U.S. Global Investors(GROW) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended December 31, 2023, show a decrease in total assets to $53.6 million from $55.7 million at June 30, 2023, with net income increasing to $1.05 million from $0.90 million year-over-year, driven by higher net investment income which offset a decline in operating revenues, and the adoption of the new CECL accounting standard resulted in a $183,000 decrease to beginning retained earnings Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2023 (Unaudited) | June 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $27,466 | $25,401 | | Total Current Assets | $40,428 | $40,374 | | Total Assets | $53,632 | $55,673 | | Liabilities & Equity | | | | Total Current Liabilities | $2,153 | $2,939 | | Total Liabilities | $2,742 | $3,477 | | Total Shareholders' Equity | $50,890 | $52,196 | - Total assets decreased by approximately $2.0 million from June 30, 2023, to December 31, 2023, primarily due to a decrease in investments and an increase in treasury stock, while total liabilities also decreased[9][10] Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $5,951 | $8,140 | $2,818 | $3,728 | | Total Operating Expenses | $5,545 | $5,647 | $2,626 | $2,820 | | Operating Income | $406 | $2,493 | $192 | $908 | | Net Income (Loss) | $1,053 | $900 | $1,229 | $847 | | Diluted EPS | $0.07 | $0.06 | $0.09 | $0.06 | - For the six months ended Dec 31, 2023, operating revenues decreased by 26.9% YoY, primarily due to lower advisory fees. However, net income increased by 17.0% YoY, driven by a significant swing from a net investment loss of ($1.344 million) in 2022 to net investment income of $903,000 in 2023[12] Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash from Operating Activities | $910 | $1,128 | | Net cash from Investing Activities | $2,955 | $1,014 | | Net cash from Financing Activities | ($1,800) | ($1,040) | | Net increase in cash | $2,065 | $1,102 | - Cash from financing activities showed a significant use of cash, increasing to ($1.8 million) from ($1.0 million) YoY, primarily due to a substantial increase in common stock repurchases ($1.17 million in 2023 vs. $382,000 in 2022)[18] Notes to Consolidated Financial Statements - The company revised its previously issued financial statements for the period ended Dec 31, 2022, to correct an immaterial error related to not recording certain liabilities for uncertain tax positions (ASC 740-10), which increased tax expense by $76,000 for the six-month period[19][21] - On July 1, 2023, the company adopted the CECL standard (ASU 2016-13), which required recognizing an initial allowance for credit losses of $232,000 for a held-to-maturity debt security, resulting in a cumulative-effect adjustment that decreased beginning retained earnings by $183,000, net of tax[31] - The company has significant investment concentrations in U.S. Global Investors Funds (USGIF) at $10.9 million and HIVE Digital Technologies Ltd. at $5.8 million as of December 31, 2023[44] - The company operates in two business segments: Investment Management Services, which generated $5.95 million in revenue for the six months ended Dec 31, 2023, and Corporate Investments, which generated $903,000 in net investment income during the same period[134][135] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 26.9% decrease in operating revenues for the six months ended Dec 31, 2023, primarily from lower ETF advisory fees due to reduced assets under management (AUM), yet net income rose to $1.1 million from $0.9 million YoY thanks to a significant positive swing in net investment income, while the company maintains strong liquidity with $38.3 million in net working capital and $27.5 million in cash, despite AUM decreasing from $2.4 billion at the end of fiscal 2023 to $2.1 billion at December 31, 2023 Business Segments - The company operates two business segments: (1) Investment Management Services for individual and institutional investors, and (2) Corporate Investments to manage and grow its own cash position[144] - Total assets under management (AUM) decreased to approximately $2.1 billion at December 31, 2023, from $2.4 billion at December 31, 2022, with average AUM for the six months ended Dec 31, 2023, at $2.0 billion, down from $2.7 billion in the prior-year period[148] Results of Operations - Three Months Ended Dec 31, 2023 vs 2022: - Net income increased to $1.2 million from $847,000 - Operating revenues decreased 24.4% to $2.8 million, mainly from lower advisory fees - Total other income increased significantly to $1.5 million from $178,000, driven by a $1.3 million increase in net investment