UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OR
Commission File Number
| U.S. GLOBAL INVESTORS, INC. |
| (Exact name of registrant as specified in its charter) |
| | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
|
|
|
| | (Zip Code) |
| (Address of principal executive offices) |
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(
(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 | | |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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 ☐ |
| | 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
On October 31, 2024, there were
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | June 30, 2024 | |||||||
| (dollars in thousands) | (unaudited) | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Investments in trading securities at fair value, current | ||||||||
| Accounts and other receivables (net of allowance for credit losses of $, and $, respectively) | ||||||||
| Tax receivable | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Net Property and Equipment | ||||||||
| Other Assets | ||||||||
| Deferred tax asset | ||||||||
| Investments in trading securities at fair value, non-current | ||||||||
| Investments in available-for-sale debt securities at fair value (amortized cost: $, and $, respectively) (net of allowance for credit losses of $, and $, respectively) | ||||||||
| Investments in held-to-maturity debt securities at amortized cost | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Investments in held-to-maturity debt securities, net of allowance for credit losses | ||||||||
| Other investments | ||||||||
| Financing lease, right of use assets | ||||||||
| Other assets, non-current | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation and related costs | ||||||||
| Dividends payable | ||||||||
| Financing lease liability, short-term | ||||||||
| Other accrued expenses | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Reserve for uncertain tax positions | ||||||||
| Financing lease liability, long-term | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Shareholders’ Equity | ||||||||
| Common stock (class A) - $ par value; nonvoting; shares authorized; shares issued at September 30, 2024, and June 30, 2024; and shares outstanding at September 30, 2024, and June 30, 2024, respectively | ||||||||
| Common stock (class B) - $ par value; nonvoting; shares authorized; shares issued | ||||||||
| Convertible common stock (class C) - $ par value; voting; shares authorized; shares issued and outstanding at September 30, 2024, and June 30, 2024 | ||||||||
| Additional paid-in-capital | ||||||||
| Treasury stock, class A shares at cost; and shares at September 30, 2024, and June 30, 2024, respectively | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income, net of tax | ||||||||
| Retained earnings | ||||||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands, except per share data) | 2024 | 2023 | ||||||
| Operating Revenues | ||||||||
| Advisory fees | $ | $ | ||||||
| Administrative services fees | ||||||||
| Total Operating Revenues | ||||||||
| Operating Expenses | ||||||||
| Employee compensation and benefits | ||||||||
| General and administrative | ||||||||
| Advertising | ||||||||
| Depreciation | ||||||||
| Interest | ||||||||
| Total Operating Expenses | ||||||||
| Operating Income (Loss) | ( | ) | ||||||
| Other Income (Loss) | ||||||||
| Net investment income (loss) | ( | ) | ||||||
| Other income (loss) | ||||||||
| Total Other Income (Loss) | ( | ) | ||||||
| Income (Loss) Before Income Taxes | ( | ) | ||||||
| Provision for Income Taxes | ||||||||
| Tax expense (benefit) | ( | ) | ||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Earnings (Loss) Per Share | ||||||||
| Basic Net Income (Loss) per share | $ | $ | ( | ) | ||||
| Diluted Net Income (Loss) per share | $ | $ | ( | ) | ||||
| Basic weighted average number of common shares outstanding | ||||||||
| Diluted weighted average number of common shares outstanding | ||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| Net Income (Loss) | $ | $ | ( | ) | ||||
| Other Comprehensive Income (Loss) | ||||||||
| Unrealized gains (losses) on available-for-sale securities arising during period, net of tax | ||||||||
| Less: reclassification adjustment for gains included in net income (loss), net of tax | ( | ) | ( | ) | ||||
| Net change from available-for-sale securities | ( | ) | ( | ) | ||||
| Other Comprehensive Income (Loss) | ( | ) | ( | ) | ||||
| Comprehensive Income (Loss) | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ 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, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Repurchases of shares of Common Stock (class A), including excise tax | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of stock under ESPP of shares of Common Stock (class A) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Dividends declared | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Impact of ASU 2016-13 adoption, net of tax (Note 1) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at Balance at June 30, 2024 (as adjusted for change in accounting principle) | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Repurchases of shares of Common Stock (class A), including excise tax | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of stock under ESPP of shares of Common Stock (class A) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Dividends declared | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation, amortization and accretion | ( | ) | ( | ) | ||||
| Net realized (gains) losses on securities | ( | ) | ||||||
| Unrealized (gains) losses on securities | ( | ) | ||||||
| Provision for deferred taxes | ( | ) | ||||||
| Reserve for uncertain tax positions | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts and other receivables | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and other accrued liabilities | ( | ) | ( | ) | ||||
| Total adjustments | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ||||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds on sale of trading securities at fair value, non-current | ||||||||
| Proceeds from principal paydowns of available-for-sale debt securities at fair value | ||||||||
| Net cash provided by (used in) investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Principal payments on financing lease | ( | ) | ( | ) | ||||
| Issuance of common stock | ||||||||
| Repurchases of common stock | ( | ) | ( | ) | ||||
| Dividends paid | ( | ) | ( | ) | ||||
| Net cash provided by (used in) financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ) | ||||||
| Beginning cash, cash equivalents, and restricted cash | ||||||||
| Ending cash, cash equivalents, and restricted cash | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities | ||||||||
| Dividends declared but not paid | $ | $ | ||||||
| Excise tax liability accrued on stock repurchases | $ | $ | ||||||
| Unsettled class A common stock repurchases | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND CONSOLIDATION
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has prepared the Consolidated 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 Statements in the Company’s Form 10-K for the fiscal year ended June 30, 2024 ("Form 10-K").
