, is considered. The Company also considers future economic trends to estimate expected credit losses over the lifetime of the asset. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcies. Due to the short-term nature, the Company had no allowance for credit losses related to receivables as of March 31, 2024, or June 30, 2023.
Dividends and Interest. Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Debt investments are placed on a non-accrual status when they are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a debt investment is placed on a non-accrual status, any interest accrued but not received is reversed against interest income. Any discount between the cost and the principal amount of debt investments is amortized to interest income using the effective interest method. When the discounted cash flow method is utilized to estimate expected credit losses for held-to-maturity debt securities, any changes in the allowance for credit losses that are attributable to the passage of time are recognized in interest income. Both dividends and interest income are included within net investment income (loss) on the Consolidated Statements of Operations.
NOTE 2.3. INVESTMENTS
As of DecemberMarch 31, 2017,2024, the Company held investments with acarried at fair value on a recurring basis of approximately $29.8$16.7 million and a cost basis of approximately $12.6$18.9 million. The fair value of these investments is approximately 66.131.6 percent of the Company’s total assets.assets at March 31, 2024. In addition, the Company held other investments of $2.1approximately $1.1 million accountedand held-to-maturity debt investments, net of allowance for undercredit losses, of $843,000.
The cost basis of investments is adjusted for amortization of premium or accretion of discount on debt securities held or the cost methodrecharacterization of accounting and an investment of approximately $3.3 million accounted for under the equity method of accounting.
Concentrations of Credit Risk
A significant influence and which do not have readily determinable fair values. These investments are accounted for under the cost method of accounting and evaluated periodically for impairment.
December 31, 2017 | ||||||||||||||||
(dollars in thousands) | Cost | Gains | (Losses) | Fair Value | ||||||||||||
Trading securities1 | ||||||||||||||||
Mutual funds - Fixed income | $ | 7,035 | $ | 26 | $ | - | $ | 7,061 | ||||||||
Mutual funds - Domestic equity | 535 | - | (163 | ) | 372 | |||||||||||
Other | 45 | - | (45 | ) | - | |||||||||||
Offshore fund | - | - | - | - | ||||||||||||
Total trading securities | 7,615 | 26 | (208 | ) | 7,433 | |||||||||||
Available-for-sale securities2 | ||||||||||||||||
Common stock - Domestic | - | - | - | - | ||||||||||||
Common stock - International | 2,554 | 16,704 | - | 19,258 | ||||||||||||
Corporate debt3 | 1,071 | 632 | - | 1,703 | ||||||||||||
Mutual funds - Fixed income | 1,000 | - | (5 | ) | 995 | |||||||||||
Mutual funds - Domestic equity | 394 | 22 | - | 416 | ||||||||||||
Other | - | - | - | - | ||||||||||||
Total available-for-sale securities4 | 5,019 | 17,358 | (5 | ) | 22,372 | |||||||||||
Total securities at fair value | $ | 12,634 | $ | 17,384 | $ | (213 | ) | $ | 29,805 |
June 30, 2017 | ||||||||||||||||
(dollars in thousands) | Cost | Gains | (Losses) | Fair Value | ||||||||||||
Trading securities1 | ||||||||||||||||
Mutual funds - Fixed income | $ | 8,884 | $ | 50 | $ | (7 | ) | $ | 8,927 | |||||||
Mutual funds - Domestic equity | 535 | - | (157 | ) | 378 | |||||||||||
Other | 45 | - | (45 | ) | - | |||||||||||
Offshore fund | 1,184 | - | (769 | ) | 415 | |||||||||||
Total trading securities | 10,648 | 50 | (978 | ) | 9,720 | |||||||||||
Available-for-sale securities2 | ||||||||||||||||
Common stock - Domestic | 109 | 4 | - | 113 | ||||||||||||
Common stock - International | 191 | 12 | - | 203 | ||||||||||||
Corporate debt3 | 1,042 | 427 | - | 1,469 | ||||||||||||
Mutual funds - Fixed income | 1,148 | 1 | (5 | ) | 1,144 | |||||||||||
Mutual funds - Domestic equity | 394 | 12 | - | 406 | ||||||||||||
Other | 56 | 10 | - | 66 | ||||||||||||
Total available-for-sale securities4 | 2,940 | 466 | (5 | ) | 3,401 | |||||||||||
Total securities at fair value | $ | 13,588 | $ | 516 | $ | (983 | ) | $ | 13,121 |
Six Months Ended | Three Months Ended | |||||||||||||||
(dollars in thousands) | December 31, | December 31, | ||||||||||||||
Investment Income | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Realized gains on sales of available-for-sale securities | $ | 31 | $ | 31 | $ | 24 | $ | 31 | ||||||||
Realized losses on sales of trading securities | (736 | ) | - | (82 | ) | - | ||||||||||
Unrealized gains (losses) on trading securities | 746 | (26 | ) | 60 | (125 | ) | ||||||||||
Realized foreign currency gains (losses) | (19 | ) | (5 | ) | 3 | (7 | ) | |||||||||
Other-than-temporary declines in available-for-sale securities | - | (16 | ) | - | - | |||||||||||
Dividend and interest income | 430 | 518 | 238 | 350 | ||||||||||||
Total Investment Income | $ | 452 | $ | 502 | $ | 243 | $ | 249 |
December 31, 2017 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross Unrealized | Gross Unrealized | Gross Unrealized | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||
Common stock - Domestic | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Common stock - International | - | - | - | - | - | - | ||||||||||||||||||
Corporate debt | - | - | - | - | - | - | ||||||||||||||||||
Mutual funds - Fixed income | 995 | (5 | ) | - | - | 995 | (5 | ) | ||||||||||||||||
Mutual funds - Domestic equity | - | - | - | - | - | - | ||||||||||||||||||
Other | - | - | - | - | - | - | ||||||||||||||||||
Total available-for-sale securities | $ | 995 | $ | (5 | ) | $ | - | $ | - | $ | 995 | $ | (5 | ) |
June 30, 2017 | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross Unrealized | Gross Unrealized | Gross Unrealized | ||||||||||||||||||||||
(dollars in thousands) | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||
Common stock - Domestic | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Common stock - International | - | - | - | - | - | - | ||||||||||||||||||
Corporate debt | - | - | - | - | - | - | ||||||||||||||||||
Mutual funds - Fixed income | - | - | 95 | (5 | ) | 95 | (5 | ) | ||||||||||||||||
Mutual funds - Domestic equity | - | - | - | - | - | - | ||||||||||||||||||
Other | - | - | - | - | - | - | ||||||||||||||||||
Total available-for-sale securities | $ | - | $ | - | $ | 95 | $ | (5 | ) | $ | 95 | $ | (5 | ) |
Fair Value Hierarchy
Fair Value Measurement and Disclosures
The inputs used to measure fair value and requires companies to disclose the fair value of theirfor measuring financial instruments according to a fair value hierarchy (i.e., Levels 1, 2, and 3 inputs, as defined below). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Level 1 – Valuations based onInputs represent unadjusted quoted prices in active markets for identical assets exchanged in active markets.
Level 2 – Inputs include directly or liabilities at the reporting date. Since valuations are based onindirectly observable inputs (other than Level 1 inputs) such as quoted prices that are readily and regularly availablefor similar assets exchanged in an active market, value of these products does not entail a significant degree of judgment.
Level 3 – Inputs include unobservable inputs used in the measurement of assets. The Company is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets and significantit may be unable to corroborate the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with the investing in those securities. Because of the inherent uncertainties of valuation, the values reflected may materially differ from the values received upon actual sale of those investments.
The Company has established a Proprietary Valuation Committee (the “Committee”) to administer and oversee the Company’s valuation policies and procedures, which are approved by the Board of Directors, and to perform a periodic review of valuations provided by independent pricing services.
For actively traded securities, the Company values investments using the closing price of the securities on the exchange or market on which the securities principally trade. If the security is not traded on the last business day of the quarter, it is generally valued at the mean between the last bid and ask quotation. The fair value of a security that has a restriction is based on the quoted price for an otherwise identical unrestricted instrument that trades in a public market, adjusted for the estimated effect of the restriction. Mutual funds, which include open- and closed-end funds exchange-traded funds, and offshoreexchange-traded funds, are valued at net asset value or closing price, as applicable. Certain corporate debt securities
For common share purchase warrants not traded on an exchange, the estimated fair value is determined using the Black-Scholes option-pricing model. This sophisticated model utilizes a number of assumptions in arriving at its results, including the estimated life, the risk-free interest rate, and historical volatility of the underlying common stock. The Company may bechange the assumption of the risk-free interest rate and utilize the yield curve for instruments with similar characteristics, such as credit ratings and jurisdiction, or change the expected volatility. The effects of changing any of the assumptions or factors employed by the Black-Scholes model may result in a significantly different valuation.
Certain convertible debt securities not traded on an exchange are valued by an independent pricing servicethird party using an evaluated quotea binomial lattice model based on factors such factors as institutional-size trading in similar groups of securities, yield, quality, maturity, coupon rate, type of issuance, and individual trading characteristics of the underlying common shares and other market data. As partThe model utilizes a number of assumptions in arriving at its independent price verification process,results. The effects of changing any of the Company periodically reviewsassumptions or factors utilized in the binomial lattice model, including expected volatility, credit adjusted discount rates, and discounts for lack of marketability, may result in a significantly different valuation for the securities.
For other securities included in the fair value provided byhierarchy with unobservable inputs, the pricing service using information such as transactions in these investments, broker quotes, market transactions in comparable investments, general market conditions and the issuer’s financial condition. Certain debt securities may be valued based on review of similarly structured issuances in similar jurisdictions, when possible, or based on other traded debt securities issued by the issuer. The Company also takes into consideration numerous other factors that could affect valuation such as overall market conditions, liquidity of the security and bond structure. Securities for which market quotations are not readily available are valued at their fair value as determined by the portfolio management team. The portfolio management team includes representatives from the investment, accounting and legal/compliance departments. The portfolio management team meets periodically to considerCommittee considers a number of factors in determining a security’s fair value, including the security’s trading volume, market values of similar class issuances, investment personnel’s judgment regarding the market experience of the issuer, financial status of the issuer, the issuer’s management, and back testing, as appropriate. The fair values may differ from what may have been used had a broader market for these securities existed. The portfolio management teamCommittee reviews inputs and assumptions and reports material items to the boardBoard of directors.
The following presents fair value measurements, as of December 31, 2017, and June 30, 2017, fortables summarize the major categories of U.S. Global’s investments measuredwith fair values adjusted on a recurring basis as of March 31, 2024, and June 30, 2023, and other investments with fair values adjusted on a nonrecurring basis, with fair values shown according to the fair value hierarchy.
