U.S. Global Investors(GROW) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the quarter ended September 30, 2022, show a decrease in total assets to $59.3 million from $60.7 million at June 30, 2022, with net income at $118,000, a significant drop from $2.4 million in the prior year, primarily due to lower advisory fees and investment losses, while cash flow from operations remained positive at $1.2 million, though lower than the prior year's $2.4 million Consolidated Balance Sheets (Unaudited) Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,287 | $22,314 | | Investments in securities at fair value, current | $11,963 | $12,138 | | Total Current Assets | $38,234 | $38,032 | | Total Assets | $59,323 | $60,694 | | Liabilities & Equity | | | | Total Current Liabilities | $3,597 | $4,132 | | Total Liabilities | $3,656 | $4,198 | | Total Shareholders' Equity | $55,667 | $56,496 | | Total Liabilities and Shareholders' Equity | $59,323 | $60,694 | Consolidated Statements of Operations (Unaudited) Quarterly Operating Results (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Advisory fees | $4,377 | $6,470 | | Total Operating Revenues | $4,412 | $6,521 | | Total Operating Expenses | $2,827 | $3,654 | | Operating Income | $1,585 | $2,867 | | Investment loss | ($1,447) | ($34) | | Net Income | $118 | $2,390 | | Diluted Net Income per Share | $0.01 | $0.16 | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Income | $118 | $2,390 | | Other Comprehensive Loss | ($491) | ($635) | | Comprehensive Income (Loss) | ($373) | $1,755 | Consolidated Statements of Shareholders' Equity (Unaudited) - Total shareholders' equity decreased from $56.5 million at June 30, 2022, to $55.7 million at September 30, 2022, driven by an other comprehensive loss of $491,000, dividends of $335,000, and share repurchases of $133,000, partially offset by net income of $118,000[15] Consolidated Statements of Cash Flows (Unaudited) Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,175 | $2,402 | | Net cash provided by investing activities | $261 | $3,211 | | Net cash used in financing activities | ($463) | ($294) | | Net increase in cash | $973 | $5,319 | | Ending cash, cash equivalents, and restricted cash | $24,287 | $20,755 | Notes to Consolidated Financial Statements (Unaudited) - The company's total exposure to unconsolidated Variable Interest Entities (VIEs), primarily funds it advises, was $12.6 million at September 30, 2022[21][22] - As of September 30, 2022, the company held investments carried at fair value of $27.0 million, representing 45.6% of total assets, with a significant portion in U.S. Global Investors Funds (USGIF) ($12.6 million) and HIVE Blockchain Technologies Ltd. ($13.4 million)[30][32] - Advisory fees from ETFs were $3.9 million for the quarter, down from $5.3 million YoY, while USGIF advisory fees were $610,000, down from $966,000 YoY, and the company incurred a performance fee penalty of $146,000 from USGIF, compared to earning a $188,000 performance fee in the prior-year quarter[82] - The company maintains a monthly dividend, which was $0.0075 per share from October through December 2022, and has a share repurchase program, increased to an annual limit of $5.0 million, under which it bought back 39,965 shares for $133,000 during the quarter[100][101] Segment Performance (in thousands) - Q1 FY2023 | Segment | Net operating revenues | Investment loss | Income (loss) before income taxes | | :--- | :--- | :--- | :--- | | Investment Management Services | $4,412 | - | $1,661 | | Corporate Investments | - | ($1,447) | ($1,462) | | Consolidated | $4,412 | ($1,447) | $199 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company's net income for the quarter ended September 30, 2022, was $118,000, a significant decrease from $2.4 million in the prior-year period, primarily driven by a 32.3% decline in operating revenues due to lower average Assets Under Management (AUM), which fell 45.9% year-over-year to $2.3 billion, compounded by an investment loss of $1.4 million, though partially offset by a 22.6% reduction in operating expenses, mainly from lower employee compensation, while maintaining adequate liquidity with $34.6 million in net working capital Assets Under Management (AUM) Trend | Metric | Sep 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | | Total AUM | $2.3 billion | $4.3 billion | | Change | -45.9% | | - Operating revenues decreased by $2.1 million (32.3%) YoY, mainly due to a $1.8 million drop in base management fees from lower AUM in ETFs and a negative swing of $334,000 in performance fees[137][138] - Operating expenses fell by $827,000 (22.6%) YoY, primarily due to a $749,000 decrease in employee compensation as a result of lower performance-related bonuses[137] - Other loss was $1.4 million, compared to other income of $37,000 in the prior year, mainly because there were no realized gains on security sales in the current period, unlike the $1.8 million in gains realized in the prior-year period[138][139] - The company had net working capital of $34.6 million and cash and cash equivalents of $23.3 million as of September 30, 2022, indicating adequate liquidity[141] Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risk from multiple sources, with revenues directly tied to Assets Under Management, which fluctuate with financial markets, and performance fees adding another layer of revenue volatility, while corporate investments expose the company to equity price, interest rate, and foreign currency risks, with a substantial portion of this risk concentrated in its investments in HIVE Blockchain Technologies Ltd., which is subject to the highly volatile cryptocurrency market, where a hypothetical 25% change in the value of its equity securities would impact net income by approximately $3.2 million - Revenues are directly affected by financial market fluctuations impacting AUM, with significant exposure to volatile international and natural resource sectors[151] - Corporate investments are subject to market risks, including equity prices and foreign currency rates, with the fair values of investments exposed to the cryptocurrency industry noted as being considerably volatile[154] - A significant concentration of equity price risk exists in the company's investment in HIVE Blockchain Technologies Ltd., a cryptocurrency mining company, whose stock price is highly volatile[162] Hypothetical Equity Price Risk Sensitivity Analysis | Security Type | Fair Value (Sep 30, 2022) | Hypothetical Change | Estimated Impact on Net Income (Loss) | | :--- | :--- | :--- | :--- | | Equity securities | $16,346 thousand | +/- 25% | +/- $3,228 thousand | Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of the end of the quarter, September 30, 2022, and no material changes to the company's internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[165] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[166] PART II. OTHER INFORMATION Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - The company refers to its Form 10-K for the year ended June 30, 2022, for a discussion of risk factors, noting no material changes have occurred since that filing[168] Unregistered Sales of Equity Securities and Use of Proceeds During the three-month period ending September 30, 2022, the company repurchased a total of 39,965 shares of its Class A common stock for approximately $133,000 under its publicly announced share buyback program, which was increased in February 2022 to an annual limit of $5.0 million Issuer Purchases of Equity Securities (Q1 FY2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jul-22 | 5,897 | $4.21 | | Aug-22 | 2,381 | $3.94 | | Sep-22 | 31,687 | $3.13 | | Total | 39,965 | $3.34 | - The Board of Directors increased the annual share buyback program limit from $2.75 million to $5.0 million on February 25, 2022[169] Exhibits This section lists the exhibits filed with the Form 10-Q, which primarily consist of the required CEO and CFO certifications under the Sarbanes-Oxley Act (Sections 302 and 906) and the interactive data files (Inline XBRL) for financial reporting - Exhibits filed include Rule 13a-14(a) and Section 1350 certifications by the CEO and CFO, along with various Inline XBRL documents[171] Signatures The report was duly signed and authorized on November 10, 2022, by Frank E. Holmes, Chief Executive Officer, and Lisa C. Callicotte, Chief Financial Officer[173][175]