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries, U.S. Global Investors (Bermuda) Limited, U.S. Global Investors (Canada) Limited (“USCAN”), and U.S. Global Indices, LLC.
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”). 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 2 and 3. 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 3 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 $
The carrying amount of assets and liabilities recognized in the Consolidated Balance Sheets related to the Company's interests in these non-consolidated VIEs were as follows:
| Carrying Value and Maximum Exposure to Loss | ||||||||
| (dollars in thousands) | September 30, 2024 | June 30, 2024 | ||||||
| Investments in trading securities at fair value, current | $ | $ | ||||||
| Investments in trading securities at fair value, non-current | ||||||||
| Other receivables | ||||||||
| Total VIE assets, maximum exposure to loss | $ | $ | ||||||
Since the Company is not the primary beneficiary of the above funds it advises, the Company evaluated if it should consolidate 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 above funds it advises; therefore, the Company does not consolidate any of these funds.
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 interim periods disclosed herein are not necessarily indicative of the results the Company may expect for the fiscal year ending June 30, 2025 (“fiscal 2025”).
The unaudited interim financial information in these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s annual report on Form 10-K; interim disclosures generally do not repeat those in the annual statements.
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.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and has subsequently issued several amendments (collectively, “ASU 2016-13”). ASU 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss model, or "CECL") that is based on expected losses rather than incurred losses for most financial assets and certain other instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. It also modifies the impairment model for available-for-sale debt securities; the concept of "other-than-temporary" impairment was replaced by a determination of whether any impairment is a result of a credit loss or other factors. To adopt the standard, entities are required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. The Company adopted the standard using the modified-retrospective approach for all financial assets measured at amortized cost on July 1, 2023, and recognized an initial allowance for credit losses of $
In June 2022, the FASB issued ASU 2022-03, 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 equity securities subject to contractual sale restrictions that are measured at fair value. The standard became effective for the Company on July 1, 2024. The adoption of the standard did not have a material impact on the Company's 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, including additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 is to be applied on a retrospective basis and is effective for the Company's fiscal 2025 Consolidated Financial Statements and interim periods beginning in fiscal 2026. The Company is evaluating the impact ASU 2023-07 will have on disclosures in 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 evaluating the impact ASU 2023-09 will have on disclosures in its Consolidated Financial Statements.
NOTE 2. INVESTMENTS
As of September 30, 2024, the Company held investments carried at fair value on a recurring basis of $
The cost basis of investments is adjusted for amortization of premium or accretion of discount on debt securities held and the recharacterization of distributions from investments in partnerships.
Concentrations of Credit Risk
A significant portion of the Company’s investments carried at fair value on a recurring basis is investments in USGIF, which were $
Fair Value Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value.
The inputs used for measuring financial instruments at fair value are summarized in the three broad levels listed below:
Level 1 – Inputs represent unadjusted quoted prices for identical assets exchanged in active markets.
Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for identical assets exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets, such as interest rates and yield curves; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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 it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets.
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 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 greater than one year 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. Contractual restrictions on the sale of an equity security are not considered in measuring the security's fair value. Mutual funds, which include open- and closed-end funds and exchange-traded funds, are valued at net asset value or closing price, as applicable.