March 31, 2024 | ||||||||||||||||
Significant | Significant | |||||||||||||||
Quoted | Other | Unobservable | ||||||||||||||
Prices | Inputs | Inputs | ||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments carried at fair value on a recurring basis: | ||||||||||||||||
Investments in trading securities: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Equities - International | $ | 411 | $ | - | $ | - | $ | 411 | ||||||||
Mutual funds - Fixed income | 10,071 | - | - | 10,071 | ||||||||||||
Mutual funds - Global equity | 829 | - | - | 829 | ||||||||||||
Total equity securities | 11,311 | - | - | 11,311 | ||||||||||||
Debt securities: | ||||||||||||||||
Corporate debt securities | 195 | - | - | 195 | ||||||||||||
Total investments in trading securities: | 11,506 | - | - | 11,506 | ||||||||||||
Investments in available-for-sale debt securities: | ||||||||||||||||
Corporate debt securities - Convertible debentures | - | - | 5,190 | 5,190 | ||||||||||||
Total investments carried at fair value on a recurring basis: | $ | 11,506 | $ | - | $ | 5,190 | $ | 16,696 | ||||||||
Investments carried at fair value on a nonrecurring basis: | ||||||||||||||||
Other investments (1) | $ | - | $ | - | $ | 600 | $ | 600 |
1. | Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates during the nine months ended March 31, 2024. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares. |
June 30, 2023 | ||||||||||||||||
Significant | Significant | |||||||||||||||
Quoted | Other | Unobservable | ||||||||||||||
Prices | Inputs | Inputs | ||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Investments carried at fair value on a recurring basis: | ||||||||||||||||
Investments in trading securities: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Equities - International | $ | 488 | $ | - | $ | 290 | $ | 778 | ||||||||
Mutual funds - Fixed income | 11,642 | - | - | 11,642 | ||||||||||||
Mutual funds - Global equity | 785 | - | - | 785 | ||||||||||||
Total equity securities | 12,915 | - | 290 | 13,205 | ||||||||||||
Debt securities: | ||||||||||||||||
Corporate debt securities | - | - | - | - | ||||||||||||
Total investments in trading securities: | 12,915 | - | 290 | 13,205 | ||||||||||||
Investments in available-for-sale debt securities: | ||||||||||||||||
Corporate debt securities - Convertible debentures | - | - | 7,008 | 7,008 | ||||||||||||
Total investments carried at fair value on a recurring basis: | $ | 12,915 | $ | - | $ | 7,298 | $ | 20,213 | ||||||||
Investments carried at fair value on a nonrecurring basis: | ||||||||||||||||
Other investments (1) | $ | - | $ | - | $ | 1,786 | $ | 1,786 |
1. | Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates during the fiscal year ended June 30, 2023. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares. |
The securities classified as Level 3 and carried at fair value on a recurring basis:
December 31, 2017 | ||||||||||||||||
Quoted Prices | Significant Other Inputs | Significant Unobservable Inputs | ||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Trading securities | ||||||||||||||||
Mutual funds - Fixed income | $ | 7,061 | $ | - | $ | - | $ | 7,061 | ||||||||
Mutual funds - Domestic equity | 372 | - | - | 372 | ||||||||||||
Other | - | - | - | - | ||||||||||||
Offshore fund investment measured at net asset value1 | - | |||||||||||||||
Total trading securities | 7,433 | - | - | 7,433 | ||||||||||||
Available-for-sale securities | ||||||||||||||||
Common stock - Domestic | - | - | - | - | ||||||||||||
Common stock - International | 158 | 19,100 | - | 19,258 | ||||||||||||
Corporate debt | - | 1,703 | - | 1,703 | ||||||||||||
Mutual funds - Fixed income | 995 | - | - | 995 | ||||||||||||
Mutual funds - Domestic equity | 416 | - | - | 416 | ||||||||||||
Other | - | - | - | - | ||||||||||||
Total available-for-sale securities | 1,569 | 20,803 | - | 22,372 | ||||||||||||
Total securities at fair value | $ | 9,002 | $ | 20,803 | $ | - | $ | 29,805 |
June 30, 2017 | ||||||||||||||||
Quoted Prices | Significant Other Inputs | Significant Unobservable Inputs | ||||||||||||||
(dollars in thousands) | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Trading securities | ||||||||||||||||
Mutual funds - Fixed income | $ | 8,927 | $ | - | $ | - | $ | 8,927 | ||||||||
Mutual funds - Domestic equity | 378 | - | - | 378 | ||||||||||||
Other | - | - | - | - | ||||||||||||
Offshore fund investment measured at net asset value1 | 415 | |||||||||||||||
Total trading securities | 9,305 | - | - | 9,720 | ||||||||||||
Available-for-sale securities | ||||||||||||||||
Common stock - Domestic | 113 | - | - | 113 | ||||||||||||
Common stock - International | 203 | - | - | 203 | ||||||||||||
Corporate debt | 1,469 | - | - | 1,469 | ||||||||||||
Mutual funds - Fixed income | 1,144 | - | - | 1,144 | ||||||||||||
Mutual funds - Domestic equity | 406 | - | - | 406 | ||||||||||||
Other | 66 | - | - | 66 | ||||||||||||
Total available-for-sale securities | 3,401 | - | - | 3,401 | ||||||||||||
Total securities at fair value | $ | 12,706 | $ | - | $ | - | $ | 13,121 |
The Company has available-for-sale investments in corporate debt securities maturing in 2024 which were valuedrecorded the debentures at $1.7the estimated fair value of $16.0 million as of December 31, 2017, based on the mean between the last reported bid/ask quotation and were classified as Level 2. As of June 30, 2017, these securities were valued at $1.5 million based on a quoted price on the reportingpurchase date, and were classified as Level 1.
The Company utilizes an independent third-party to estimate the fair values of the HIVE convertible securities and currently considers the fair value measurements to contain Level 3 inputs. The following table is a reconciliation of investments recorded at fair value for which unobservable inputs (Level 3) were used in determining fair value during the nine months ended March 31, 2024.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
Nine Months Ended March 31, 2024 | ||||||||
Investments in | Investments in | |||||||
(dollars in thousands) | equity securities | debt securities | ||||||
Beginning Balance | $ | 290 | $ | 7,008 | ||||
Principal repayments | - | (2,250 | ) | |||||
Amortization of day one premium | - | (137 | ) | |||||
Accretion of bifurcation discount | - | 403 | ||||||
Total gains or losses included in: | ||||||||
Net Investment Income (Loss) | (290 | ) | 821 | |||||
Other Comprehensive Income (Loss) | - | (655 | ) | |||||
Ending Balance | $ | - | $ | 5,190 |
The following is quantitative information as of March 31, 2024, with respect to the securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3).
March 31, 2024 | |||||||||||
(dollars in thousands) | Fair Value | Principal Valuation Techniques | Unobservable Inputs | ||||||||
Investments in available-for-sale debt securities: | |||||||||||
Corporate debt securities - Convertible debentures | $ | 5,190 | Binomial lattice model | Volatility | 110.0 | % | |||||
Credit Spread | 7.00 | % | |||||||||
Risk-Free Rate | 4.28 | % |
Investments in Trading Securities at Fair Value
Investments in trading securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported in the current period's earnings. The following details the components of the Company’s trading securities carried at fair value as of March 31, 2024, and June 30, 2017. This offshore fund liquidated during2023.
March 31, 2024 | ||||||||||||
(dollars in thousands) | Cost | Unrealized Gains (Losses) | Fair Value | |||||||||
Trading securities at fair value | ||||||||||||
Equity securities: | ||||||||||||
Equities - International | $ | 746 | $ | (335 | ) | $ | 411 | |||||
Equities - Domestic | 45 | (45 | ) | - | ||||||||
Mutual funds - Fixed income | 10,280 | (209 | ) | 10,071 | ||||||||
Mutual funds - Global equity | 929 | (100 | ) | 829 | ||||||||
Total equity securities | 12,000 | (689 | ) | 11,311 | ||||||||
Debt securities: | ||||||||||||
Corporate debt securities | 215 | (20 | ) | 195 | ||||||||
Total trading securities at fair value | $ | 12,215 | $ | (709 | ) | $ | 11,506 |
June 30, 2023 | ||||||||||||
(dollars in thousands) | Cost | Unrealized Gains (Losses) | Fair Value | |||||||||
Trading securities at fair value | ||||||||||||
Equity securities: | ||||||||||||
Equities - International | $ | 6,679 | $ | (5,901 | ) | $ | 778 | |||||
Equities - Domestic | 45 | (45 | ) | - | ||||||||
Mutual funds - Fixed income | 11,947 | (305 | ) | 11,642 | ||||||||
Mutual funds - Global equity | 930 | (145 | ) | 785 | ||||||||
Total equity securities | 19,601 | (6,396 | ) | 13,205 | ||||||||
Debt securities: | ||||||||||||
Corporate debt securities | - | - | - | |||||||||
Total trading securities at fair value | $ | 19,601 | $ | (6,396 | ) | $ | 13,205 |
Debt Investments
Investments in debt securities are classified on the current fiscal year,acquisition dates and at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, net of allowance for credit losses, reflecting the ability and intent to hold the securities to maturity. Debt securities classified as trading are acquired with partial liquidation proceeds receivedthe intent to sell in the quarter ended September 30, 2017,near term and final proceeds received duringare carried at fair value with changes reported in earnings. All other debt securities are classified as available-for-sale and are carried at fair value.
Investment gains and losses on available-for-sale debt securities are recorded when the quarter ended December 31, 2017.
Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are reported at fair value, and changes in fair value are recorded through USCAN, invested approximately $500,000earnings within net investment income (loss). The host contract continues to be accounted for in accordance with the appropriate accounting standard. The embedded derivative and the related host contract represent one legal contract and are combined on the Consolidated Balance Sheets and the tables below. The Company held one financial instrument classified as available-for-sale containing an embedded derivative, which represents an investment in HIVE, at March 31, 2024, and June 30, 2023. As of March 31, 2024, the unrealized loss position in the Galileo Partners Fund, a Canadian unit trust investment fund managedavailable-for-sale security was related to changes in the fair value of the embedded derivatives and not the result of credit losses; therefore, an allowance for credit losses was not recorded.
The following details the components of the Company’s available-for-sale debt investments as of March 31, 2024, and June 30, 2023.
March 31, 2024 | ||||||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains in Other Comprehensive Income (Loss) | Gross Unrealized Losses in Other Comprehensive Income (Loss) | Gross Unrealized Losses in Net Investment Income (Loss) (1) | Fair Value | Allowance for Credit Losses | ||||||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||||||||||
Corporate debt securities - Convertible debentures | $ | 6,651 | $ | 1,052 | $ | - | $ | (2,513 | ) | $ | 5,190 | $ | - |
June 30, 2023 | ||||||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrealized Gains in Other Comprehensive Income (Loss) | Gross Unrealized Losses in Other Comprehensive Income (Loss) | Gross Unrealized Losses in Net Investment Income (Loss) (1) | Fair Value | Allowance for Credit Losses | ||||||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||||||||||
Corporate debt securities - Convertible debentures | $ | 7,729 | $ | 1,707 | $ | - | $ | (2,428 | ) | $ | 7,008 | $ | - |
1. | Represents changes in unrealized gains and losses related to embedded derivatives included within net investment income (loss) on the Consolidated Statements of Operations. |
The following table summarizes the fair values of embedded derivatives on the Consolidated Balance Sheets, categorized by Galileo. This fund’s primary investment is in HIVE,risk exposure, at March 31, 2024, and June 30, 2023.
March 31, 2024 | June 30, 2023 | |||||||
Other Assets | Other Assets | |||||||
Investments in | Investments in | |||||||
available-for-sale | available-for-sale | |||||||
(dollars in thousands) | debt securities | debt securities | ||||||
Embedded Derivatives: | ||||||||
Equity price risk exposure | $ | 29 | $ | 114 |
The following table presents the same company described above thateffect of embedded derivatives on the Consolidated Statements of Operations, categorized by risk exposure, for the three and nine months ended March 31, 2024, and 2023.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Other Income (Loss) | Other Income (Loss) | Other Income (Loss) | Other Income (Loss) | |||||||||||||
(dollars in thousands) | Net Investment Income (Loss) | Net Investment Income (Loss) | Net Investment Income (Loss) | Net Investment Income (Loss) | ||||||||||||
Embedded Derivatives: | ||||||||||||||||
Equity price risk exposure | $ | (85 | ) | $ | 82 | $ | (22 | ) | $ | 55 |
At March 31, 2024, and June 30, 2023, the Company held one debt security classified as held-to-maturity. The security had an estimated fair value that was lower than the carrying value by $157,000 at March 31, 2024, and $232,000 at June 30, 2023. The security has also investedbeen in directly;a continuous unrealized loss position for over twelve months. We have evaluated the fund held 6.5 million common sharesunrealized loss on the security at March 31, 2024, and determined it to be of HIVEa temporary nature and caused by fluctuations in market interest rates, not by concerns regarding the ability of the issuer to meet their obligations.
The following details the components of the Company’s held-to-maturity debt investments as of DecemberMarch 31, 2017. This concentration may result in volatility2024, and June 30, 2023.
