U.S. Global Investors(GROW) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis for the quarter ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for U.S. Global Investors, Inc., including the balance sheets, statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items for the quarter ended September 30, 2020 CONSOLIDATED BALANCE SHEETS This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (September 30, 2020 vs. June 30, 2020) | Metric (in thousands) | Sep 30, 2020 | Jun 30, 2020 | Change | % Change | | :-------------------- | :----------- | :----------- | :----- | :------- | | Total Assets | $20,789 | $18,816 | $1,973 | 10.49% | | Current Assets | $11,410 | $10,542 | $868 | 8.23% | | Cash and cash equivalents | $2,623 | $1,936 | $687 | 35.49% | | Investments in securities at fair value | $6,326 | $6,322 | $4 | 0.06% | | Total Liabilities | $2,189 | $2,052 | $137 | 6.68% | | Total Shareholders' Equity | $18,600 | $16,764 | $1,836 | 10.95% | CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) This section reports the company's revenues, expenses, and net income or loss over a specific period Consolidated Statements of Operations Highlights (Three Months Ended September 30) | Metric (in thousands, except per share) | 2020 | 2019 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Operating Revenues | $3,245 | $804 | $2,441 | 303.61% | | Operating Expenses | $2,308 | $1,472 | $836 | 56.79% | | Operating Income (Loss) | $937 | $(668) | $1,605 | 240.27% | | Investment income (loss) | $998 | $(3,030) | $4,028 | 132.94% | | Net Income (Loss) Attributable to U.S. Global Investors, Inc. | $1,944 | $(3,567) | $5,511 | 154.49% | | Basic Net Income (Loss) per Share | $0.13 | $(0.24) | $0.37 | 154.17% | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) This section presents net income and other comprehensive income items, reflecting total non-owner changes in equity Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :-------------------- | :------ | :------- | :------ | :------- | | Net Income (Loss) Attributable to U.S. Global Investors, Inc. | $1,944 | $(3,567) | $5,511 | 154.49% | | Foreign currency translation adjustment | $4 | $(17) | $21 | 123.53% | | Comprehensive Income (Loss) Attributable to U.S. Global Investors, Inc. | $1,948 | $(3,580) | $5,528 | 154.41% | CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) This section details changes in shareholders' equity, including net income, dividends, and share repurchases Shareholders' Equity Changes (Three Months Ended September 30, 2020) | Item (in thousands) | Balance at Jun 30, 2020 | Net Income | Dividends Declared | Other Changes | Balance at Sep 30, 2020 | | :------------------ | :---------------------- | :--------- | :----------------- | :------------ | :---------------------- | | Total Shareholders' Equity | $16,764 | $1,944 | $(113) | $5 | $18,600 | - The company repurchased 1,000 Class A shares for $2,000 during the three months ended September 30, 2020, compared to 1,400 shares for $3,000 in the prior year period[11] CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) This section categorizes cash flows into operating, investing, and financing activities for the reporting period Consolidated Statements of Cash Flows Highlights (Three Months Ended September 30) | Activity (in thousands) | 2020 | 2019 | Change | % Change | | :---------------------- | :------ | :------- | :------ | :------- | | Net cash provided by operating activities | $906 | $61 | $845 | 1385.25% | | Net cash provided by (used in) investing activities | $(130) | $8 | $(138) | -1725.00%| | Net cash used in financing activities | $(114) | $(115) | $1 | 0.87% | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $662 | $(46) | $708 | 1539.13% | | Ending cash, cash equivalents, and restricted cash | $3,623 | $2,445 | $1,178 | 48.18% | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) This section provides detailed explanations and additional information supporting the consolidated financial statements NOTE 1. BASIS OF PRESENTATION This note outlines the accounting principles used, the entities included in consolidation, the impact of the COVID-19 pandemic on the company's operations and financial markets, and the evaluation criteria for consolidating variable interest entities (VIEs) and voting interest entities. It also mentions recent accounting pronouncements - The COVID-19 pandemic has caused significant economic disruption and market volatility, which could adversely impact the Company's revenues (derived from Assets