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 change 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 third party using a binomial lattice model based on factors such as yield, quality, maturity, coupon rate, type of issuance, individual trading characteristics of the underlying common shares and other market data. The model utilizes a number of assumptions in arriving at its results. The effects of changing any of the assumptions 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 hierarchy with unobservable inputs, the Committee 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 Committee reviews inputs and assumptions and reports material items to the Board of Directors. Securities which do not have readily determinable fair values are also periodically reviewed by the Committee.
The following tables summarize the major categories of investments with fair values adjusted on a recurring basis as of September 30, 2024, and June 30, 2024, and other investments with fair values adjusted on a nonrecurring basis, with fair values shown according to the fair value hierarchy.
| September 30, 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 | $ | $ | $ | $ | ||||||||||||
| Mutual funds - Fixed income | ||||||||||||||||
| Mutual funds - Global equity | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total investments in trading securities: | ||||||||||||||||
| Investments in available-for-sale debt securities: | ||||||||||||||||
| Corporate debt securities - Convertible debentures | ||||||||||||||||
| Total investments carried at fair value on a recurring basis: | $ | $ | $ | $ | ||||||||||||
| Investments carried at fair value on a nonrecurring basis: | ||||||||||||||||
| Other investments (1) | $ | $ | $ | $ | ||||||||||||
| 1. | Other investments include equity securities without readily determinable fair values that are adjusted as a result of the measurement alternative. There were no adjustments during the three months ended September 30, 2024. |
| June 30, 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 | $ | $ | $ | $ | ||||||||||||
| Mutual funds - Fixed income | ||||||||||||||||
| Mutual funds - Global equity | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate debt securities | ||||||||||||||||
| Total investments in trading securities: | ||||||||||||||||
| Investments in available-for-sale debt securities: | ||||||||||||||||
| Corporate debt securities - Convertible debentures | ||||||||||||||||
| Total investments carried at fair value on a recurring basis: | $ | $ | $ | $ | ||||||||||||
| Investments carried at fair value on a nonrecurring basis: | ||||||||||||||||
| Other investments (1) | $ | $ | $ | $ | ||||||||||||
| 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, 2024. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares. |
The security classified as Level 3 and carried at fair value on a recurring basis in the preceding tables is an investment in convertible debentures of HIVE, a company that is headquartered in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada. The Company purchased convertible securities for $
The Company recorded the debentures at the estimated fair value of $
The Company utilizes an independent third-party to estimate the fair value of the HIVE convertible debentures 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 three months ended September 30, 2024.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
| Three Months Ended September 30, 2024 | ||||
| Investments in | ||||
| (dollars in thousands) | debt securities | |||
| Beginning Balance | $ | |||
| Principal repayments | ( | ) | ||
| Amortization of day one premium | ( | ) | ||
| Accretion of bifurcation discount | ||||
| Total gains or losses included in: | ||||
|
| ||||
|
| ( | ) | ||
| Ending Balance | $ | |||
The following is quantitative information as of September 30, 2024, and June 30, 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).
| September 30, 2024 | |||||||||||
| (dollars in thousands) | Fair Value | Principal Valuation Techniques | Unobservable Inputs | ||||||||
| Investments in available-for-sale debt securities: | |||||||||||
| Corporate debt securities - Convertible debentures | $ | Binomial lattice model | Volatility | % | |||||||
| Credit Spread | % | ||||||||||
| Risk-Free Rate | % | ||||||||||
| June 30, 2024 | |||||||||||
| (dollars in thousands) | Fair Value | Principal Valuation Techniques | Unobservable Inputs | ||||||||
| Investments in available-for-sale debt securities: | |||||||||||
| Corporate debt securities - convertible debentures | $ | Binomial lattice model | Volatility | % | |||||||
| Credit Spread | % | ||||||||||
| Risk-Free Rate | % | ||||||||||
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 September 30, 2024, and June 30, 2024.