March 31, 2024 | ||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrecognized Holding Gains | Gross Unrecognized Holding Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||
Held-to-maturity debt securities(1): | ||||||||||||||||||||
Corporate debt securities | $ | 1,000 | $ | - | $ | (157 | ) | $ | 843 | $ | 157 |
June 30, 2023 | ||||||||||||||||||||
(dollars in thousands) | Amortized Cost | Gross Unrecognized Holding Gains | Gross Unrecognized Holding Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||
Held-to-maturity debt securities(1): | ||||||||||||||||||||
Corporate debt securities | $ | 1,000 | $ | - | $ | (232 | ) | $ | 768 | $ | - |
1. | Held-to-maturity debt investments are carried at amortized cost, net of allowance for credit losses, and the fair value is classified as Level 2 according to the fair value hierarchy. |
On July 1, 2023, the Company adopted ASU 2016-13, which replaced the incurred loss methodology for determining our allowance for credit losses and related provision for credit losses with an expected loss methodology that is referred to as the Current Expected Credit Losses ("CECL") model. CECL is a significant accounting estimate used in the valuationpreparation of the Galileo Partners Fund. Company's Consolidated Financial Statements. Upon adoption of ASU 2016-13, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. CECL is a valuation account that is deducted from the amortized cost basis of held-to-maturity debt securities to present the net amount expected to be collected on the securities. Held-to-maturity debt securities, or portions thereof, are charged against the allowance when they are deemed uncollectible. Arriving at an appropriate level of credit losses involves a high degree of judgment. While management uses available information to recognize losses, changing economic conditions and the economic prospects of the issuers may necessitate future additions or reductions to the allowance.
The Company owns approximately 30 percentmonitors the credit quality of Galileo Partners Funddebt securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and isare utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the abilityCompany utilizes other financial information indicating the financial health of the underlying organization. As of March 31, 2024, and June 30, 2023, the held-to-maturity debt investment held by the Company did not have a credit rating.
Since the held-to-maturity debt security does not have a credit rating, management has determined that the discounted cash flow method provides the best basis for its assessment and determination of expected credit losses. The Company has elected to reflect the change in the allowance solely attributable to the passage of time in interest income. Changes attributable to the passage of time are those solely due to changes in the present value of the expected cash flows as the instrument approaches maturity rather than expectations of cash flow timing or amounts. Since the adoption of ASU 2016-13 on July 1, 2023, and through March 31, 2024, the allowance for credit losses decreased $75,000 which was attributable to the passage of time. For the three and nine months ended March 31, 2024, $20,000 and $75,000, respectively, was included as an increase in interest income within net investment income (loss) on the Consolidated Statements of Operations.
The following table presents the activity in the allowance for credit losses for the held-to-maturity debt investment. There was no allowance at June 30, 2023.
(dollars in thousands) | March 31, 2024 | |||
Beginning Balance, prior to adoption of ASU 2016-13 | $ | - | ||
Impact of ASU 2016-13 adoption | 232 | |||
Provision for credit losses - reversal (1) | (75 | ) | ||
Ending Balance | $ | 157 |
1. | Represents the change in present value attributable to the passage of time included in interest income. |
The following summarizes the net carrying amount and estimated fair value of debt securities at March 31, 2024, by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.
March 31, 2024 | ||||||||
Available-for-sale | Held-to-maturity | |||||||
debt securities | debt securities | |||||||
Convertible | Due after one year | |||||||
(dollars in thousands) | debentures (1) | through five years | ||||||
Amortized Cost | $ | 6,651 | $ | 1,000 | ||||
Fair Value | $ | 5,190 | $ | 843 |
1. | Principal payments of $750,000 are due quarterly with a final maturity date in January 2026. |
As of March 31, 2024, none of the Company's investments in debt securities were delinquent or in a non-accrual status.
Other Investments
Other investments consist of equity investments in entities over which the Company is unable to exercise significant influence. Thus,influence and which do not have readily determinable fair values. For these securities, the Company generally elects to value using the measurement alternative, under which such securities are measured at cost, less impairment, if any. If the Company identifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value as of the date the observable transaction occurred, with such changes recorded in net investment is accounted forincome (loss).
The carrying value of equity securities without readily determinable fair values was approximately $2.4 million as of June 30, 2023. The following table presents the carrying value of equity securities without readily determinable fair values held as of March 31, 2024, and 2023, that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes or impairments. These securities are included in the nonrecurring fair value hierarchy tables when applicable price changes are observable, or when impairments occur.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Other Investments | ||||||||||||||||
Carrying value | $ | 1,114 | $ | 2,827 | $ | 1,114 | $ | 2,827 | ||||||||
Upward carrying value changes | $ | - | $ | 14 | $ | - | $ | 9 | ||||||||
Downward carrying value changes/impairment | $ | (1,274 | ) | $ | (1,841 | ) | $ | (499 | ) | $ | - |
The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes. The cumulative amount of upward adjustments to all equity methodsecurities without readily determinable fair values total $2.5 million since their respective acquisitions through March 31, 2024. The cumulative amount of accounting. Underimpairments and other downward adjustments, which include return of capital distributions and observable price changes, to all equity securities without readily determinable fair values total $5.0 million since their respective acquisitions through March 31, 2024.
The Company has an investment in The Sonar Company (“Sonar”), a company headquartered in the equity method,United States, at a cost of $175,000. The investment had a carrying value of approximately $362,000 at March 31, 2024, and at June 30, 2023. Roy D. Terracina, Director and Vice Chairman of the Board of Directors for U.S. Global, has served as the CEO of Sonar since July 2021, and the Company’s proportional shareownership of Sonar was approximately 2.8 percent as of March 31, 2024.
Net Investment Income (Loss)
Net investment income (loss) from the fund’sCompany’s investments includes:
● | realized gains and losses on sales of securities; | |
● | realized gains and losses on principal payment proceeds; | |
● | unrealized gains and losses on securities at fair value; | |
● | impairments and observable price changes on equity investments without readily determinable fair values; | |
● | dividend and interest income; and | |
● | realized foreign currency gains and losses. |
The following summarizes net investment income or loss, which primarily consists(loss) reflected in earnings for the periods presented.
Nine Months Ended | Three Months Ended | |||||||||||||||
(dollars in thousands) | March 31, | March 31, | ||||||||||||||
Net Investment Income (Loss) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Realized gains (losses) on equity securities | $ | (6,834 | ) | $ | (13 | ) | $ | (6,094 | ) | $ | (13 | ) | ||||
Realized gains (losses) on debt securities | 906 | 1,299 | 267 | 394 | ||||||||||||
Unrealized gains (losses) on equity securities | 5,699 | (2,586 | ) | 5,863 | 283 | |||||||||||
Unrealized gains (losses) on debt securities | (20 | ) | - | (65 | ) | - | ||||||||||
Unrealized gains (losses) on embedded derivatives | (85 | ) | 82 | (22 | ) | 55 | ||||||||||
Unrealized gains (losses) on cash equivalents | (2 | ) | - | - | - | |||||||||||
Dividend and interest income | 1,781 | 1,321 | 595 | 421 | ||||||||||||
Realized foreign currency gains (losses) | (82 | ) | (292 | ) | (84 | ) | 15 | |||||||||
Total Net Investment Income (Loss) | $ | 1,363 | $ | (189 | ) | $ | 460 | $ | 1,155 |
Realized gains on debt securities reclassified from other comprehensive income (loss) related to the Company's investment in HIVE debentures were $267,000 and $906,000 for the three and nine months ended March 31, 2024, respectively, and $394,000 and $1.3 million for the three and nine months ended March 31, 2023, respectively.
The following table presents unrealized gains and losses recognized during the three and nine months ended March 31, 2024, and 2023, on investments offset by fund expenses, is recognizedequity securities and debt securities classified as trading still held at each respective date.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Unrealized gains and losses for securities held at the reporting date: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Net gains and losses recognized during the period | $ | (1,135 | ) | (2,599 | ) | $ | (231 | ) | $ | 270 | ||||||
Less: Net gains and losses recognized during the period on securities sold during the period | (256 | ) | (13 | ) | (3 | ) | (13 | ) | ||||||||
Unrealized gains and losses recognized during the reporting period on securities still held at the reporting date (1) | $ | (879 | ) | $ | (2,586 | ) | $ | (228 | ) | $ | 283 | |||||
Debt securities classified as trading: | ||||||||||||||||
Net gains and losses recognized during the period | $ | (20 | ) | - | $ | (65 | ) | $ | - | |||||||
Less: Net gains and losses recognized during the period on securities sold during the period | - | - | - | - | ||||||||||||
Unrealized gains and losses recognized during the reporting period on securities still held at the reporting date | $ | (20 | ) | $ | - | $ | (65 | ) | $ | - |
1. | Includes net unrealized and realized losses as a result of the measurement alternative of $240,000 and $1.0 million for the three and nine months ended March 31, 2024, respectively, and $0 and $1.8 million, for the three and nine months ended March 31, 2023, respectively. |
Net investment income (loss) can be volatile and vary depending on market fluctuations, the Company’s ability to participate in investment opportunities, and the timing of transactions. The Company expects that gains and losses will continue to fluctuate in the Company’s earnings. Included in other income for the three and six months ending December 31, 2017, is $1.2 million and $2.7 million, respectively, of equity method income of Galileo Partners Fund. The Company’s investment in the fund was valued at approximately $3.3 million at December 31, 2017. Frank Holmes also directly held an investment in the fund as of December 31, 2017.future.
Galileo Partners Fund | ||||
Summary Financial Information | ||||
For the Period from August 31, 2017 (investment) to December 31, 2017 | ||||
(dollars in thousands) | ||||
Realized gains on sales of investments | $ | 1,921 | ||
Unrealized gains on investments | 9,612 | |||
Fund fees and expenses, including performance fees | (2,810 | ) | ||
Net income of fund | $ | 8,723 | ||
Company's share of income from equity method investment | $ | 2,731 |
NOTE 3.4. INVESTMENT MANAGEMENT AND OTHER FEES
The following table presents operating revenues disaggregated by performance obligation.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
ETF advisory fees | $ | 7,394 | $ | 10,360 | $ | 2,224 | $ | 3,142 | ||||||||
USGIF advisory fees | 1,408 | 1,693 | 443 | 558 | ||||||||||||
USGIF performance fees received (paid) | (344 | ) | (390 | ) | (101 | ) | (109 | ) | ||||||||
Total Advisory Fees | 8,458 | 11,663 | 2,566 | 3,591 | ||||||||||||
USGIF administrative services fees | 86 | 101 | 27 | 33 | ||||||||||||
Total Operating Revenue | $ | 8,544 | $ | 11,764 | $ | 2,593 | $ | 3,624 |
The Company serves as investment advisor to three U.S.-based exchange-traded funds (ETFs): U.S. Global Jets ETF (ticker JETS), U.S. Global GO GOLD and Precious Metal Miners ETF (ticker GOAU), and U.S. Global Sea to Sky Cargo ETF (ticker SEA). The Company receives a unitary management fee of 0.60 percent of average net assets of the ETFs, and has agreed to bear all expenses of the ETFs, except the U.S. Global Sea to Sky Cargo ETF ("SEA"). The Company has agreed to contractually limit the expenses of SEA through April 2025. The aggregate fees waived, and expenses borne by the Company for SEA were $37,000 and $115,000 for the three and nine months ended March 31, 2024, respectively, and $28,000 and $77,000 and for the three and nine months ended March 31, 2023, respectively. The Company also serves as investment advisor to one European-based ETF, the U.S. Global Jets UCITS ETF. The Company receives a unitary management fee of 0.65 percent of average net assets and has agreed to bear all expenses of the ETF.
The Company serves as investment adviser to USGIF and receives a fee based on a specified percentage of netaverage assets under management. The Company recorded base advisory fees from USGIF totaling $1.2 million and $2.3 million, respectively, for the three and six months ended December 31, 2017, compared with $1.2 million and $2.6 million, respectively, for the corresponding periods in the prior fiscal year.
