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.) |
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| | (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 | GROW | NASDAQ Capital Market |
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 February 5, 2025, there were
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
| December 31, 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) | ||||||||
| Receivable for investment principal repayments (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 December 31, 2024, and June 30, 2024; and shares outstanding at December 31, 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 December 31, 2024, and June 30, 2024 | ||||||||
| Additional paid-in-capital | ||||||||
| Treasury stock, class A shares at cost; and shares at December 31, 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)
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands, except per share data) | 2024 | 2023 | 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)
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 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) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total 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 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Repurchases of shares of Common Stock (class A), including excise tax |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Issuance of stock under ESPP of shares of Common Stock (class A) |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation, net of tax |
- | - | - | |||||||||||||||||||||||||||||||||||||
| Share-based compensation, adjustment for forfeitures, net of tax |
- | - | ( |
) | - | ( |
) | |||||||||||||||||||||||||||||||||
| Dividends declared |
- | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax |
- | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Net income (loss) |
- | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Balance at December 31, 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 June 30, 2023 (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 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Repurchases of shares of Common Stock (class A) |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| 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 December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Six Months Ended December 31, |
||||||||
| (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 |
||||||||
| Share-based compensation expense |
||||||||
| 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 |
( |
) | ( |
) | ||||
| Purchase of trading securities at fair value, current |
( |
) | ||||||
| Purchase of trading securities at fair value, non-current |
( |
) | ||||||
| Proceeds on sale of trading securities at fair value, current |
||||||||
| 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 sales of non-current trading securities |
$ | $ | ||||||
| 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 has variable interests in certain funds it advises, including specific funds within U.S. Global Investors Funds (“USGIF” or the “Funds”) and certain U.S Global exchange-traded fund (ETF) clients. However, is not deemed to be the primary beneficiary of these 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) | December 31, 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 annual 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.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires public business entities to disclose specified information about certain costs and expenses. ASU 2024-03 will be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the impact ASU 2024-03 will have on disclosures in its Consolidated Financial Statements.
NOTE 2. INVESTMENTS
As of December 31, 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 December 31, 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.
| December 31, 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 | $ | $ | $ | $ | ||||||||||||
| Exchange Traded Funds - Global equity | ||||||||||||||||
| 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 six months ended December 31, 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 as of December 31, 2024.
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
| Six Months Ended December 31, 2024 | ||||
| Investments in | ||||
| (dollars in thousands) | debt securities | |||
| Beginning Balance | $ | |||
| Principal maturities | ( | ) | ||
| Amortization of day one premium | ( | ) | ||
| Accretion of bifurcation discount | ||||
| Total gains or losses included in: | ||||
|
| ||||
|
| ( | ) | ||
| Ending Balance | $ | |||
The following is quantitative information as of December 31, 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).
| December 31, 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 December 31, 2024, and June 30, 2024.
| December 31, 2024 | ||||||||||||
| (dollars in thousands) | Cost | Unrealized Gains (Losses) | Fair Value | |||||||||
| Trading securities at fair value | ||||||||||||
| Equity securities: | ||||||||||||
| Equities - International | $ | $ | ( | ) | $ | |||||||
| Equities - Domestic | ( | ) | ||||||||||
| Exchange Traded Funds - Global equity | ||||||||||||
| 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 December 31, 2024, and June 30, 2024. As of December 31, 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 December 31, 2024, and June 30, 2024.
| December 31, 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 December 31, 2024, and June 30, 2024.
| December 31, 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 and six months ended December 31, 2024, and 2023.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Other Income (Loss) | Other Income (Loss) | Other Income (Loss) | Other Income (Loss) | |||||||||||||
| (dollars in thousands) | Net Investment Income (Loss) | Net Investment Income (Loss) | Net Investment Income (Loss) | Net Investment Income (Loss) | ||||||||||||
| Embedded Derivatives: | ||||||||||||||||
| Equity price risk exposure | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
At December 31, 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 December 31, 2024, and June 30, 2024.
| December 31, 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 December 31, 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. 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 six months ended December 31, 2024, and 2023. There was no allowance at June 30, 2023.
| Six Months Ended | ||||||||
| December 31, | ||||||||
| (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 December 31, 2024, by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.
| December 31, 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 December 31, 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 $
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 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.