| September 30, 2024 | ||||||||||||
| (dollars in thousands) | Cost | Unrealized Gains (Losses) | Fair Value | |||||||||
| Trading securities at fair value | ||||||||||||
| Equity securities: | ||||||||||||
| Equities - International | $ | $ | ( | ) | $ | |||||||
| Equities - Domestic | ( | ) | ||||||||||
| Mutual funds - Fixed income | ( | ) | ||||||||||
| Mutual funds - Global equity | ( | ) | ||||||||||
| Total equity securities at fair value | ( | ) | ||||||||||
| Debt securities: | ||||||||||||
| Corporate debt securities | ||||||||||||
| Total trading securities at fair value | $ | $ | ( | ) | $ | |||||||
| June 30, 2024 | ||||||||||||
| (dollars in thousands) | Cost | Unrealized Gains (Losses) | Fair Value | |||||||||
| Trading securities at fair value | ||||||||||||
| Equity securities: | ||||||||||||
| Equities - International | $ | $ | ( | ) | $ | |||||||
| Equities - Domestic | ( | ) | ||||||||||
| Mutual funds - Fixed income | ( | ) | ||||||||||
| Mutual funds - Global equity | ( | ) | ||||||||||
| Total equity securities at fair value | ( | ) | ||||||||||
| Debt securities: | ||||||||||||
| Corporate debt securities | ( | ) | ||||||||||
| Total trading securities at fair value | $ | $ | ( | ) | $ | |||||||
Debt Investments
Investments in debt securities are classified on the 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 the intent to sell in the near term and are 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 securities are sold, as determined on a specific identification basis, and recognized in current period earnings. Changes in unrealized gains on available-for-sale debt securities are reported net of tax in accumulated other comprehensive income (loss). For debt securities in an unrealized loss position, a loss in earnings is recognized for the excess of amortized cost over fair value if the Company intends to sell before the price recovers. Otherwise, the Company evaluates as of the balance sheet date whether the unrealized losses are attributable to credit losses or other factors. The severity of the decline in value, creditworthiness of the issuer and other relevant factors are considered. The portion of unrealized loss the Company believes is related to a credit loss is recognized in earnings, and the portion of unrealized loss the Company believes is not related to a credit loss is recognized in other comprehensive income (loss).
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 earnings 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 that follow. The Company held one financial instrument classified as available-for-sale containing an embedded derivative, which represents an investment in HIVE, at September 30, 2024, and June 30, 2024. As of September 30, 2024, the unrealized loss position in the available-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 September 30, 2024, and June 30, 2024.
| September 30, 2024 | ||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Unrealized Gains in Other Comprehensive Income (Loss) | Unrealized Losses in Other Comprehensive Income (Loss) | Unrealized Losses in Net Investment Income (Loss) (1) | Fair Value | Allowance for Credit Losses | ||||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||||||||||
| Corporate debt securities - Convertible debentures | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| June 30, 2024 | ||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Unrealized Gains in Other Comprehensive Income (Loss) | Unrealized Losses in Other Comprehensive Income (Loss) | Unrealized Losses in Net Investment Income (Loss) (1) | Fair Value | Allowance for Credit Losses | ||||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||||||||||
| Corporate debt securities - Convertible debentures | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| 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 risk exposure, at September 30, 2024, and June 30, 2024.
| September 30, 2024 | June 30, 2024 | |||||||
| 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 | $ | $ | ||||||
The following table presents the effect of embedded derivatives on the Consolidated Statements of Operations, categorized by risk exposure, for the three months ended September 30, 2024, and 2023.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Other Income (Loss) | Other Income (Loss) | |||||||
| (dollars in thousands) | Net Investment Income (Loss) | Net Investment Income (Loss) | ||||||
| Embedded Derivatives: | ||||||||
| Equity price risk exposure | $ | ( | ) | $ | ( | ) | ||
At September 30, 2024, and June 30, 2024, the Company held one debt security classified as held-to-maturity. The following details the components of the Company’s held-to-maturity debt investments as of September 30, 2024, and June 30, 2024.
| September 30, 2024 | ||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Net Carrying Amount | Gross Unrecognized Holding Gains | Gross Unrecognized Holding Losses | Fair Value | ||||||||||||||||||
| Held-to-maturity debt securities(1): | ||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| June 30, 2024 | ||||||||||||||||||||||||
| (dollars in thousands) | Amortized Cost | Allowance for Credit Losses | Net Carrying Amount | Gross Unrecognized Holding Gains | Gross Unrecognized Holding Losses | Fair Value | ||||||||||||||||||
| Held-to-maturity debt securities(1): | ||||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 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 preparation of the 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 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. As of September 30, 2024, and June 30, 2024, 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. For the three months ended September 30, 2024, the change in allowance for credit losses attributable to the passage of time, included as an increase in interest income within net investment income (loss) on the Consolidated Statements of Operations, was $
The following table presents the activity in the allowance for credit losses for the held-to-maturity debt investment for the three months ended September 30, 2024, and 2023. There was no allowance at June 30, 2023.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| Beginning Balance | $ | $ | ||||||
| Impact of ASU 2016-13 adoption | ||||||||
| Provision for credit losses - reversal (1) | ( | ) | ( | ) | ||||
| Ending Balance | $ | $ | ||||||
| 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 available-for-sale and held-to-maturity debt securities at September 30, 2024, by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.