income[160][161][162] - Six Months Ended Dec 31, 2023 vs 2022: - Net income increased to $1.1 million from $900,000 - Operating revenues decreased 26.9% to $5.95 million, primarily due to a $2.2 million drop in advisory fees from lower ETF AUM - Total other income was $1.0 million compared to a loss of $1.2 million, a positive swing of $2.2 million, mainly from improved investment performance[164][167][168] Liquidity and Capital Resources - As of December 31, 2023, the company had strong liquidity with net working capital of $38.3 million and cash and cash equivalents of $27.5 million[170] - The increase in cash since June 30, 2023 was primarily driven by cash from operations ($910,000), principal paydowns ($1.5 million), and investment sales ($1.8 million), offset by stock repurchases ($1.2 million) and dividends ($648,000)[171] - The company has access to a $1 million credit facility, which remained unutilized as of December 31, 2023[172] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to several market risks, primarily equity price risk, interest rate risk, and foreign currency risk, with a significant portion of its investments and AUM in volatile sectors like natural resources and international markets, and indirect exposure to the highly volatile cryptocurrency market through its investment in HIVE Digital Technologies Ltd., where a hypothetical 25% change in the market price of its trading securities would impact net income by approximately $2.3 million - The company's revenues are directly affected by financial market fluctuations, as fees are based on AUM, with a significant portion of AUM in international markets and natural resource sectors, which can be volatile[180] - The company has indirect exposure to the volatile cryptocurrency market through its investments in HIVE Digital Technologies Ltd., which could materially impact investment values[191][194] Equity Price Risk Sensitivity Analysis (in thousands) | Security Type | Fair Value at Dec 31, 2023 | Hypothetical Change | Estimated Fair Value After Change | Estimated (Decrease) in Net Income | | :--- | :--- | :--- | :--- | :--- | | Trading securities | $11,557 | +25% | $14,446 | $2,283 | | Trading securities | $11,557 | -25% | $8,668 | ($2,283) | | Embedded derivatives | $51 | +25% | $64 | $10 | | Embedded derivatives | $51 | -25% | $38 | ($10) | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of December 31, 2023, due to the continued existence of material weaknesses in internal control over financial reporting previously disclosed in the Form 10-K for the year ended June 30, 2023, though management believes the financial statements in this report are fairly presented in all material respects - The CEO and CFO concluded that disclosure controls and procedures were not effective as of December 31, 2023[196] - The ineffectiveness is due to material weaknesses in internal control over financial reporting that were previously identified in the annual report on Form 10-K for the year ended June 30, 2023, and were still present[197] - Notwithstanding the material weaknesses, management believes the consolidated financial statements included in this 10-Q are fairly presented in all material respects in conformity with U.S. GAAP[197] PART II. OTHER INFORMATION Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - There have been no material changes to the risk factors listed in the Annual Report on Form 10-K for the year ended June 30, 2023[200] Unregistered Sales of Equity Securities and Use of Proceeds During the fourth quarter of 2023, the company repurchased a total of 196,295 shares of its Class A common stock for approximately $560,000 at an average price of $2.85 per share, as part of a publicly announced plan that authorizes up to $5.0 million in annual buybacks Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Amount Purchased (in thousands) | | :--- | :--- | :--- | :--- | | Oct 2023 | 57,631 | $2.78 | $160 | | Nov 2023 | 44,757 | $2.86 | $128 | | Dec 2023 | 93,907 | $2.90 | $272 | | Total | 196,295 | $2.85 | $560 | - The company's board has authorized an annual share buyback program of up to $5.0 million[201] Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley Act certifications (Sections 302 and 906) and Inline XBRL data files - The report includes certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act[204] Signatures The report was duly signed and authorized by the company's Chief Executive Officer, Frank E. Holmes, and Chief Financial Officer, Lisa C. Callicotte, on February 8, 2024 - The Form 10-Q was signed by CEO Frank E. Holmes and CFO Lisa C. Callicotte on February 8, 2024[208]