Under Management) and returns on corporate investments if negative market effects persist[17][18][19] - The Company's total exposure to unconsolidated VIEs (funds it advises) was $7.1 million at September 30, 2020, and $7.0 million at June 30, 2020, limited to the carrying value of its investments and fees receivable[21] - The Company is evaluating the potential impact of ASU 2016-13 (Credit Losses) and ASU 2019-12 (Income Taxes), effective for smaller reporting companies after December 15, 2022, and December 15, 2020, respectively[26][28] NOTE 2. DISCONTINUED OPERATIONS This note details the sale of the Company's shares in Galileo Global Equity Advisors Inc. effective March 2, 2020, resulting in its classification as discontinued operations. The financial results of Galileo prior to the sale are presented separately, and the Company retains only an equity method investment in a fund managed by Galileo - The Company sold its shares in Galileo for approximately $746,000, recording a realized gain of $151,000 and a foreign currency loss of $228,000[29] - Galileo's operations are reflected as 'discontinued operations' through March 2, 2020, with no continuing involvement except for an equity method investment[30][31] Loss from Discontinued Operations (Three Months Ended September 30, 2019) | Metric (in thousands) | 2019 | | :-------------------- | :--- | | Advisory fees | $100 | | Total Expenses | $247 | | Loss from discontinued operations before income taxes | $(136) | | Net loss attributable to U.S. Global Investors, Inc. from discontinued operations | $(88) | NOTE 3. INVESTMENTS This note provides a comprehensive overview of the Company's investment portfolio, including securities at fair value, other investments, and equity method investments. It details the fair value hierarchy, investment income/loss components, and specific holdings in companies like HIVE Blockchain Technologies Ltd., Thunderbird Entertainment Group Inc., and GoldSpot Discoveries Corp - As of September 30, 2020, the Company held approximately $12.6 million in securities at fair value (60.5% of total assets), $1.3 million in other investments, and $182,000 in equity method investments[35][101] Investment Income (Loss) from Continuing Operations (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :-------------------- | :------ | :------- | :------ | :------- | | Unrealized gains (losses) on fair valued securities | $1,107 | $(3,062) | $4,169 | 136.16% | | Total Investment Income (Loss) | $998 | $(3,030) | $4,028 | 132.94% | - Approximately 100% of the Company's financial assets measured at fair value were classified as Level 1 (quoted prices in active markets) as of September 30, 2020, and June 30, 2020[50] - The Company holds significant investments in HIVE Blockchain Technologies Ltd. ($2.7 million), Thunderbird Entertainment Group Inc. ($1.8 million), and GoldSpot Discoveries Corp. ($987,000) as of September 30, 2020, all classified as Level 1[51][52][53] - The equity method investment in Galileo Technology and Blockchain LP, valued at $182,000, generated $21,000 in income for the three months ended September 30, 2020, compared to a $27,000 loss in the prior year[58] NOTE 4. INVESTMENT MANAGEMENT AND OTHER FEES This note disaggregates operating revenues by performance obligation, detailing advisory and administrative fees from USGIF and ETF clients. It highlights the significant increase in ETF advisory fees and the impact of performance fees and fee waivers Operating Revenues by Performance Obligation (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change | % Change | | :-------------------- | :------ | :------ | :------ | :------- | | USGIF advisory fees | $896 | $836 | $60 | 7.18% | | USGIF performance fees earned (paid) | $9 | $(197) | $206 | 104.57% | | ETF advisory fees | $2,290 | $121 | $2,169 | 1792.56% | | Total Operating Revenue | $3,245 | $804 | $2,441 | 303.61% | - The Company waived or reduced fees and/or paid expenses for USGIF funds totaling $216,000 for the three months ended September 30, 2020, an increase from $144,000 in the prior year[60] - Receivables from fund clients increased from $869,000 at June 30, 2020, to $1.2 million at September 30, 2020, primarily driven by ETF receivables[62] NOTE 5. RESTRICTED CASH This note clarifies the nature and amount of restricted cash, which serves as collateral for credit facilities and is not available for general corporate use Restricted Cash (in thousands) | Metric | Sep 30, 2020 | Jun 30, 2020 | | :----- | :----------- | :----------- | | Restricted