The Company has agreed to contractually limit the expenses of the Near-Term Tax Free Fund and the Global Luxury Goods Fund through April 2018. 2025. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the remaining USGIF funds. These caps will continue on a voluntary basis at the Company’s discretion. The aggregate fees waived and expenses borne by the Company for USGIF were $193,000 and $638,000 for the three and sixnine months ended DecemberMarch 31, 2017, were $102,0002024, respectively, and $334,000, respectively, compared with $313,000$299,000 and $546,000, respectively,$822,000 for the corresponding periods in the prior fiscal year.three and nine months ended March 31, 2023, respectively. Management cannot predict the impact of future waivers due to the number of variables and the range of potential outcomes.
The Company receives administrative service fees from USGIF based on an annual rate of 0.05 percent on the average daily net assets at an annual rate 0.05 percent per investor class and 0.04 percent per institutional class of each fund.
As of DecemberMarch 31, 2017,2024, the Company had just over $1.0receivables from fund clients of $858,000, of which $738,000 was from the ETFs and $120,000 was from USGIF. As of June 30, 2023, the Company had $1.1 million in receivables from fund clients, of which $381,000$1.0 million was from USGIF, $605,000ETFs and $126,000 was from Galileo clients and $63,000 from ETFs.
NOTE 5. BORROWINGS
The Company maintains its cash deposits with established commercial banks. At times, balances may exceed federally insured limits. We have not experienced any losses in such accounts and do not believe that we are exposed to any significant credit risk associated with our cash deposits. Restricted cash represents cash invested in a money market account as collateral for credit facilities that is not available for general corporate use.
A reconciliation of Decembercash, cash equivalents, and restricted cash reported from the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows is shown below.
(dollars in thousands) | March 31, 2024 | June 30, 2023 | ||||||
Cash and cash equivalents | $ | 27,460 | $ | 25,401 | ||||
Restricted cash | 1,000 | 1,000 | ||||||
Total cash, cash equivalents, and restricted cash | $ | 28,460 | $ | 26,401 |
NOTE 6. LEASES
The Company has lease agreements for office equipment that expire in the fiscal year 2026. Lease expenses included in general and administrative expense on the Consolidated Statements of Operations totaled $33,000 and $99,000 for the three and nine months ended March 31, 2017,2024, respectively, and $32,000 and $86,000 for the three and nine months ended March 31, 2023, respectively.
The following table presents the components of lease cost.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Finance lease cost: | ||||||||||||||||
Amortization of right-of-use assets | $ | 23 | $ | 22 | $ | 7 | $ | 7 | ||||||||
Interest on lease liabilities | 2 | 3 | 1 | 1 | ||||||||||||
Total finance lease cost | 25 | 25 | 8 | 8 | ||||||||||||
Short-term lease cost | 76 | 64 | 26 | 25 | ||||||||||||
Total lease cost | $ | 101 | $ | 89 | $ | 34 | $ | 33 |
Supplemental information related to the Company's leases follows.
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Operating cash flows from financing leases included in lease liabilities | $ | 2 | $ | 3 | $ | 1 | $ | 1 | ||||||||
Financing cash flows from financing leases included in lease liabilities | $ | 22 | $ | 20 | $ | 7 | $ | 7 |
Additional qualitative information concerning the Company’s leases follows.
March 31, 2024 | June 30, 2023 | |||||||
Weighted-average remaining lease term - financing leases (years) | 1.50 | 2.25 | ||||||
Weighted-average discount rate - financing leases | 4.75 | % | 4.75 | % |
The following table presents the maturities of lease liabilities as of March 31, 2024.
(dollars in thousands) | ||||
Fiscal Year | Finance Leases | |||
2024 (excluding the nine months ended March 31, 2024) | $ | 8 | ||
2025 | 33 | |||
2026 | 8 | |||
Total lease payments | 49 | |||
Less imputed interest | (2 | ) | ||
Total | $ | 47 |
The Company is the lessor of certain areas of its owned office building under operating leases expiring in various months through fiscal year 2025. At the commencement of an operating lease, no income is recognized; subsequently, lease payments received are recognized on a straight-line basis. Lease income included in other income on the Consolidated Statements of Operations was $23,000 and $78,000 for the three and nine months ended March 31, 2024, respectively, and $31,000 and $96,000 for the three and nine months ended March 31, 2023, respectively. The cost of obtaining lessor contracts, which is included in other assets on the Consolidated Balance Sheets, was $3,000 at March 31, 2024, and $4,000 at June 30, 2023.
The following is a summary analysis of annual undiscounted cash flows to be received on leases as of March 31, 2024.
(dollars in thousands) | ||||
Fiscal Year | Operating Leases | |||
2024 (excluding the nine months ended March 31, 2024) | $ | 10 | ||
2025 | 36 | |||
Total lease payments | $ | 46 |
The Company may terminate the building leases with one hundred eighty days written notice if it sells the property. If the Company has no borrowingsterminates the lease, the Company will pay the tenant a termination fee of the lesser of six months of the base monthly rent or long-term liabilities except for deferred taxes.the base monthly rent times the number of months remaining in the initial term.
NOTE 7. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
(dollars in thousands) | March 31, 2024 | June 30, 2023 | ||||||
Professional fees | $ | 538 | $ | 697 | ||||
Vendors payable | 359 | 157 | ||||||
ETF operating and distribution expenses | 548 | 344 | ||||||
Other taxes payable | 73 | 76 | ||||||
Other | 111 | - | ||||||
Other accrued expenses | $ | 1,629 | $ | 1,274 |
The Company had $127,000 and $43,000 of receivables from HIVE included in the Consolidated Balance Sheets within receivables as of March 31, 2024, and June 30, 2023, respectively, related to the reimbursement of certain amounts reflected in the table above.
NOTE 8. DEBT
The Company has access to a $1 million credit facility for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement will expireexpires on May 31, 2018,2024, and the Company intends to renew annually. The credit facility is collateralized by approximately $1 million at DecemberMarch 31, 2017, shown as2024, included in restricted cash on the balance sheet,Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of DecemberMarch 31, 2017,2024, the credit facility remains unutilized by the Company.
NOTE 6. STOCKHOLDERS’9. STOCKHOLDERS’ EQUITY
Payment of cash dividends is within the discretion of the Company’s boardBoard of directorsDirectors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. AThe dividend rate per share was $0.0075 per month for fiscal year 2023 and through March 2024.
In March 2024, the Board authorized the continuance of the monthly dividend of $0.0025$0.0075 per share was paid for Julyfrom April through December 2017 and is authorized through March 2018,June 2024, at which time it will be considered for continuation by the Board.
The Board of Directors approvedCompany has a share repurchase program, on December 7, 2012,approved by the Board of Directors, authorizing the Company to annually purchase up to $2.75$5.0 million of its outstanding common shares, as market and business conditions warrant, on the open market in compliance with Rule 10b-1810b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934 through 1934. The repurchase program has been in place since December 31, 2013. In December 2013, December 2014, December 2015, December 2016, 2012, and December 2017, the Board of Directors has annually renewed the repurchase program foreach calendar years 2014, 2015, 2016, 2017, and 2018, respectively.year. The total amountCompany announced on February 25, 2022, that the Board of shares that may be repurchased in calendar year 2018 underDirectors of the renewedCompany approved an increase to the limit of its annual share buyback program isfrom $2.75 million to $5.0 million. The acquired shares may be used for corporate purposes, including shares issued to employees in the Company’s stock-based compensation programs. For the three and sixnine months ended DecemberMarch 31, 2017,2024, the Company repurchased 36,748211,282 and 45,947605,790 class A shares using cash of $117,000$577,000 and $131,000,$1.7 million, respectively. For the three and sixnine months ended DecemberMarch 31, 2016,2023, the Company repurchased 32,605193,040 and 47,552320,412 class A shares using cash of $50,000$556,000 and $80,000,$938,000, respectively.
In August 2022, the Inflation Reduction Act (IRA) was signed into law, which made a number of changes to the Internal Revenue Code, including adding a 1% excise tax on stock buybacks by publicly traded corporations, effective on January 1, 2023. Any excise tax incurred is recognized as part of the cost basis of the shares acquired in the Consolidated Statements of Shareholders' Equity. The impact of these provisions was $5,000 and $17,000 for the three and nine months ended March 31, 2024, respectively.
The Company’s stock option plans provide for the granting of class A shares as either incentive or nonqualified stock options to employees and non-employee directors. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors. ThereAt March 31, 2024, and 2023, there were 2,000229,000 options outstanding and exercisable at December 31, 2017,under the 1989 Plan at a weighted average exercise price of $12.31.$6.05, and 2,000 options outstanding and exercisable under the 1997 Plan at a weighted average exercise price of $2.74. There were no options granted exercised or forfeitedexercised for the sixthree and nine months ended DecemberMarch 31, 2017.
Stock-based compensation expense is recorded formeasured at the grant date based on the fair value of the award, and the cost of stock options.is recognized as expense ratably over the award’s vesting period. There was no stock-based compensation expense for the three and sixnine months ended DecemberMarch 31, 2017, and 2016.2024, or 2023. As of DecemberMarch 31, 2017, 2024, and 2016,2023, there was no unrecognized share-based compensation cost related to share-based compensationawards granted under the plans to be recognized over the remainderplans.
NOTE 7.10. EARNINGS PER SHARE
The basic earnings per share (“EPS”) calculation excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.
The following table sets forth the computation for basic and diluted EPS:
Six Months Ended December 31, | Three Months Ended December 31, | |||||||||||||||
(dollars in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Income | $ | 2,120 | $ | 289 | $ | 884 | $ | 25 | ||||||||
Less: Net Income Attributable to Non-Controlling Interest | 101 | 18 | 135 | 17 | ||||||||||||
Net Income Attributable to U.S. Global Investors, Inc. | $ | 2,019 | $ | 271 | $ | 749 | $ | 8 | ||||||||
Weighted average number of outstanding shares | ||||||||||||||||
Basic | 15,171,620 | 15,229,845 | 15,160,589 | 15,218,734 | ||||||||||||
Effect of dilutive securities | ||||||||||||||||
Employee stock options | - | - | - | - | ||||||||||||
Diluted | 15,171,620 | 15,229,845 | 15,160,589 | 15,218,734 | ||||||||||||
Earnings Per Share Attributable to U.S. Global Investors, Inc. | ||||||||||||||||
Basic | $ | 0.13 | $ | 0.02 | $ | 0.05 | $ | - | ||||||||
Diluted | $ | 0.13 | $ | 0.02 | $ | 0.05 | $ | - |
Nine Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
(dollars in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
Net Income (Loss) | $ | 1,018 | $ | 2,520 | $ | (35 | ) | $ | 1,620 | |||||||
Weighted average number of outstanding shares | ||||||||||||||||
Basic | 14,278,691 | 14,862,893 | 14,077,042 | 14,747,537 | ||||||||||||
Effect of dilutive securities | ||||||||||||||||
Stock options | 86 | 295 | - | 100 | ||||||||||||
Diluted | 14,278,777 | 14,863,188 | 14,077,042 | 14,747,637 | ||||||||||||
Earnings (Loss) Per Share | ||||||||||||||||
Basic Net Income (Loss) per share | $ | 0.07 | $ | 0.17 | $ | (0.00 | ) | $ | 0.11 | |||||||
Diluted Net Income (Loss) per share | $ | 0.07 | $ | 0.17 | $ | (0.00 | ) | $ | 0.11 |
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period.period, as their inclusion would be anti-dilutive. For the three and sixnine months ended DecemberMarch 31, 2017,2024, employee stock options of 231,000 and 2016, 2,000 options229,000, respectively, were excluded from diluted EPS.
During the three andnine months ended DecemberMarch 31, 2017,2024, and 2016,2023, the Company repurchased class A shares on the open market. Upon repurchase, these shares are classified as treasury shares and are deducted from outstanding shares in the earnings per share calculation.