| Six Months Ended | Three Months Ended | |||||||||||||||
| (dollars in thousands) | December 31, | December 31, | ||||||||||||||
| Net Investment Income (Loss) | 2024 | 2023 | 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 and six months ended December 31, 2024, and 2023, on equity securities and debt securities classified as trading that are still held at each respective date.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 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.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 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 four 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), U.S. Global Sea to Sky Cargo ETF (ticker SEA), and U.S. Global Technology and Aerospace & Defense ETF (ticker WAR). 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 December 31, 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) | December 31, 2024 | June 30, 2024 | ||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
NOTE 5. LEASES
The Company has lease agreements for office equipment that expire in the fiscal year 2026. Lease expenses included in general and administrative expense on the Consolidated Statements of Operations totaled $
The following table presents the components of lease cost.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | ||||||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental information related to the Company's leases follows.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Operating cash flows from financing leases included in lease liabilities | $ | $ | $ | $ | ||||||||||||
| Financing cash flows from financing leases included in lease liabilities | $ | $ | $ | $ | ||||||||||||
Additional qualitative information concerning the Company’s leases follows.
| December 31, 2024 | June 30, 2024 | |||||||
| Weighted-average remaining lease term - financing leases (years) | ||||||||
| Weighted-average discount rate - financing leases | % | % | ||||||
The following table presents the maturities of lease liabilities as of December 31, 2024.
| (dollars in thousands) | ||||
| Fiscal Year | Finance Leases | |||
| 2025 (excluding the six months ended December 31, 2024) | $ | |||
| 2026 | ||||
| Total lease payments | ||||
| Less imputed interest | ||||
| Total | $ | |||
The Company is the lessor of certain areas of its owned office building under operating leases expiring in various months through fiscal year 2026. At the commencement of an operating lease, no income is recognized; subsequently, lease payments received are recognized on a straight-line basis. Lease income included in on the Consolidated Statements of Operations was $
The Company is also party to a lease agreement with HIVE, a related party, for certain areas of the Company’s office building. The terms of the lease were determined to be consistent with market rates.
The following is a summary analysis of annual undiscounted cash flows to be received on leases as of December 31, 2024.
| (dollars in thousands) | ||||
| Fiscal Year | Operating Leases | |||
| 2025 (excluding the six months ended December 31, 2024) | $ | |||
| 2026 | ||||
| Total lease payments | $ | |||
The Company may terminate the building leases with one hundred eighty days written notice if it sells the property. If the Company terminates the lease, the Company will pay the tenant a termination fee of the lesser of six months of the base monthly rent or the base monthly rent times the number of months remaining in the initial term.
NOTE 6. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
| (dollars in thousands) | December 31, 2024 | June 30, 2024 | ||||||
| Professional fees | $ | $ | ||||||
| Vendors payable | ||||||||
| ETF operating and distribution expenses | ||||||||
| Other taxes payable | ||||||||
| Other accrued expenses | $ | $ | ||||||
The Company had receivables from HIVE related to reimbursements for certain expenses totaling $
NOTE 7. DEBT
The Company has access to a $
NOTE 8. STOCKHOLDERS’ EQUITY
Payment of cash dividends is within the discretion of the Company’s Board of Directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. The dividend rate per share was $
In December 2024, the Board authorized the continuance of the monthly dividend of $
The Company has a share repurchase program, approved by the Board of Directors, authorizing the Company to annually purchase up to $
The Inflation Reduction Act of 2022, which was enacted in August 2022, imposed a 1% excise tax on stock buybacks by publicly traded corporations, effective on January 1, 2023. Any excise tax incurred is recognized as part of the cost basis of the shares acquired in the Consolidated Statements of Shareholders' Equity. The impact of these provisions was $
Stock Option Plans
The Company’s stock option plans allow for the granting of class A shares as either incentive or non-qualified stock options to employees and non-employee directors. The terms and conditions of these options, including exercise price, vesting schedule, and expiration, are determined by the Compensation Committee of the Board of Directors.
Under the 1989 Plan, there were
Under the 1997 Plan, there were
Stock Option Activity
During the three and six months ended December 31, 2024, the Company granted
Share-Based Compensation Expense
The Company measures share-based compensation expense at the grant date, based on the fair value of the awards. This expense is recognized ratably over the awards’ vesting period.
For the three and six months ended December 31, 2024, the Company recognized share-based compensation expense of $
For the three and six months ended December 31, 2023,
NOTE 9. EARNINGS PER SHARE
The basic earnings per share (“EPS”) calculation excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.