cash | $1,000 | $1,025 | - Restricted cash of $1 million serves as collateral for a credit facility[63] NOTE 6. LEASES This note details the Company's lease agreements for office equipment, including lease expenses and liabilities for continuing operations. It also provides information on the Company's role as a lessor for parts of its office building Lease Costs from Continuing Operations (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :--- | :--- | | Operating lease cost | $13 | $14 | | Short-term lease cost | $26 | $25 | | Total lease cost | $39 | $39 | - Lease income from being a lessor increased from $17,000 in Q3 2019 to $23,000 in Q3 2020[66] - Maturities of lease liabilities for continuing operations total $80,000 through fiscal year 2022[66] NOTE 7. BORROWINGS This note describes the Company's borrowing arrangements, including a $1 million credit facility and a $442,000 loan obtained under the Paycheck Protection Program (PPP) during the COVID-19 pandemic, and the status of its forgiveness application - The Company has access to a $1 million unutilized credit facility, collateralized by $1 million in restricted cash, expiring May 31, 2021[68][112] - The Company received a $442,000 PPP loan in April 2020, maturing April 2022 with a 1% interest rate, and has applied for loan forgiveness[69][70][110][111] NOTE 8. STOCKHOLDERS' EQUITY This note outlines the Company's policies regarding cash dividends, its share repurchase program, and stock option plans, including recent activity and outstanding options - A monthly dividend of $0.0025 per share was paid and authorized through December 2020[72][87] - The Company repurchased 1,000 Class A shares for $2,000 during the three months ended September 30, 2020, under its annual $2.75 million share repurchase program[73][133] - There were 2,000 stock options outstanding and exercisable at September 30, 2020, with a weighted average exercise price of $2.74[74] NOTE 9. EARNINGS PER SHARE This note provides the computation for basic and diluted earnings per share, reflecting the impact of continuing and discontinued operations Earnings Per Share Attributable to U.S. Global Investors, Inc. (Three Months Ended September 30) | Metric (per share) | 2020 | 2019 | | :----------------- | :---- | :----- | | Basic Net Income (Loss) per Share | $0.13 | $(0.24) | | Diluted Net Income (Loss) per Share | $0.13 | $(0.24) | | Basic weighted average number of common shares outstanding | 15,080,549 | 15,130,235 | | Diluted weighted average number of common shares outstanding | 15,080,743 | 15,130,235 | NOTE 10. INCOME TAXES This note details the Company's income tax provisions, including U.S. federal and Canadian net operating loss carryovers, capital loss carryovers, charitable contribution carryovers, and the valuation allowance recorded against deferred tax assets - The Company has U.S. federal net operating loss carryovers of $7.7 million, with $4.1 million having no expiration[79] - Canadian subsidiary USCAN has total net operating loss carryovers of $169,000[81] - A valuation allowance of $2.3 million was recorded at September 30, 2020, to fully reserve for net operating loss carryovers and other book/tax differences[82] NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note presents the changes in accumulated other comprehensive income (loss), primarily driven by foreign currency translation adjustments Change in Accumulated Other Comprehensive Income (Loss) (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :--- | :--- | | Beginning Balance | $(4) | $(206) | | Foreign currency translation adjustment, net of tax | $4 | $(13) | | Ending Balance | $0 | $(219) | NOTE 12. FINANCIAL INFORMATION BY BUSINESS SEGMENT This note disaggregates the Company's financial performance into two continuing business segments: Investment Management Services (for USGIF and ETF clients) and Corporate Investments, highlighting their respective contributions to revenues and income Income from Continuing Operations Before Income Taxes by Segment (Three Months Ended September 30) | Segment (in thousands) | 2020 | 2019 | Change | % Change | | :--------------------- | :------ | :------- | :------ | :------- | | Investment Management Services | $1,002 | $(587) | $1,589 | 270.70% | | Corporate Investments | $972 | $(3,116) | $4,088 | 131.19% | | Consolidated Total | $1,974 | $(3,703) | $5,677 | 153.30% | - Net operating revenues from Investment Management Services increased significantly, driven by ETF clients ($2.3 million in 2020 