NOTE 8.11. INCOME TAXES
The Company and its non-Canadian subsidiaries file a consolidated U.S. federal income tax return. USCAN and Galileo filefiles a separate tax returnsreturn in Canada. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes resulting from the use of the liability method of accounting for income taxes.
Income tax expense for the Act”) was enacted on December 22, 2017. The Act reducesquarter is based upon the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In the second quarter,estimated annual ordinary income in each jurisdiction in which the Company revised its estimated annual effective rate to reflect a change in its U.S. federal statutory rate from 34 percent to 21 percent.operates. The rate change is effective on January 1, 2018; therefore, the Company’s blended U.S. statutory tax rate for the fiscal year ended June 30, 2018, is approximately 28 percent.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. At December 31, 2017, and June 30, 2017, aA valuation allowance of $1.2 million$26,000 and $3.3 million, respectively,$24,000 was included
The Company maintains a reserve for uncertain tax differences inpositions for income tax matters. The Company believes the balance sheet. Deferred taxesreserve for uncertain tax positions, including interest and penalties, and net of $417,000 were recorded infederal benefits, of $549,000 adequately covers open tax years and uncertain tax positions up to and including March 31, 2024, for major taxing jurisdictions. As of March 31, 2024, the Statemententire $549,000 of Operations inunrecognized tax benefits, if recognized, would impact the current period for USCAN book/Company's effective income tax differences in the balance sheet.
NOTE 9.12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the change in accumulated other comprehensive income (loss) (“AOCI”) by component:component.
(dollars in thousands) | Unrealized gains (losses) on available-for-sale investments | |||
Nine Months Ended March 31, 2024 | ||||
Balance at June 30, 2023 | $ | 1,348 | ||
Other comprehensive income (loss) before reclassifications | 251 | |||
Tax effect | (52 | ) | ||
Amount reclassified from AOCI | (906 | ) | ||
Tax effect | 190 | |||
Net other comprehensive income (loss) | (517 | ) | ||
Balance at March 31, 2024 | $ | 831 | ||
Nine Months Ended March 31, 2023 | ||||
Balance at June 30, 2022 | $ | 3,624 | ||
Other comprehensive income (loss) before reclassifications | (1,189 | ) | ||
Tax effect | 250 | |||
Amount reclassified from AOCI | (1,299 | ) | ||
Tax effect | 273 | |||
Net other comprehensive income (loss) | (1,965 | ) | ||
Balance at March 31, 2023 | $ | 1,659 |
(dollars in thousands) | Unrealized gains (losses) on available-for-sale investments 1 | Foreign currency adjustment | Total | |||||||||
Six months ended December 31, 2017 | ||||||||||||
Balance at June 30, 2017 | $ | 461 | $ | (197 | ) | $ | 264 | |||||
Other comprehensive income before reclassifications | 16,923 | 53 | 16,976 | |||||||||
Tax effect | (3,506 | ) | - | (3,506 | ) | |||||||
Amount reclassified from AOCI | (31 | ) | - | (31 | ) | |||||||
Tax effect | - | - | - | |||||||||
Net other comprehensive income for six months ended December 31, 2017 | 13,386 | 53 | 13,439 | |||||||||
Balance at December 31, 2017 | $ | 13,847 | $ | (144 | ) | $ | 13,703 | |||||
Three Months Ended December 31, 2017 | ||||||||||||
Balance at September 30, 2017 | $ | 9,594 | $ | (161 | ) | $ | 9,433 | |||||
Other comprehensive income before reclassifications | 7,783 | 17 | 7,800 | |||||||||
Tax effect | (3,506 | ) | - | (3,506 | ) | |||||||
Amount reclassified from AOCI | (24 | ) | - | (24 | ) | |||||||
Tax effect | - | - | - | |||||||||
Net other comprehensive income for quarter | 4,253 | 17 | 4,270 | |||||||||
Balance at December 31, 2017 | $ | 13,847 | $ | (144 | ) | $ | 13,703 |
(dollars in thousands) | Unrealized gains (losses) on available-for-sale investments 1 | Foreign currency adjustment | Total | |||||||||
Six months ended December 31, 2016 | ||||||||||||
Balance at June 30, 2016 | $ | 45 | $ | (194 | ) | $ | (149 | ) | ||||
Other comprehensive income (loss) before reclassifications | 369 | (35 | ) | 334 | ||||||||
Tax effect | - | - | - | |||||||||
Amount reclassified from AOCI | (15 | ) | - | (15 | ) | |||||||
Tax effect | - | - | - | |||||||||
Net other comprehensive income (loss) for six months ended December 31, 2016 | 354 | (35 | ) | 319 | ||||||||
Balance at December 31, 2016 | $ | 399 | $ | (229 | ) | $ | 170 | |||||
Three Months Ended December 31, 2016 | ||||||||||||
Balance at September 30, 2016 | $ | 738 | $ | (204 | ) | $ | 534 | |||||
Other comprehensive income (loss) before reclassifications | (308 | ) | (25 | ) | (333 | ) | ||||||
Tax effect | - | - | - | |||||||||
Amount reclassified from AOCI | (31 | ) | - | (31 | ) | |||||||
Tax effect | - | - | - | |||||||||
Net other comprehensive income (loss) for quarter | (339 | ) | (25 | ) | (364 | ) | ||||||
Balance at December 31, 2016 | $ | 399 | $ | (229 | ) | $ | 170 |
NOTE 10.13. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates principally in threetwo business segments: providing investment management services to USGIF offshore clients and ETF clients; investment management services in Canada; and investing for its own account in an effort to add growth and value to its cash position. The following schedule details gross identifiable assets, total revenues, and income by business segment:segment.
(dollars in thousands) | Investment Management Services | Corporate Investments | Consolidated | |||||||||
Nine Months Ended March 31, 2024 | ||||||||||||
Net operating revenues | $ | 8,544 | $ | - | $ | 8,544 | ||||||
Net investment income (loss) | $ | - | $ | 1,363 | $ | 1,363 | ||||||
Other income (loss) | $ | 183 | $ | - | $ | 183 | ||||||
Income (loss) before income taxes | $ | 164 | $ | 1,300 | $ | 1,464 | ||||||
Depreciation | $ | 163 | $ | - | $ | 163 | ||||||
Gross identifiable assets at March 31, 2024 | $ | 27,542 | $ | 23,390 | $ | 50,932 | ||||||
Deferred tax asset | $ | 1,840 | ||||||||||
Consolidated total assets at March 31, 2024 | $ | 52,772 | ||||||||||
Nine Months Ended March 31, 2023 | ||||||||||||
Net operating revenues | $ | 11,764 | $ | - | $ | 11,764 | ||||||
Net investment income (loss) | $ | - | $ | (189 | ) | $ | (189 | ) | ||||
Other income (loss) | $ | 184 | $ | - | $ | 184 | ||||||
Income (loss) before income taxes | $ | 3,461 | $ | (243 | ) | $ | 3,218 | |||||
Depreciation | $ | 183 | $ | - | $ | 183 | ||||||
Gross identifiable assets at March 31, 2023 | $ | 25,056 | $ | 29,030 | $ | 54,086 | ||||||
Deferred tax asset | $ | 1,659 | ||||||||||
Consolidated total assets at March 31, 2023 | $ | 55,745 | ||||||||||
Three Months Ended March 31, 2024 | ||||||||||||
Net operating revenues | $ | 2,593 | $ | - | $ | 2,593 | ||||||
Net investment income (loss) | $ | - | $ | 460 | $ | 460 | ||||||
Other income (loss) | $ | 68 | $ | - | $ | 68 | ||||||
Income (loss) before income taxes | $ | (389 | ) | $ | 429 | $ | 40 | |||||
Depreciation | $ | 41 | $ | - | $ | 41 | ||||||
Three Months Ended March 31, 2023 | ||||||||||||
Net operating revenues | $ | 3,624 | $ | - | $ | 3,624 | ||||||
Net investment income (loss) | $ | - | $ | 1,155 | $ | 1,155 | ||||||
Other income (loss) | $ | 61 | $ | - | $ | 61 | ||||||
Income (loss) before income taxes | $ | 815 | $ | 1,131 | $ | 1,946 | ||||||
Depreciation | $ | 61 | $ | - | $ | 61 |
(dollars in thousands) | Investment Management Services | Investment Management Services - Canada | Corporate Investments | Consolidated | ||||||||||||
Six months ended December 31, 2017 | ||||||||||||||||
Net operating revenues | $ | 2,514 | $ | 969 | $ | - | $ | 3,483 | ||||||||
Net other income | $ | 7 | $ | 10 | $ | 3,183 | $ | 3,200 | ||||||||
Income (loss) before income taxes | $ | (915 | ) | $ | 305 | $ | 3,182 | $ | 2,572 | |||||||
Depreciation and amortization | $ | 116 | $ | 6 | $ | - | $ | 122 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
Gross identifiable assets at December 31, 2017 | $ | 8,702 | $ | 2,137 | $ | 34,236 | $ | 45,075 | ||||||||
Deferred tax asset | $ | - | ||||||||||||||
Consolidated total assets at December 31, 2017 | $ | 45,075 | ||||||||||||||
Six months ended December 31, 2016 | ||||||||||||||||
Net operating revenues | $ | 3,020 | $ | 603 | $ | - | $ | 3,623 | ||||||||
Net other income | $ | - | $ | - | $ | 502 | $ | 502 | ||||||||
Income (loss) before income taxes | $ | (223 | ) | $ | 30 | $ | 492 | $ | 299 | |||||||
Depreciation and amortization | $ | 119 | $ | 8 | $ | - | $ | 127 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
Three months ended December 31, 2017 | ||||||||||||||||
Net operating revenues | $ | 1,242 | $ | 751 | $ | - | $ | 1,993 | ||||||||
Net other income | $ | 5 | $ | 10 | $ | 1,460 | $ | 1,475 | ||||||||
Income (loss) before income taxes | $ | (515 | ) | $ | 381 | $ | 1,460 | $ | 1,326 | |||||||
Depreciation and amortization | $ | 58 | $ | 3 | $ | - | $ | 61 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - | ||||||||
Three months ended December 31, 2016 | ||||||||||||||||
Net operating revenues | $ | 1,339 | $ | 303 | $ | - | $ | 1,642 | ||||||||
Net other income | $ | - | $ | - | $ | 249 | $ | 249 | ||||||||
Income (loss) before income taxes | $ | (275 | ) | $ | 33 | $ | 257 | $ | 15 | |||||||
Depreciation and amortization | $ | 59 | $ | 4 | $ | - | $ | 63 | ||||||||
Capital expenditures | $ | - | $ | - | $ | - | $ | - |
Net operating revenues from investment management services includes operating revenues from USGIFETF clients of $1.0$2.2 million and $2.1$7.4 million respectively, for the three and sixnine months ended DecemberMarch 31, 2017,2024, respectively, and $1.2$3.1 million and $2.8$10.4 million respectively, for the three and sixnine months ended DecemberMarch 31, 2016.2023, respectively. Net operating revenues from investment management services also include operating revenues from ETF clientsUSGIF of $184,000$369,000 and $369,000, respectively,$1.2 million for the three and sixnine months ended DecemberMarch 31, 2017,2024, respectively, and $76,000$482,000 and $142,000, respectively,$1.4 million for the three and sixnine months ended DecemberMarch 31, 2016.2023, respectively.
NOTE 11.14. CONTINGENCIES AND COMMITMENTS
The Company continuously reviews all investor, employee and vendor complaints, and pending or threatened litigation. The likelihood that a loss contingency exists is evaluated through consultation with legal counsel, and a loss contingency is recorded if probable and reasonably estimable.
During the normal course of business, the Company may be subject to various claims, legal proceedings, and other contingencies. These matters are subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably. The Company establishes accruals for matters for which the outcome is probable and can be reasonably estimated. Management believes that any liability in excess of these accruals upon the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial statementsConsolidated Financial Statements of the Company.
