U.S. Global Investors(GROW) - 2022 Q4 - Annual Report

Part I of Annual Report on Form 10-K This part provides an overview of the Company's business operations, including its investment management services and corporate investments, along with associated risks, properties, legal proceedings, and regulatory environment Item 1. Business U.S. Global Investors, Inc. operates as a registered investment adviser with two segments: Investment Management Services for client funds and Corporate Investments, generating revenue from advisory fees and investment income, with total AUM decreasing by 31.2% to $2.9 billion as of June 30, 2022, primarily due to ETF market depreciation Introduction This section highlights that the report contains forward-looking statements subject to inherent risks and uncertainties, with no obligation for future updates - The report contains forward-looking statements subject to risks and uncertainties, and the Company undertakes no obligation to update them[10] Business Segments The Company operates two distinct business segments: Investment Management Services for client funds and Corporate Investments for its own account - The Company manages two business segments: Investment Management Services (offering products and services to USGIF and ETF clients) and Corporate Investments (investing for its own account to add growth and value to its cash position)[13] Investment Management Services The Company offers investment advisory and administrative services to USGIF and various ETFs, including the U.S. Global Jets ETF - The Company provides investment advisory and administrative services to U.S. Global Investors Funds (USGIF) and advisory services to several U.S.-based and one European-based ETFs, including the U.S. Global Jets ETF, U.S. Global GO GOLD and Precious Metal Miners ETF, and U.S. Global Sea to Sky Cargo ETF[13][15][17] Assets Under Management (AUM) by Fund Type | Fund Type (dollars in thousands) | June 30, 2022 | June 30, 2021 | | :------------------------------- | :------------ | :------------ | | ETF Clients | | | | Total Airline and Cargo | $2,473,770 | $3,617,752 | | Total Gold and Natural Resources | $76,609 | $102,635 | | Total ETF Clients | $2,550,379| $3,720,387| | U.S. Global Investors Funds | | | | Total Gold and Natural Resources | $228,413 | $341,997 | | Total Emerging Markets | $18,445 | $37,325 | | Total International Equity | $39,508 | $54,058 | | Total Bond | $71,161 | $75,842 | | Total USGIF | $357,527 | $509,222 | | Total AUM | $2,907,906| $4,229,609| * Change: Total AUM decreased by 31.2% from $4.2 billion to $2.9 billion year-over-year, with significant declines in both ETF and USGIF categories Corporate Investments The Company actively manages corporate investments for its own account to enhance cash position, with detailed information in financial statement notes - The Company actively invests for its own account to enhance its cash position, with detailed segment information available in the Notes to the Consolidated Financial Statements[18][20] Human Capital As of June 30, 2022, the Company employed 22 individuals, offering a comprehensive compensation program including performance bonuses, benefits, and stock options - As of June 30, 2022, U.S. Global employed 20 full-time and 2 part-time employees. The compensation program includes performance-based cash and fund share bonuses, incentives for professional certifications, and benefits such as insurance, 401(k) with match, profit-sharing, and stock options[21] Competition The highly competitive mutual fund and ETF industry requires the Company to leverage its specialized expertise in niche sectors to compete effectively - The mutual fund industry is highly competitive, with numerous open-end investment companies and ETFs. The Company competes with various financial institutions and larger fund groups, but leverages its expertise in gold mining, natural resources, emerging markets, and airlines[22][23] - Success in investment advisory depends on fund performance, service quality, and effective marketing. Rising distribution and compliance costs pressure profit margins, and increased alternative investments heighten competition for opportunities[24][25] Supervision and Regulation The Company and its clients are subject to extensive federal and state securities regulations, with non-compliance posing risks of fines and reputational damage - The Company and its clients are subject to extensive federal and state securities laws and regulations, including the Advisers Act and Investment Company Act. Non-compliance could lead to fines, injunctions, and reputational damage[26][29] - Increased regulatory pronouncements and oversight have significantly raised compliance costs for the mutual fund industry[27] - The Company manages client portfolios on a discretionary basis and may use soft dollar credits from broker-dealers for research, which helps reduce operating expenses. A reduction or elimination of soft dollar arrangements would increase operating expenses[31] Relationships with Clients The Company's business is highly dependent on contractual relationships with USGIF and ETF clients, where agreement termination would severely impact operations - The Company's business heavily relies on its contractual relationships with USGIF and ETF clients. Termination or non-renewal of advisory or administrative agreements would substantially adversely affect the Company[32] Available Information The Company provides public access to its SEC filings and corporate governance documents via its website and the SEC's EDGAR system - The Company's SEC filings (10-K, 10-Q, 8-K) and corporate governance documents are available free of charge on its website (www.usfunds.com) and through the SEC's EDGAR system (www.sec.gov)[33](index=33&type=chunk)[34][35] - The Company uses its website, SEC filings, press releases, public conference calls, webcasts, and social media channels (Facebook, Twitter, LinkedIn, Instagram, Pinterest, YouTube) to communicate material financial information and engage with the public[36][37][38] - U.S. Global Investors, Inc. is a registered investment adviser managing two business segments: Investment Management Services (for mutual funds and ETFs) and Corporate Investments (for its own account)[11][13] - The primary sources of the Company's revenue are fees from investment advisory and administrative services, as well as investment income[11] Assets Under Management (AUM) Overview | Assets Under Management ("AUM") | June 30, 2022 (dollars in thousands) | June 30, 2021 (dollars in thousands) | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | ETF Clients | $2,550,379 | $3,720,387 | | U.S. Global Investors Funds | $357,527 | $509,222 | | Total AUM | $2,907,906 | $4,229,609 | * Change: Total AUM decreased by $1.3 billion, or 31.2%, from June 30, 2021, to June 30, 2022. This was primarily due to market depreciation in ETFs, especially the U.S. Global Jets ETF Item 1A. Risk Factors The Company faces diverse risks including intense competition, regulatory non-compliance, common stock volatility due to cryptocurrency and macroeconomic factors, operational disruptions, AUM risks from poor performance and fund concentration, and corporate investment volatility from market and foreign currency fluctuations Risk Factors Related to Our Industry The investment management industry is highly competitive, with success dependent on performance, investor perception, service quality, reputation, and fee levels - The investment management business is highly competitive, with competition based on investment performance, investor perception, service quality, business reputation, and fee levels[40][45] - Failure to comply with government regulations (e.g., Advisers Act, Investment Company Act, S-Ox Act) could lead to fines, sanctions, and reputational damage, negatively impacting revenues and earnings[41][42] - Increased regulatory and legislative actions, such as the S-Ox Act and Dodd-Frank Act, have increased compliance costs and operational complexity for the Company[43] [Investment Company Act - Certain changes in control of the Company would automatically terminate our investment management agreements with our client, unless the funds' boards of directors and shareholders vote to continue the agreements.](index=12&type=section&id=Investment%20Company%20Act%20-%20Certain%20changes%20in%20control%20of%20the%20Company%20would%20automatically