The following table sets forth the computation for basic and diluted EPS.
| Six Months Ended | Three Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (dollars in thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net Income (Loss) | $ | $ | $ | ( | ) | $ | ||||||||||
| Weighted average number of outstanding shares | ||||||||||||||||
| Basic | ||||||||||||||||
| Effect of dilutive securities | ||||||||||||||||
| Stock options | ||||||||||||||||
| Diluted | ||||||||||||||||
| Earnings (Loss) Per Share | ||||||||||||||||
| Basic Net Income (Loss) per share | $ | $ | $ | ( | ) | $ | ||||||||||
| Diluted Net Income (Loss) per share | $ | $ | $ | ( | ) | $ | ||||||||||
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period, as their inclusion would be anti-dilutive. For the three and six months ended December 31, 2024, employee stock options of
During the three and six months ended December 31, 2024, and 2023, the Company repurchased class A shares on the open market. Upon repurchase, these shares are classified as treasury shares and are deducted from outstanding shares in the earnings per share calculation.
NOTE 10. INCOME TAXES
The Company and its non-Canadian subsidiaries file a consolidated U.S. federal income tax return. USCAN files a separate tax return in Canada. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes resulting from the use of the liability method of accounting for income taxes.
Income tax expense for the quarter is based upon the estimated annual ordinary income in each jurisdiction in which the Company operates. The tax effects of discrete items are recognized in the tax provision in the period they occur in accordance with U.S. GAAP. Due to various factors, such as the item’s significance in relation to total ordinary income and the rate of tax, discrete items in any quarter can materially impact the reported effective tax rate ("ETR"). The effective tax rate was
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. There was
The Company maintains a reserve for uncertain tax positions for income tax matters. As of December 31, 2024, and June 30, 2024, the total reserve for uncertain tax positions, including interest and penalties, and net of federal benefits, was $
NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the change in accumulated other comprehensive income (loss) (“AOCI”) by component.
| (dollars in thousands) |
Unrealized gains (losses) on available-for-sale investments |
|||
| Six Months Ended December 31, 2024 |
||||
| Balance at June 30, 2024 |
$ | |||
| Other comprehensive income (loss) before reclassifications |
||||
| Tax effect |
( |
) | ||
| Amount reclassified from AOCI |
( |
) | ||
| Tax effect |
||||
| Net other comprehensive income (loss) |
( |
) | ||
| Balance at December 31, 2024 |
$ | |||
| Six Months Ended December 31, 2023 |
||||
| Balance at June 30, 2023 |
$ | |||
| Other comprehensive income (loss) before reclassifications |
||||
| Tax effect |
( |
) | ||
| Amount reclassified from AOCI |
( |
) | ||
| Tax effect |
||||
| Net other comprehensive income (loss) |
( |
) | ||
| Balance at December 31, 2023 |
$ | |||
NOTE 12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates principally in two business segments: providing investment management services to USGIF and ETF clients; and investing for its own account in an effort to add growth and value to its cash position. The following schedule details gross identifiable assets, total revenues, and income by business segment.
| (dollars in thousands) | Investment Management Services | Corporate Investments | Consolidated | |||||||||
| Six Months Ended December 31, 2024 | ||||||||||||
| Operating revenues | $ | $ | $ | |||||||||
| Net investment income (loss) | $ | $ | $ | |||||||||
| Other income (loss) | $ | $ | $ | |||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | $ | |||||||
| Depreciation | $ | $ | $ | |||||||||
| Gross identifiable assets at December 31, 2024 | $ | $ | $ | |||||||||
| Deferred tax asset | $ | |||||||||||
| Consolidated total assets at December 31, 2024 | $ | |||||||||||
| Six Months Ended December 31, 2023 | ||||||||||||
| Operating revenues | $ | $ | $ | |||||||||
| Net investment income (loss) | $ | $ | $ | |||||||||
| Other income (loss) | $ | $ | $ | |||||||||
| Income (loss) before income taxes | $ | $ | $ | |||||||||
| Depreciation | $ | $ | $ | |||||||||
| Gross identifiable assets at December 31, 2023 | $ | $ | $ | |||||||||
| Deferred tax asset | $ | |||||||||||
| Consolidated total assets at December 31, 2023 | $ | |||||||||||
| Three Months Ended December 31, 2024 | ||||||||||||
| Operating revenues | $ | $ | $ | |||||||||
| Net investment income (loss) | $ | $ | $ | |||||||||
| Other income (loss) | $ | $ | $ | |||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | $ | ( | ) | |||||
| Depreciation | $ | $ | $ | |||||||||
| Three Months Ended December 31, 2023 | ||||||||||||
| Operating revenues | $ | $ | $ | |||||||||
| Net investment income (loss) | $ | $ | $ | |||||||||
| Other income (loss) | $ | $ | $ | |||||||||
| Income (loss) before income taxes | $ | $ | $ | |||||||||
| Depreciation | $ | $ | $ | |||||||||
Operating revenues from investment management services include operating revenues from ETF clients of $
NOTE 13. CONTINGENCIES AND COMMITMENTS
The Company continuously reviews investor, employee and vendor complaints, and pending or threatened litigation. The likelihood that a loss contingency exists is evaluated through consultation with legal counsel, and a loss contingency is recorded if probable and reasonably estimable.