The Board has authorized a monthly dividend of $0.0025$0.0075 per share through March 2018,June 2024, at which time it will be considered for continuation by the Board. Payment of cash dividends is within the discretion of the Company’s Board of Directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. The total amount of cash dividends expected to be paid to class A and class C shareholders from JanuaryApril to March 2018June 2024 is approximately $114,000.$317,000.
The COVID-19 pandemic and the resulting actions to control or slow the spread have affected global and domestic economies and financial markets, and in the future it or other epidemics, pandemics or outbreaks may adversely affect the Company's results of operations, cash flows and financial position. The Company cannot reasonably estimate the future impact of these events, given the uncertainty over the duration and severity of the economic impact.
NOTE 12.15. SUBSEQUENT EVENT
USGIF advisory fees are comprised of two components: a base management fee and a performance fee. The performance fee is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the Company owned approximately 30 percentprior rolling 12 months.
For three of Galileo Partners Fund at December 31, 2017. This investment is accounted for under thefour USGIF equity method of accounting. Effective January 31, 2018, a portion of the investment in the fund was redeemed (sold) for proceeds of approximately $1.5 million. As the Company had recorded its proportional shares of the fund’s net income under the equity method of accounting, the proceeds will reduce the carrying value of the investment. Afterfunds, this transaction, the Company owns approximately 24 percent of the fund. As the Company will continue to have the ability to exercise significant influence, the investment will continueperformance adjustment began to be accounted for underphased out on April 1, 2024, and will cease on April 1, 2025. In the equity method of accounting. The results of this transaction willphase-out period, performance can only be reflected in the financial statements for the quarter ended March 31, 2018.
ITEM 2. MANAGEMENT’SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S. Global Investors, Inc. (the “Company”“Company” or “U.S. Global”“U.S. Global”) has made forward-looking statements concerning the Company’sCompany’s performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company’sCompany’s control, including: (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, including significant economic disruptions from COVID-19 or other epidemics, pandemics or outbreaks and the actions taken in connection therewith, (iii) the effect of government regulation on the Company’sCompany’s business, and (iv) market, credit, and liquidity risks associated with the Company’sCompany’s investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
FACTORS AFFECTING OUR BUSINESS
The rapid spread of COVID-19 and actions taken in response had a significant detrimental effect on the global and domestic economies and financial markets. Market declines affect the Company’s assets under management, and thus its revenues and also the valuation of the Company’s corporate investments. If this macro-economic risk persists, it could have an adverse material financial impact on the Company’s business and investments, including a material reduction in its results of operations.
COVID-19-related circumstances (e.g., remote work arrangements) did not adversely affect the Company’s ability to maintain operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.
Market volatility in the prices of digital assets has been elevated due to a variety of factors, including, but not limited to, the macroeconomic environment (high inflation and rising interest rates) as well as the ‘crypto credit crisis of 2022’ brought on by the collapse and bankruptcy of a number of key players in the sector (cryptocurrency Luna collapse, hedge fund Three Arrows Capital default on loans and filing for bankruptcy, crypto-lending platform Celsius freezing all withdraws, cryptocurrency lender Voyager Digital filing for bankruptcy, crypto platform FTX filing for bankruptcy, crypto platform BlockFi filing for bankruptcy among others). The Company did not have direct exposure to any of the foregoing firms affected by the crypto credit crisis of 2022. Although the Company has no current intention of directly investing in cryptocurrencies, the Company has indirect exposure to cryptocurrencies by investing in securities of issuers with exposure to the cryptocurrency industry. There has been significant volatility in the market price of the securities, which has had a material impact, and may continue to have a material impact, on the investment values included on the Consolidated Balance Sheets and unrealized gain (loss) recognized in net investment income.
BUSINESS SEGMENTS
The Company, with principal operations located in San Antonio, Texas, manages threetwo business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors;investors, and (2) the Company, through its Canadian subsidiary, owns a 65 percent controlling interest in Galileo Global Equity Advisors Inc. (“Galileo”), which offers investment management products and services in Canada; and (3) the Company invests for its own account in an effort to add growth and value to its cash position. Although the Company usually generates the majority of its revenues from its investment advisory segments, the Company holds a significant amount of its total assets in investments.
The following is a brief discussion of the Company’s three business segments.
Investment Management Services
The Company provides advisory services for three U.S.-based exchange-traded fund (“ETF”) clients and receives monthly advisory fees based on the net asset values of the funds. Information on the U.S.-based ETFs can be found at www.usglobaletfs.com, including the prospectus, performance and holdings. The Company also serves as investment advisor to one European-based ETF and receives a monthly advisory fee based on the net asset value of the fund. The European-based ETF is not available to U.S. investors. The ETFs’ authorized participants are not required to give advance notice prior to redemption of shares in the ETFs, and the ETFs do not charge a redemption fee.
The Company also generates operating revenues from managing and servicing U.S. Global Investors Funds (“USGIF” or the “Funds”) and other advisory clients.. These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the asset levels of the Funds, and other advisory clients, thereby affecting income and results of operations. Detailed information regarding the Funds managed by the Company within USGIF can be found on the Company’s website, www.usfunds.com, including the prospectus and performance information for each Fund. The mutual fund shareholders in USGIF are not required to give advance notice prior to redemption of shares in the Funds.
At DecemberMarch 31, 2017,2024, total assets under management, including USGIFETF and ETFUSGIF clients, were $681.2 millionapproximately $1.7 billion versus $683.1 million$2.3 billion at DecemberMarch 31, 2016,2023, a decrease of 0.3 percent.$0.5 billion. During the sixnine months ended DecemberMarch 31, 2017,2024, average assets under management, including ETF and USGIF clients, were $702.4 million$1.9 billion, versus $773.9 million$2.6 billion during the sixnine months ended DecemberMarch 31, 2016. Total assets under management as of period-end at December 31, 2017, including USGIF and ETF clients, were $681.2 million versus $711.9 million at2023. At June 30, 2017,2023, the Company’s prior fiscal year end.
The following tables summarize the changes in assets under management for USGIF for the three and sixnine months ended DecemberMarch 31, 2017,2024, and 2016:
Changes in Assets Under Management | ||||||||||||||||||||||||
Six Months Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
(dollars in thousands) | Equity | Fixed Income | Total | Equity | Fixed Income | Total | ||||||||||||||||||
Beginning Balance | $ | 442,916 | $ | 136,500 | $ | 579,416 | $ | 525,778 | $ | 177,242 | $ | 703,020 | ||||||||||||
Market appreciation (depreciation) | 36,345 | 22 | 36,367 | (45,536 | ) | (1,947 | ) | (47,483 | ) | |||||||||||||||
Dividends and distributions | (34,479 | ) | (660 | ) | (35,139 | ) | (7,723 | ) | (898 | ) | (8,621 | ) | ||||||||||||
Net shareholder purchases (redemptions) | 2,660 | (17,315 | ) | (14,655 | ) | (22,508 | ) | (22,302 | ) | (44,810 | ) | |||||||||||||
Ending Balance | $ | 447,442 | $ | 118,547 | $ | 565,989 | $ | 450,011 | $ | 152,095 | $ | 602,106 | ||||||||||||
Average investment management fee | 1.00 | % | 0.08 | % | 0.80 | % | 0.96 | % | 0.00 | % | 0.73 | % | ||||||||||||
Average net assets | $ | 450,124 | $ | 129,908 | $ | 580,032 | $ | 536,384 | $ | 174,116 | $ | 710,500 |
Changes in Assets Under Management | ||||||||||||||||||||||||
Three Months Ended December 31, | ||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
(dollars in thousands) | Equity | Fixed Income | Total | Equity | Fixed Income | Total | ||||||||||||||||||
Beginning Balance | $ | 460,960 | $ | 129,571 | $ | 590,531 | $ | 578,588 | $ | 181,217 | $ | 759,805 | ||||||||||||
Market appreciation (depreciation) | 8,284 | 1,582 | 9,866 | (96,256 | ) | (1,773 | ) | (98,029 | ) | |||||||||||||||
Dividends and distributions | (34,480 | ) | (357 | ) | (34,837 | ) | (7,722 | ) | (459 | ) | (8,181 | ) | ||||||||||||
Net shareholder purchases (redemptions) | 12,678 | (12,249 | ) | 429 | (24,599 | ) | (26,890 | ) | (51,489 | ) | ||||||||||||||
Ending Balance | $ | 447,442 | $ | 118,547 | $ | 565,989 | $ | 450,011 | $ | 152,095 | $ | 602,106 | ||||||||||||
Average investment management fee | 1.00 | % | 0.17 | % | 0.82 | % | 0.94 | % | 0.00 | % | 0.70 | % | ||||||||||||
Average net assets | $ | 445,890 | $ | 125,819 | $ | 571,709 | $ | 492,403 | $ | 167,635 | $ | 660,038 |
Changes in Assets Under Management | ||||||||||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||
(dollars in thousands) | Equity | Fixed Income | Total | Equity | Fixed Income | Total | ||||||||||||||||||
Beginning Balance | $ | 233,187 | $ | 56,722 | $ | 289,909 | $ | 278,037 | $ | 64,995 | $ | 343,032 | ||||||||||||
Market appreciation (depreciation) | 6,985 | 242 | 7,227 | 18,763 | 542 | 19,305 | ||||||||||||||||||
Dividends and distributions | - | (480 | ) | (480 | ) | - | (394 | ) | (394 | ) | ||||||||||||||
Net shareholder purchases (redemptions) | (10,728 | ) | 334 | (10,394 | ) | (5,889 | ) | (3,042 | ) | (8,931 | ) | |||||||||||||
Ending Balance | $ | 229,444 | $ | 56,818 | $ | 286,262 | $ | 290,911 | $ | 62,101 | $ | 353,012 | ||||||||||||
Average investment management fee | 0.81 | % | 0.00 | % | 0.64 | % | 0.79 | % | 0.00 | % | 0.65 | % | ||||||||||||
Average net assets | $ | 219,813 | $ | 57,103 | $ | 276,916 | $ | 289,682 | $ | 63,337 | $ | 353,019 |
Changes in Assets Under Management | ||||||||||||||||||||||||
Nine Months Ended March 31, | ||||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||
(dollars in thousands) | Equity | Fixed Income | Total | Equity | Fixed Income | Total | ||||||||||||||||||
Beginning Balance | $ | 265,329 | $ | 63,110 | $ | 328,439 | $ | 286,367 | $ | 71,161 | $ | 357,528 | ||||||||||||
Market appreciation (depreciation) | 3,781 | 1,618 | 5,399 | 22,292 | 323 | 22,615 | ||||||||||||||||||
Dividends and distributions | (2,235 | ) | (1,517 | ) | (3,752 | ) | (11,329 | ) | (931 | ) | (12,260 | ) | ||||||||||||
Net shareholder purchases (redemptions) | (37,431 | ) | (6,393 | ) | (43,824 | ) | (6,419 | ) | (8,452 | ) | (14,871 | ) | ||||||||||||
Ending Balance | $ | 229,444 | $ | 56,818 | $ | 286,262 | $ | 290,911 | $ | 62,101 | $ | 353,012 | ||||||||||||
Average investment management fee | 0.81 | % | 0.00 | % | 0.64 | % | 0.81 | % | 0.00 | % | 0.65 | % | ||||||||||||
Average net assets | $ | 231,059 | $ | 58,926 | $ | 289,985 | $ | 281,745 | $ | 65,978 | $ | 347,723 |
As shown above, USGIF period-end assets under management were lower at DecemberMarch 31, 2017,2024, compared to DecemberMarch 31, 2016. Also, average2023. Average net assets for the three-three and six-month periodsnine months in the current fiscal year were lower than the same periods in the previous fiscal year. Both
USGIF period-end assets under management decreased during the nine months ended March 31, 2024, and 2023, decreased during the three and six months ended DecemberMarch 31, 2017, had net market appreciation, primarily in the equity funds, compared to net market depreciation for2024, and increased during the three and six months ended DecemberMarch 31, 2016, also2023. During the nine months ended March 31, 2024, the decrease was primarily indue to redemptions, primarily driven by equity fund liquidations. The increase during the equity funds. A significant portion of the dividends and distributions shown above are reinvested and included in net shareholder purchases (redemptions). The combined amounts for these two lines for all periods shown were negative, thus contributingthree months ended March 31, 2023, was primarily due to the decline in net assets.