vs. $121,000 in 2019)[84] - Gross identifiable assets for Corporate Investments were $14.29 million at September 30, 2020, compared to $6.499 million for Investment Management Services[84] NOTE 13. CONTINGENCIES AND COMMITMENTS This note addresses potential liabilities from legal proceedings, the Company's dividend commitments, and reiterates the ongoing uncertainty and potential material financial impact of the COVID-19 pandemic - The Company evaluates and accrues for loss contingencies when probable and reasonably estimable, believing any excess liability will not materially affect financial statements[85][86] - The Board has authorized a monthly dividend of $0.0025 per share through December 2020, with an expected total payout of approximately $113,000 from October to December 2020[87] - The COVID-19 pandemic continues to pose a significant macro-economic risk, with potential for adverse material financial impact on the Company's business and investments[88] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial performance and condition for the three months ended September 30, 2020, compared to the prior year. It discusses factors affecting the business, segment performance, detailed results of operations, and the Company's liquidity and capital resources, emphasizing the impact of the COVID-19 pandemic FACTORS AFFECTING OUR BUSINESS This section discusses external and internal factors influencing the company's operations and financial performance - The COVID-19 pandemic has significantly impacted global economies and financial markets, affecting the Company's assets under management (AUM), revenues, and corporate investment valuations[90] - Despite COVID-19, the Company's operations, including financial reporting and internal controls, have not been adversely affected[91] BUSINESS SEGMENTS This section analyzes the performance and key metrics of the company's distinct business segments - Total assets under management (AUM) increased by $1.7 billion (350.7%) to $2.2 billion at September 30, 2020, compared to $498.0 million at September 30, 2019[96] - The AUM increase was primarily driven by inflows into ETF clients, particularly the U.S. Global Jets ETF (JETS ETF), which accelerated from March to September 2020[97] USGIF Assets Under Management (AUM) Changes (Three Months Ended September 30, 2020) | Metric (in thousands) | Equity | Fixed Income | Total | | :-------------------- | :-------- | :----------- | :-------- | | Beginning Balance | $343,214 | $82,683 | $425,897 | | Market appreciation | $53,668 | $96 | $53,764 | | Net shareholder purchases (redemptions) | $(7,397) | $6,698 | $(699) | | Ending Balance | $389,485 | $89,373 | $478,858 | - The average annualized investment management fee rate for USGIF decreased from 76 basis points in Q3 2019 to 74 basis points in Q3 2020, mainly due to fee waivers in equity funds[99] RESULTS OF OPERATIONS – Three months ended September 30, 2020, and 2019 This section provides a detailed comparison of the company's financial results for the specified periods - Net income attributable to U.S. Global Investors, Inc. was $1.9 million ($0.13 per share) for Q3 2020, a positive change of $5.5 million from a net loss of $3.6 million ($0.24 per share loss) in Q3 2019[103] - Total operating revenues increased by $2.4 million (303.6%) due to a $2.2 million increase in ETF unitary management fees and a $206,000 positive change in USGIF performance fees[104][105] - Operating expenses increased by $836,000 (56.8%), primarily due to higher general and administrative expenses ($560,000) related to ETF growth and increased employee compensation ($250,000) from fund performance bonuses[104] - Other income (loss) improved by $4.1 million, driven by a $4.0 million positive change in investment income (from a $3.0 million loss to a $998,000 gain), largely due to unrealized gains in cryptocurrency mining equity securities[105][106] - Income from equity method investments improved by $48,000, shifting from a $27,000 loss in Q3 2019 to a $21,000 gain in Q3 2020, influenced by technology and cryptocurrency mining stocks[106] LIQUIDITY AND CAPITAL RESOURCES This section assesses the company's ability to meet short-term obligations and fund long-term growth - At September 30, 2020, the Company had net working capital of $9.3 million and a current ratio of 5.4 to 1, with $2.6 million in cash and cash equivalents and $12.6 million in securities at fair value[109] - Cash and marketable securities totaling approximately $15.2 million are available to fund