During the normal course of business, the Company may be subject to various claims, legal proceedings, and other contingencies. These matters are subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably. The Company establishes accruals for matters for which the outcome is probable and can be reasonably estimated. Management believes that any liability in excess of these accruals upon the ultimate resolution of these matters will not have a material adverse effect on the Consolidated Financial Statements of the Company. Excluding reserves for uncertain tax positions, the Company recorded no accruals for contingencies as of December 31, 2024, or June 30, 2024.
The Board has authorized a monthly dividend of $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has made forward-looking statements concerning the Company’s performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company’s control, including: (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, including significant economic disruptions from epidemics, pandemics or outbreaks and the actions taken in connection therewith, (iii) the effect of government regulation on the Company’s business, and (iv) market, credit, and liquidity risks associated with the Company’s investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
FACTORS AFFECTING OUR BUSINESS
The Company's business activities are affected by many factors, including, without limitation, market volatility, investor sentiment, general economic and business conditions, interest rate movements, taxes, inflation, labor costs, competitive conditions, and industry regulation, many of which are beyond the control of the Company's management. Further, the business and regulatory environments in which the Company operates remain complex, uncertain, and subject to change. We expect that regulatory requirements and developments will cause us to incur additional administrative and compliance costs. For a discussion of risk factors which could affect the Company, please refer to Item 1A, “Risk Factors” in the Annual Report on Form 10-K for the year ended June 30, 2024.
BUSINESS SEGMENTS
The Company, with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position.
The following is a brief discussion of the Company’s business segments.
Investment Management Services
The Company provides advisory services for four U.S.-based exchange-traded fund (“ETF”) clients and receives monthly advisory fees based on the net asset values of the funds. Information on the U.S.-based ETFs can be found at www.usglobaletfs.com, including the prospectus, performance and holdings. The Company also serves as investment advisor to one European-based ETF and receives a monthly advisory fee based on the net asset value of the fund. The European-based ETF is not available to U.S. investors. The ETFs’ authorized participants are not required to give advance notice prior to redemption of shares in the ETFs, and the ETFs do not charge a redemption fee.
The Company also generates operating revenues from managing and servicing U.S. Global Investors Funds (“USGIF” or the “Funds”). These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the asset levels of the Funds, thereby affecting income and results of operations. Detailed information regarding the Funds managed by the Company within USGIF can be found on the Company’s website, www.usfunds.com, including the prospectus and performance information for each Fund. The mutual fund shareholders in USGIF are not required to give advance notice prior to redemption of shares in the Funds.
At December 31, 2024, total assets under management, including ETF and USGIF clients, were approximately $1.5 billion compared to $2.1 billion at December 31, 2023, a decrease of $606.0 million. During the six months ended December 31, 2024, average assets under management, including ETF and USGIF clients, were $1.5 billion, compared to $2.0 billion during the six months ended December 31, 2023. At June 30, 2024, the Company’s prior fiscal year end, total assets under management, including ETF and USGIF clients, were approximately $1.6 billion, and decreased $89.1 million during the six months ended December 31, 2024.