The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 82 and 8064 basis points for the three and sixnine months ended DecemberMarch 31, 2017, respectively,2024, and 70 and 7365 basis points for the same periods in the prior year.three and nine months ended March 31, 2023. The average investment management fee for the equity funds was 10081 basis points for the three and sixnine months ended DecemberMarch 31, 2017,2024, and 9479 basis points and 9681 basis points for the same periods in the prior year.three and nine months ended March 31, 2023, respectively. The Company has agreed to contractually or voluntarily limit the expenses of the Funds. Therefore, the Company waived or reduced its fees and/or agreed to pay expenses of the Funds. Due to fee waivers, the average investment management fee for the fixed income funds was 17 and 8 basis pointsminimal. Additionally, due to fee waivers, the equity fund liquidations did not have a significant impact of decreasing the average investment management fee rate for the three and six months ended December 31, 2017, respectively, compared to nil for the three and six months ended December 31, 2016.
Investment Activities
Management believes it can more effectively manage the Company’s cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices. This source of revenue does not remain consistent and is dependent on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions.
As of DecemberMarch 31, 2017,2024, the Company held investments with acarried at fair value of approximately $29.8$16.7 million and a cost basis of approximately $12.6$18.9 million. The fair value of these investments is approximately 66.131.6 percent of the Company’s total assets. See Note 2 (Investments) for additional detail regarding investment activities.assets at March 31, 2024. In addition, the Company held other investments of $2.1approximately $1.1 million accountedand held-to-maturity debt investments, net of allowance for under the cost methodcredit losses, of accounting, $3.3 million in investments accounted for under the equity method of accounting, and $2.2 million in notes receivable.
Investments recorded at fair value on a recurring basis were approximately $29.8$16.7 million at DecemberMarch 31, 2017,2024, compared to approximately $13.1$20.2 million at June 30, 2017,2023, the Company’s prior fiscal year end, which is an increasea decrease of approximately $16.7$3.5 million. This increase is primarily due to unrealized gain on an available-for-sale security acquired during the current period. See Note 2 (Investments)3, Investments, in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further information. In addition, aninformation regarding investment was made in the current period in a Galileo fund that is accounted for under the equity methodactivities.
RESULTS OF OPERATIONS – Three months ended DecemberMarch 31, 2017,2024, and 2016
The Company postedrecorded a net income attributable to U.S. Global Investors, Inc.loss of $749,000$35,000 ($0.05(0) per share) for the three months ended DecemberMarch 31, 2017,2024, compared withto net income attributable to U.S. Global Investors, Inc. of $8,000$1.6 million ($0.000.11 per share) for the three months ended DecemberMarch 31, 2016, an increase in net income2023, a change of approximately $741,000.$1.7 million. The increasechange is primarily due to a decrease in operating revenues and net investment income from an equity method investment.
Operating Revenues
Total consolidated operating revenues for the three months ended DecemberMarch 31, 2017, increased $351,000,2024, decreased $1.0 million, or 21.428.4 percent, compared with the three months ended DecemberMarch 31, 2016.2023. This increasedecrease was primarily attributable to the following:
• | Advisory fees |
• | Base management fees decreased $1.0 million. The majority of this decrease was from ETF unitary management fees, which decreased $918,000 as the result of a decrease in ETF average assets under management, primarily for the |
• | Performance fees for USGIF paid |
Operating Expenses
Total consolidated operating expenses for the three months ended DecemberMarch 31, 2017,2024, increased $266,000,$187,000, or 14.26.5 percent, compared with the three months ended DecemberMarch 31, 2016.2023. The changeincrease in operating expenses was primarily attributable to an increase in general and administrative expenses of $256,000, or 17.3 percent, somewhat offset by a decrease in employee compensation and benefits expenses of $241,000,$55,000, or 26.8 percent, primarily due to increased bonuses and an4.4 percent. The increase in general and administrative expenses of $51,000, or 5.9 percent,are primarily due to increased ETF costs and increased costs by Galileoincreases in USGIF expenses related to new fund startup costs. This increase was somewhat offset by a decreaseperformance fee elimination proxy; and increases in advertisingETF expenses of $24,000, or 47.1 percent, primarily duerelated to decreasedmerging the European-based ETF, marketing.
Other Income
Total consolidated other income for the three months ended DecemberMarch 31, 2017, increased2024, was $528,000, compared to $1.2 million or 492.4 percent, compared withfor the three months ended DecemberMarch 31, 2016. The increase2023, a decrease of approximately $688,000. This decrease was primarily due to an investment made in the quarter ended September 30, 2017, in a Galileo fund that is accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the fund’s net income, which primarily consists of realized and unrealized gains and losses on investments offset by fund expenses, is recognized in the Company’s earnings. The Galileo fund’s investments are concentrated in a cryptocurrency mining stock. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. Cryptocurrency mining is considered an early stage high-risk industry, and the nature of mining is expected to evolve. There is potential for significant volatility in the valuation of the fund’s investments, and thus the fund’s net income that is included in the Company’s earnings. See further discussion in Note 2, Investments, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. In addition, the Company redeemed a portion of its investment in the fund after December 31, 2017. See further discussion in Note 12, Subsequent Event, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
• | Net investment income was $460,000 for the three months ended March 31, 2024, compared to $1.2 million for the prior period, a decrease of $695,000. This decrease in net investment income is comprised of net realized and unrealized losses on equity securities of $231,000 in the current period compared to net realized and unrealized gains on equity securities of $270,000 in the same quarter in the prior year, an unfavorable change of $501,000; and a decrease in realized gains on debt securities of $127,000 compared to the prior period. |
Provision for Income Taxes
A tax expense of $75,000 was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In the second quarter, the Company revised its estimated annual effective rate to reflect a change in its federal statutory rate from 34 percent to 21 percent. The rate change is effective on January 1, 2018; therefore, the Company’s blended statutory tax raterecorded for the fiscal yearthree months ended June 30, 2018, is 28 percent. At DecemberMarch 31, 2017,2024, compared to $326,000 for the Company has not completed its accounting for allthree months ended March 31, 2023, a decrease of $251,000. The decrease was primarily the tax effectsresult of enactment of the Act; however, a reasonable estimate has been made of the one-time transition tax of $17,000, which is included as a component of tax expense in the current quarter. The final transitional impacts of the Act may differ from the initial estimates. Note that the Company currently has netan operating loss carryovers in most jurisdictions, including the U.S. A valuation allowance has been recorded
RESULTS OF OPERATIONS – Six Nine months ended DecemberMarch 31, 2017,2024, and 2016
The Company postedrecorded net income attributable to U.S. Global Investors, Inc. of $2.0$1.0 million ($0.130.07 per share) for the sixnine months ended DecemberMarch 31, 2017,2024, compared withto net income attributable to U.S. Global Investors, Inc. of $271,000$2.5 million ($0.020.17 per share) for the sixnine months ended DecemberMarch 31, 2016, an increase in net income2023, a decrease of approximately $1.7$1.5 million. The increasedecrease is primarily due to income from equity method investment,a decrease in operating revenues compared to the same period in the prior year, somewhat offset by a decreasenet investment income in revenues, which was the result of a decreasecurrent period compared to net investment losses in assets under management, and an increasesame period in operating expensesthe prior year, as discussed further below.
Operating Revenues
Total consolidated operating revenues for the sixnine months ended DecemberMarch 31, 2017,2024, decreased $140,000,$3.2 million, or 3.927.4 percent, compared with the threenine months ended DecemberMarch 31, 2016.2023. This decrease was primarily attributable to the following:
• | Advisory fees decreased by |
• | Base management fees |
• | Performance fees for USGIF paid |
Operating Expenses
Total consolidated operating expenses for the sixnine months ended DecemberMarch 31, 2017,2024, increased $285,000,$85,000, or 7.41.0 percent, compared with the sixnine months ended DecemberMarch 31, 2016.2023. The changeincrease in operating expenses was primarily attributable to an increase in general and administrative expenses of $236,000, or 5.3 percent, partially offset by a decrease in employee compensation and benefits expenses of $155,000,$124,000, or 8.2 percent, primarily due to increased bonuses, and an3.5 percent. The increase in general and administrative expenses of $129,000, or 7.4 percent,are primarily due to increased ETF costs and increased costs by Galileoincreases in USGIF expenses related to new fund startup costs.
Other Income
Total consolidated other income for the sixnine months ended DecemberMarch 31, 2017, increased $2.72024, was $1.5 million, or 537.5 percent, compared withto a loss of $5,000 for the sixnine months ended DecemberMarch 31, 2016. The increase2023, a change of approximately $1.6 million. This change was primarily due to an investment made in the quarter ended September 30, 2017, in a Galileo fund that is accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the fund’s net income, which primarily consists of realized and unrealized gains and losses on investments offset by fund expenses, is recognized in the Company’s earnings. The Galileo fund’s investments are concentrated in a cryptocurrency mining stock. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. Cryptocurrency mining is considered an early stage high-risk industry, and the nature of mining is expected to evolve. There is potential for significant volatility in the valuation of the fund’s investments, and thus the fund’s net income that is included in the Company’s earnings. See further discussion in Note 2, Investments, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. In addition, the Company redeemed a portion of its investment in the fund after December 31, 2017. See further discussion in Note 12, Subsequent Event, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
• | Net investment income was $1.4 million for the nine months ended March 31, 2024, compared to a loss of $189,000 for the prior period, a change of $1.6 million. This change in net investment income is primarily attributable to net realized and unrealized losses on equity securities of $1.1 million in the current period, compared to $2.6 million in the comparable period, a favorable change of $1.5 million. |
Provision for Income Taxes
A tax expense of $446,000 was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In the second quarter, the Company revised its estimated annual effective rate to reflect a change in its federal statutory rate from 34 percent to 21 percent. The rate change is effective on January 1, 2018; therefore, the Company’s blended statutory tax raterecorded for the fiscal yearnine months ended June 30, 2018, is 28 percent. At DecemberMarch 31, 2017,2024, compared to $698,000 for the Company has not completed its accounting for allnine months ended March 31, 2023, a decrease of $252,000. The decrease was primarily the tax effectsresult of enactment of the Act; however, a reasonable estimate has been made of the one-time transition tax of $17,000, which is included as a component of tax expense in the current quarter. The final transitional impacts of the Act may differ from the initial estimates. Note that the Company currently has netan operating loss carryovers in most jurisdictions, including the U.S. A valuation allowance has been recorded
LIQUIDITY AND CAPITAL RESOURCES
At DecemberMarch 31, 2017,2024, the Company had net working capital (current assets minus current liabilities) of approximately $13.4$38.6 million, an increase of $1.2 million, or 3.1 percent, since June 30, 2023, and a current ratio (current assets divided by current liabilities) of 9.617.5 to 1. With approximately $3.0$27.5 million in cash and cash equivalents, an increase of $2.1 million, or 8.1 percent since June 30, 2023, and approximately $10.7$11.5 million in unrestricted marketable securities carried at fair value on a recurring basis, excluding convertible securities, which together comprise approximately 73.8 percent of total assets, the Company has adequate liquidity to meet its current obligations. Total U.S. Global Investors, Inc.
The increase in cash, and accordingly, net working capital, was primarily due to net cash provided by operating activities of $853,000, proceeds from principal paydowns of $2.3 million, and proceeds from sales of corporate investments of $1.8 million; offset by repurchases of the Company's common stock of $1.7 million, and dividends paid of $965,000. Consolidated shareholders’ equity is approximately $39.0at March 31, 2024, was $49.8 million, with cash, cash
The Company also has access to a $1 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement will expireexpires on May 3, 2018,31, 2024, and the Company intends to renew annually. The credit facility is collateralized by approximately $1 million, at December 31, 2017,included in restricted cash on the Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of DecemberMarch 31, 2017, the2024, this credit facility remainsremained unutilized by the Company.