current activities, and management believes current reserves and financing will meet foreseeable cash needs[115] - The Company's investment advisory and administrative services contracts with USGIF and ETFs are anticipated to be renewed through September 2021[114] CRITICAL ACCOUNTING ESTIMATES This section highlights accounting policies requiring significant judgment and estimation by management - For a discussion of critical accounting policies, refer to the notes to the consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended June 30, 2020[116] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the Company's exposure to various market risks, including the ongoing impact of the COVID-19 pandemic, fluctuations in assets under management affecting revenues, volatility in performance fees, price risks associated with corporate investments (especially in cryptocurrency-related stocks), and foreign currency risk - The COVID-19 pandemic continues to adversely affect global financial markets, impacting AUM, revenues, and corporate investment valuations[117][125] - Revenues are sensitive to market value fluctuations of AUM, particularly in equity funds with exposure to international markets and natural resource sectors[118] - Performance fees, which adjust based on fund performance relative to benchmarks, contributed a $9,000 increase in Q3 2020, a significant improvement from a $197,000 decrease in Q3 2019[119][120] Hypothetical Impact of Market Price Changes on Securities at Fair Value (September 30, 2020) | Metric (in thousands) | Fair Value at Sep 30, 2020 | Hypothetical Percentage Change | Estimated Fair Value After Hypothetical Price Change | | :-------------------- | :------------------------- | :----------------------------- | :--------------------------------------------------- | | Securities at fair value | $12,571 | 25% increase | $15,714 | | | | 25% decrease | $9,428 | - Investments in HIVE Blockchain Technologies Ltd. ($2.7 million) and the equity method investment in Galileo Technology and Blockchain LP ($182,000) are subject to significant volatility due to their concentration in cryptocurrency markets[126][127] - The Company is exposed to foreign currency risk, primarily Canadian, affecting cash and corporate investments[128] ITEM 4. CONTROLS AND PROCEDURES This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2020, and states that there have been no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020[129] - There were no material changes in the Company's internal control over financial reporting during the three months ended September 30, 2020[130] PART II. OTHER INFORMATION This part includes additional disclosures not covered in the financial statements, such as risk factors and equity sales ITEM 1A. RISK FACTORS This section refers readers to the Company's Annual Report on Form 10-K for a comprehensive discussion of risk factors, noting that no material changes have occurred since the fiscal year-end - No material changes to the Company's risk factors have occurred since the fiscal year ended June 30, 2020, as detailed in the Annual Report on Form 10-K[132] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section provides details on the Company's share repurchase program, including the number of shares purchased and the amount spent during the quarter Issuer Purchases of Equity Securities (Three Months Ended September 30, 2020) | Period | Total Number of Shares Purchased | Total Amount Purchased (in thousands) | Average Price Paid Per Share | | :--------------- | :------------------------------- | :------------------------------------ | :--------------------------- | | 07-01-20 to 07-31-20 | - | - | - | | 08-01-20 to 08-31-20 | - | - | - | | 09-01-20 to 09-30-20 | 1,000 | $2 | $2.25 | | Total | 1,000 | $2 | $2.25 | - The Company's Board of Directors approved an annual share repurchase program of up to $2.75 million, renewed through calendar year 2020[133][134] ITEM 6. EXHIBITS This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - The report includes Rule 13a-14(a) Certifications (Section 302) and Section 1350 Certifications (Section 906) of the Sarbanes-Oxley Act of 2002, along with XBRL taxonomy extension documents[136] SIGNATURES This section contains the duly authorized signatures of the Registrant's Chief Executive Officer and Chief Financial Officer, affirming the submission of the report - The report was signed by Frank E. Holmes, Chief Executive Officer, and Lisa C. Callicotte, Chief Financial Officer, on November 5, 2020[140]