The following tables summarize the changes in assets under management for USGIF for the three and six months ended December 31, 2024, and 2023.
| Changes in Assets Under Management |
||||||||||||||||||||||||
| Three Months Ended December 31, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| (dollars in thousands) |
Equity |
Fixed Income |
Total |
Equity |
Fixed Income |
Total |
||||||||||||||||||
| Beginning Balance |
$ | 256,559 | $ | 54,501 | $ | 311,060 | $ | 221,097 | $ | 59,587 | $ | 280,684 | ||||||||||||
| Market appreciation (depreciation) |
(24,141 | ) | 266 | (23,875 | ) | 18,118 | 1,090 | 19,208 | ||||||||||||||||
| Dividends and distributions |
(7,591 | ) | (493 | ) | (8,084 | ) | (1,252 | ) | (579 | ) | (1,831 | ) | ||||||||||||
| Net shareholder purchases (redemptions) |
2,019 | (950 | ) | 1,069 | (4,776 | ) | (3,376 | ) | (8,152 | ) | ||||||||||||||
| Ending Balance |
$ | 226,846 | $ | 53,324 | $ | 280,170 | $ | 233,187 | $ | 56,722 | $ | 289,909 | ||||||||||||
| Average investment management fee |
0.68 | % | 0.00 | % | 0.56 | % | 0.82 | % | 0.00 | % | 0.65 | % | ||||||||||||
| Average net assets |
$ | 248,025 | $ | 54,241 | $ | 302,266 | $ | 222,042 | $ | 57,908 | $ | 279,950 | ||||||||||||
| Changes in Assets Under Management |
||||||||||||||||||||||||
| Six Months Ended December 31, |
||||||||||||||||||||||||
| 2024 |
2023 |
|||||||||||||||||||||||
| (dollars in thousands) |
Equity |
Fixed Income |
Total |
Equity |
Fixed Income |
Total |
||||||||||||||||||
| Beginning Balance |
$ | 233,296 | $ | 55,102 | $ | 288,398 | $ | 265,329 | $ | 63,110 | $ | 328,439 | ||||||||||||
| Market appreciation (depreciation) |
3,458 | 1,083 | 4,541 | (3,204 | ) | 1,376 | (1,828 | ) | ||||||||||||||||
| Dividends and distributions |
(7,591 | ) | (961 | ) | (8,552 | ) | (2,235 | ) | (1,037 | ) | (3,272 | ) | ||||||||||||
| Net shareholder purchases (redemptions) |
(2,317 | ) | (1,900 | ) | (4,217 | ) | (26,703 | ) | (6,727 | ) | (33,430 | ) | ||||||||||||
| Ending Balance |
$ | 226,846 | $ | 53,324 | $ | 280,170 | $ | 233,187 | $ | 56,722 | $ | 289,909 | ||||||||||||
| Average investment management fee |
0.72 | % | 0.00 | % | 0.59 | % | 0.81 | % | 0.00 | % | 0.65 | % | ||||||||||||
| Average net assets |
$ | 244,486 | $ | 54,724 | $ | 299,210 | $ | 236,621 | $ | 59,828 | $ | 296,449 | ||||||||||||
As shown above, USGIF period-end assets under management at December 31, 2024, were lower compared to December 31, 2023. However, average net assets during the three and six months ended December 31, 2024, were higher compared to the corresponding periods in 2023.
During the three months ended December 31, 2024, USGIF period-end assets under management declined, in contrast to an increase during the same period in 2023. The decrease during the three months ended December 31, 2024, was primarily due to market depreciation, while the increase during the same period in 2023 was largely attributed to market appreciation.
During the six months ended December 31, 2024, and 2023, USGIF period-end assets under management decreased in both periods. The decline during the six months ended December 31, 2024, was mainly due to dividends and distributions, whereas the decrease during the same period in 2023 was primarily the result of net redemptions, driven largely by equity fund liquidations.
The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 56 basis points and 59 basis points for the three and six months ended December 31, 2024, respectively, and 65 basis points for both the three and six months ended December 31, 2023. For the equity funds, the average investment management fee was 68 basis points and 72 basis points for the three and six months ended December 31, 2024, respectively, compared to 82 basis points and 81 basis points for the same periods in 2023. The Company has agreed to contractually or voluntarily limit the expenses of the Funds. Therefore, the Company waived or reduced its fees and/or agreed to pay expenses of the Funds. As a result of these fee waivers, the average investment management fee for the fixed income funds was minimal.
Investment Activities
Management believes it can more effectively manage the Company’s cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices. This source of revenue does not remain consistent and is dependent on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions.