Investment advisory contracts pursuant to the Investment Company Act of 1940 and related affiliated contracts in the U.S., by law, may not exceed one year in length and, therefore, must be renewed at least annually after an initial two-year term. The investment advisory and administrative servicesrelated contracts between the Company and USGIF have been renewed through September 2018, and management anticipates that2024. The advisory agreement for the contracts will be renewed. The investment advisory contract between the Company and U.S. Global Jets ETF expires in April 2018, and management anticipates that the contract will be renewed. The investment advisory contract between the Company and U.S. Global GO GOLD and Precious Metal Miners ETF is in its initial two-year term and will not expire until June 2019. Galileo’s investment management agreement with Canadian registered mutual funds may be terminated each September 30 with a 180-day prior notice of unitholders’ resolution. Galileo’s advisory agreements with other advisory clients can be terminated upon 30-day written notice. The Company’s two offshore clients have completed their respective liquidations, and no fees will be received in the future.
The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary and management or the Board may discontinue as deemed necessary. The stock repurchase plan is approved through December 31, 2018,2024, but may be suspended or discontinued at any time. Cash and unrestricted marketablesecurities recorded at fair value on a recurring basis, excluding convertible securities, of approximately $13.7$39.0 million are available to fund current activities.
Management believes current cash reserves, investments, and financing available will be sufficient to meet foreseeable cash needs for operating activities.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of other critical accounting policies that the Company follows, please refer to the notes to the consolidated financial statementsConsolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2017.
COVID-19 had an adverse effect on global and domestic financial markets, which may reoccur and continue for an undetermined period. This may adversely affect assets under management and thus the Company’s revenues and operating results. Market declines also affect the valuation of the Company’s corporate investments, which also adversely affects the Company’s balance sheet and results of operations.
Macroeconomic declines, including inflation; negative political developments, including volatile market conditions due to investor concerns regarding inflation, and the Russia-Ukraine and Israel-Palestine conflicts; adverse market conditions, including cryptocurrency market disruptions; and catastrophic events may cause a decline in the Company’s revenue, an increase in the Company’s costs, negatively affect the Company’s operating results, adversely affect the Company’s cash flow, and could result in a decline in the Company’s stock price.
Investment Management and Administrative Services Fees
Revenues are generally based upon a percentage of the market value of assets under management in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on the Company’s operating results. A significant portion of assets under management in equity funds have exposure to international markets and/or natural resource sectors, which may experience volatility. In addition, fluctuations in interest rates may affect the value of assets under management in fixed income funds.
Performance Fees
USGIF advisory fees are comprised of two components: a base management fee and a performance fee. The performance fee is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months.
As a result, the Company’s revenues are subject to volatility beyond market-based fluctuations discussed in the investment management and administrative services fees section above. For the three and six months ended December 31, 2017,Due to these performance adjustments, the Company realized a decrease in its USGIF base advisory fee of $192,000$101,000 and $308,000, respectively, due to these performance adjustments. For the three and six months ended December 31, 2016, the Company realized a (decrease) increase in its USGIF base advisory fee of ($9,000) and $30,000, respectively, due to these performance adjustments.
Corporate Investments
The Company’s Consolidated Balance Sheets includesinclude substantial amounts of assets whose fair value isvalues are subject to market risks. risk. The market risks are primarily associated with equity prices and foreign currency exchange rates. The fair values of corporate investments with exposure to the cryptocurrency industry are subject to considerable volatility.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices.
Equity price risk
Due to the Company’s investments in securities recordedcarried at fair value, equity price fluctuations represent a market risk factor affecting the Company’s consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported marketfair value.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affectingfollowing table summarizes the Company’s investment practices.
(dollars in thousands) | Fair Value at December 31, 2017 | Hypothetical Percentage Change | Estimated Fair Value After Hypothetical Price Change | Increase (Decrease) in Shareholders’ Equity, Net of Tax | |||||||||
Trading securities ¹ | $ | 7,433 | 25% increase | $ | 9,291 | $ | 1,858 | ||||||
25% decrease | $ | 5,575 | $ | (1,858 | ) | ||||||||
Available-for-sale securities ² | $ | 22,372 | 25% increase | $ | 27,965 | $ | 4,584 | ||||||
25% decrease | $ | 16,779 | $ | (4,584 | ) |
Estimated Fair Value | Estimated Increase | ||||||||||||
Fair Value at | Hypothetical | After Hypothetical | (Decrease) in | ||||||||||
(dollars in thousands) | March 31, 2024 | Percentage Change | Price Change | Net Income (Loss)(1) | |||||||||
Trading securities at fair value | $ | 11,506 | 25% increase | $ | 14,383 | $ | 2,272 | ||||||
25% decrease | $ | 8,630 | $ | (2,272 | ) | ||||||||
Embedded derivatives at fair value (2) | $ | 29 | 25% increase | $ | 36 | $ | 6 | ||||||
25% decrease | $ | 22 | $ | (6 | ) |
| Changes in unrealized gains and losses on embedded derivatives and trading securities at fair value are included in earnings in the |
| An embedded derivative and |
The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be significantly different due to both the nature of markets and the concentration of the Company’s investment portfolio.
COVID-19 had an effect on volatility in global and domestic financial markets, which may reoccur and continue for an undetermined period. This may not only adversely affect the Company’s assets under management but also the valuation of the available-for-sale securities recorded at fair valueCompany’s corporate investments.
The embedded derivatives subject to equity price risk shown in the above table is an investmentare related to investments in convertible debentures of HIVE BlockchainDigital Technologies Ltd. (“HIVE”), which was valued at $19.1 million at December 31, 2017.. HIVE is discussed in more detail in Note 2,3, Investments, in the notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. HIVE is a company that is headquartered and traded in Canada with cryptocurrency mining facilities in Iceland, Sweden and Sweden,Canada. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. Cryptocurrency mining is considered an early stage high-risk industry, and the nature of mining is expected to evolve. There is potential for significant volatility in the market price of HIVE, which could materially impact the investment’s value included on the balance sheetConsolidated Balance Sheets and unrealized gain (loss) recognized in comprehensive income.
Interest rate risk
Due to the Company’s investments in debt securities recordedcarried at fair value, discussed above,interest rate fluctuations represent a market risk factor affecting the Company also has an equity method investmentCompany’s consolidated financial position. Debt securities may fluctuate in value due to changes in interest rates. Typically, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline. Fluctuations in interest rates could have a material impact on the amount of $3.3 million at December 31, 2017. As discussed furtherCompany’s investments in Note 2, Investments, todebt securities included on the Consolidated Financial Statements of this Quarterly Report on Form 10-Q, this equity method investment is in the Galileo Partners Fund, a Canadian unit trust investment fund managed by Galileo. This fund has a concentrated investment in HIVE, which is also held by the Company as described above. This concentration may result in volatility in the valuation of the Galileo Partners Fund. Under the equity method, the Company’s proportional share of the fund’s net income or loss, which primarily consists of realizedBalance Sheets, and unrealized gains (losses) and losses on investments offset by fund expenses, isinterest income recognized in the Company’s earnings. Due to the concentrated nature of the fund’s investments, the potential significant volatility in HIVE’s valuation could cause the fund’s net investment income or loss to vary significantly from period to period, which in turn would be reflected in the Company’s earnings. Subsequent to December 31, 2017, the Company redeemed a(loss).
Foreign currency risk
A portion of its investment in the Galileo Partners Fund. See Note 12, Subsequent Event, to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further information.
Indirect exposure to cryptocurrencies risk
Cryptocurrencies (also referred to as “virtual currencies” and “digital currencies”) are digital assets that are designed to act as a medium of exchange. Although the Company has no current intention of directly investing in cryptocurrencies, the Company has indirect exposure to cryptocurrencies by investing in securities of issuers with exposure to the cryptocurrency industry. Cryptocurrencies (some of the most well-known include Bitcoin, Dogecoin and Ethereum) are not backed by any government, corporation, or other identified body. Trading markets for cryptocurrencies are often unregulated and may be more exposed to operational or technical issues as well as the potential for fraud or manipulation than established, regulated exchanges for securities, derivatives and traditional currencies.
Cryptocurrencies have been subject to significant fluctuations in value. The value of a cryptocurrency may significantly fluctuate precipitously (including declining to zero) and unpredictably for a variety of reasons, including, but not limited to: investor perceptions and expectations; regulatory changes; general economic conditions; adoption and use in the retail and commercial marketplace; public opinion regarding the environmental impact of the creation (“minting” or “mining”) of cryptocurrency; confidence in, and the maintenance and development of, its network and open-source software protocols such as blockchain for ensuring the integrity of cryptocurrency transactional data; and general risks tied to the use of information technologies, including cybersecurity risks.
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of DecemberMarch 31, 2017,2024, was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of DecemberMarch 31, 2017.
The material weaknesses in internal controls over financial reporting that were disclosed in our annual report on Form 10-K as of and for the year ended June 30, 2023, were also present as of March 31, 2024. Notwithstanding the material weaknesses, we believe that the Consolidated Financial Statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the period, presented, in conformity with U.S. GAAP.
Other than as described above, there has been no change in the Company’s internal control over financial reporting that occurred during the three and nine months ended DecemberMarch 31, 2017,2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
For a discussion of other risk factors which could affect the Company, included inplease refer to Item 1A, “Risk Factors” in the Annual Report on Form 10-K for the year ended June 30, 2017.
Issuer Purchases of Equity Securities
(dollars in thousands, except price data) | ||||||||||||||||||||
Period | Total Number of Shares Purchased 1 | Total Amount Purchased | Average Price Paid Per Share 2 | Total Number of Shares Purchased as Part of Publicly Announced Plan 3 | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan | |||||||||||||||
10-01-17 to 10-31-17 | 10,000 | $ | 23 | $ | 2.29 | 10,000 | $ | 2,679 | ||||||||||||
11-01-17 to 11-31-17 | 19,748 | 64 | 3.26 | 19,748 | 2,615 | |||||||||||||||
12-01-17 to 12-31-17 | 7,000 | 30 | 4.29 | 7,000 | 2,585 | |||||||||||||||
Total | 36,748 | $ | 117 | $ | 3.19 | 36,748 |
(dollars in thousands, except price data) | |||||||||||||||||||||
Total Number | Total Number of Shares | Approximate Dollar Value | |||||||||||||||||||
of Shares | Total Amount | Average Price | Purchased as Part of | of Shares that May Yet Be | |||||||||||||||||
Period | Purchased (1) | Purchased | Paid Per Share (2) | Publicly Announced Plan(3) | Purchased Under the Plan | ||||||||||||||||
01-01-24 to 01-31-24 | 51,109 | $ | 144 | $ | 2.82 | 51,109 | $ | 4,856 | |||||||||||||
02-01-24 to 02-29-24 | 102,636 | 281 | $ | 2.73 | 102,636 | $ | 4,575 | ||||||||||||||
03-01-24 to 03-31-24 | 57,537 | 152 | $ | 2.64 | 57,537 | $ | 4,423 | ||||||||||||||
Total | 211,282 | $ | 577 | $ | 2.73 | 211,282 |
| The average price paid per share of stock repurchased under the stock repurchase program includes the commissions paid to brokers. |
| The total amount of shares that may be repurchased in |
1. Exhibits – | |
31.1 | |
32.1 | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
U.S. GLOBAL INVESTORS, INC. | |||
DATED: | May 9, 2024 | BY: /s/ Frank E. Holmes | |
Frank E. Holmes | |||
Chief Executive Officer | |||
DATED: | BY: /s/ Lisa C. Callicotte | ||
Lisa C. Callicotte | |||
Chief Financial Officer |