| September 30, 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 | $ | $ | ||||||
| Fair Value | $ | $ | ||||||
| 1. | Principal payments of $ |
As of September 30, 2024, none of the Company's investments in debt securities were delinquent or in a non-accrual status, and accrued interest receivable of $
Other Investments
Other investments consist of equity investments in entities over which the Company is unable to exercise significant 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 income (loss).
The carrying value of equity securities without readily determinable fair values was approximately $
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| Other Investments | ||||||||
| Carrying value | $ | $ | ||||||
| Upward carrying value changes | $ | $ | ||||||
| Downward carrying value changes/impairment | $ | $ | ( | ) | ||||
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 securities without readily determinable fair values total $
The Company has an investment in The Sonar Company (“Sonar”), a company headquartered in the United States, at a cost of $
Net Investment Income (Loss)
Net investment income (loss) from the Company’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 (loss) reflected in earnings for the periods presented.
| Three Months Ended | ||||||||
| (dollars in thousands) | September 30, | |||||||
| Net Investment Income (Loss) | 2024 | 2023 | ||||||
| Realized gains (losses) on equity securities | $ | $ | ( | ) | ||||
| Realized gains (losses) on debt securities | ||||||||
| Unrealized gains (losses) on equity securities | ( | ) | ||||||
| Unrealized gains (losses) on debt securities | ||||||||
| Unrealized gains (losses) on embedded derivatives | ( | ) | ( | ) | ||||
| Unrealized gains (losses) on cash equivalents | ( | ) | ( | ) | ||||
| Dividend and interest income | ||||||||
| Realized foreign currency gains (losses) | ( | ) | ||||||
| Total Net Investment Income (Loss) | $ | $ | ( | ) | ||||
Realized gains on debt securities reclassified from other comprehensive income (loss) related to the Company's investment in HIVE debentures were $
The following table presents unrealized gains and losses recognized during the three months ended September 30, 2024, and 2023, on equity securities and debt securities classified as trading that are still held at each respective date.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| Unrealized gains and losses for securities held at the reporting date: | ||||||||
| Equity securities: | ||||||||
| Net gains and losses recognized during the period | $ | ( | ) | |||||
| 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 (1) | $ | $ | ( | ) | ||||
| Debt securities classified as trading: | ||||||||
| Net gains and losses recognized during the period | $ | |||||||
| 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 | $ | $ | ||||||
| 1. | Includes net unrealized and realized losses of $ |
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 future.
NOTE 3. INVESTMENT MANAGEMENT AND OTHER FEES
The following table presents operating revenues disaggregated by performance obligation.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| (dollars in thousands) | 2024 | 2023 | ||||||
| ETF advisory fees | $ | $ | ||||||
| USGIF advisory fees | ||||||||
| USGIF performance fees received (paid) | ( | ) | ( | ) | ||||
| Total Advisory Fees | ||||||||
| USGIF administrative services fees | ||||||||
| Total Operating Revenue | $ | $ | ||||||
The Company serves as investment advisor to three U.S.-based exchange-traded fund (ETF) clients: 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
The Company serves as investment adviser to USGIF and receives advisory fees comprised of two components: a base management fee and a performance fee. The management fee is based on a specified percentage of net assets under management. The performance fee is a fulcrum fee that is adjusted upwards or downwards by
The Company has agreed to contractually limit the expenses of USGIF, except the U.S. Government Securities Ultra-Short Bond Fund, through April 2025. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the U.S. Government Securities Ultra-Short Bond Fund. This cap will continue on a voluntary basis at the Company’s discretion. The aggregate fees waived and expenses borne by the Company for USGIF were $
The Company receives administrative service fees from USGIF based on an annual rate of
As of September 30, 2024, the Company had $
NOTE 4. RESTRICTED AND UNRESTRICTED CASH
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 cash, cash equivalents, and restricted cash reported from the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows is shown below.
| (dollars in thousands) | |||