As of December 31, 2024, the Company held investments carried at fair value on a recurring basis of $14.0 million and a cost basis of $17.0 million. The fair value of these investments is approximately 27.9 percent of the Company’s total assets at December 31, 2024. In addition, the Company held other investments of approximately $1.7 million and held-to-maturity debt investments, net of allowance for credit losses, of $926,000.
Investments recorded at fair value on a recurring basis were approximately $14.0 million at December 31, 2024, compared to approximately $15.5 million at June 30, 2024, the Company’s prior fiscal year end, which is a decrease of approximately $1.5 million. See Note 2, Investments, in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further information regarding investment activities.
RESULTS OF OPERATIONS – Three months ended December 31, 2024, and 2023
The Company recorded a net loss of $86,000 ($(0.01) per share) for the three months ended December 31, 2024, compared to net income of $1.2 million ($0.09 per share) for the three months ended December 31, 2023, a change of approximately $1.3 million. The change is primarily attributed to a decrease in both operating revenues and net investment income during the current period compared to the same period in the prior year, as discussed further below.
Operating Revenues
Total consolidated operating revenues for the three months ended December 31, 2024, decreased $587,000, or 20.8 percent, compared with the three months ended December 31, 2023. This decline was primarily driven by a decrease in advisory fees of $590,000, or 21.1 percent, which resulted from lower average assets under management in the ETFs and a decrease in base management fees earned. Advisory fees consist of two components: base management fees and performance fees. The reduction in base management fees was the key factor contributing to the overall decrease in advisory revenues as detailed below:
|
|
• |
Base management fees decreased $665,000. The majority of this decrease was from ETF unitary management fees, which decreased $633,000 as the result of a decrease in ETF average assets under management, primarily for the Jets ETF. |
|
|
• |
Performance fee adjustments for USGIF in the current period resulted in fees paid of $56,000 compared to $131,000 in the corresponding period in the prior year, a favorable change of $75,000. The USGIF performance fee, which applies to the equity funds only, is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward. |
Operating Expenses
Total consolidated operating expenses for the three months ended December 31, 2024, increased $144,000, or 5.5 percent, compared with the three months ended December 31, 2023. The increase in operating expenses was primarily driven by an increase in employee compensation and benefits of $264,000, or 27.4 percent, mainly due to higher bonuses, and an increase in advertising of $23,000, or 20.5 percent. These were partially offset by a decrease in general and administrative expenses of $97,000, or 6.5 percent, and a reduction in depreciation of $46,000, or 74.2 percent.
Other Income (Loss)
For the three months ended December 31, 2024, total consolidated other income was $423,000, a decrease of approximately $1.1 million compared to $1.5 million for the same period in 2023. The primary cause of this decline was net investment income, which totaled $354,000 for the three months ended December 31, 2024. This represents a decrease of $1.1 million compared to $1.4 million in the corresponding quarter of the previous year. Net unrealized losses on equity securities, along with realized foreign currency losses, were primary factors driving the overall decrease in net investment income, as outlined below:
| • | Net unrealized losses on equity securities were $132,000 in the current period compared to net unrealized gains on equity securities of $279,000 in the comparative period, an unfavorable change of $411,000. | |
| • | Realized foreign currency losses were $239,000 in the current period compared to foreign currency gains of $92,000 in the comparative period, an unfavorable change of $331,000. | |
| • | Net unrealized losses on debt securities were $89,000 in the current period compared to net unrealized gains of $46,000 in the comparative period, an unfavorable change of $135,000. | |
| • | Realized gains on debt securities were $170,000 in the current period compared to $303,000 in the comparative period, an unfavorable change of $133,000. |
Provision for Income Taxes
A tax benefit of $30,000 was recorded for the three months ended December 31, 2024, compared to a tax expense of $436,000 for the same period in 2023, reflecting a change of $466,000. The change is primarily driven by an operating loss in the current period compared to operating income in the same period of the prior year, along with a decrease in net investment income during the current period.
RESULTS OF OPERATIONS – Six months ended December 31, 2024, and 2023
The Company recorded net income of $229,000 ($0.02 per share) for the six months ended December 31, 2024, compared to $1.1 million ($0.07 per share) for the six months ended December 31, 2023, a decrease of approximately $824,000. The decline was primarily driven by lower operating revenues in the current period compared to the same period in the prior year, partially offset by higher net investment income, as discussed further below.
Operating Revenues
Total consolidated operating revenues for the six months ended December 31, 2024, decreased $1.6 million, or 26.3 percent, compared with the six months ended December 31, 2023. This decline was primarily driven by a decrease in advisory fees of $1.6 million, or 26.6 percent, which resulted from lower average assets under management in the ETFs and a decrease in base management fees earned. Advisory fees consist of two components: base management fees and performance fees. The reduction in base management fees was the key factor contributing to the overall decrease in advisory revenues as detailed below:
|
|
• |
Base management fees decreased $1.7 million. The majority of this decrease was from ETF unitary management fees, which decreased $1.6 million as the result of a decrease in ETF average assets under management, primarily for the Jets ETF. |
|
|
• |
Performance fee adjustments for USGIF in the current period resulted in fees paid of $159,000 compared to $243,000 in the corresponding period in the prior year, a favorable change of $84,000. The USGIF performance fee, which applies to the equity funds only, is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward. |
Operating Expenses
Total consolidated operating expenses for the six months ended December 31, 2024, decreased $59,000, or 1.1 percent, compared with the six months ended December 31, 2023.
Other Income (Loss)
For the six months ended December 31, 2024, total consolidated other income was $1.4 million, an increase of approximately $400,000 compared to $1.0 million for the same period in 2023. This primary driver of this increase was net investment income, which totaled $1.3 million for the six months ended December 31, 2024. This represents an increase of $368,000 compared to $903,000 in the corresponding period of the previous year. Impairment losses on equity securities recognized in the comparative period, combined with a reduction in realized gains on debt securities in the current period, were key drivers of the overall increase in net investment income, as outlined below:
| • | There were no realized gains or losses on equity securities in the current period, whereas the comparative period had net realized losses on equity securities of $740,000. The six months ended December 31, 2023, included realized losses for impairments of $775,000 for equity investments accounted for under the investment alternative. | |
| • | Realized gains on debt securities were $373,000 in the current period compared to $639,000 in the comparative period, an unfavorable change of $266,000. | |
| • | Realized foreign currency losses were $193,000 in the current period compared to realized foreign currency gains of $2,000 in the comparative period, an unfavorable change of $195,000. |
Provision for Income Taxes
A tax expense of $91,000 was recorded for the six months ended December 31, 2024, compared to $371,000 for the same period in 2023, representing a decrease of $280,000. The change is primarily driven by an operating loss in the current period compared to operating income in the same period of the prior year, partially offset by higher net investment income in the current period.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2024, the Company had net working capital (current assets minus current liabilities) of approximately $38.0 million, a decrease of $182,000, or 0.5 percent, since June 30, 2024, and a current ratio (current assets divided by current liabilities) of 20.0 to 1. With approximately $26.0 million in cash and cash equivalents, a decrease of $1.4 million, or 5.0 percent since June 30, 2024, and $11.0 million in securities carried at fair value on a recurring basis, excluding convertible securities, which together comprise approximately 73.8 percent of total assets, the Company has adequate liquidity to meet its current obligations.
The decrease in cash was primarily due to repurchases of the Company's common stock of $1.1 million, dividends paid of $613,000, and net cash used in operating activities of $383,000; offset by proceeds from principal paydowns of $750,000. Consolidated shareholders’ equity at December 31, 2024, was $47.3 million, a decrease of $1.7 million, or 3.5 percent since June 30, 2024. The decrease was primarily driven by $1.1 million in repurchases of the Company's common stock (including excise tax), $603,000 in dividends declared, and $276,000 in other comprehensive loss, partially offset by $229,000 in net income for the six months ended December 31, 2024.
The Company also has access to a $1.0 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement expires on May 31, 2026, and the Company intends to renew it biennially. The credit facility is collateralized by approximately $1.0 million, included in restricted cash on the Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of December 31, 2024, this credit facility remained unutilized by the Company.
Investment advisory contracts pursuant to the Investment Company Act of 1940 and related affiliated contracts in the U.S., by law, may not exceed one year in length and, therefore, must be renewed at least annually after an initial two-year term. The investment advisory and related contracts between the Company and USGIF have been renewed through September 2025. The advisory agreement for the U.S.-based ETFs has been renewed through July 2025.
The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary and management or the Board may discontinue as deemed necessary. The stock repurchase plan is approved through December 31, 2025, but may be suspended or discontinued. Cash and securities recorded at fair value on a recurring basis, excluding convertible securities, of approximately $37.0 million, are available to fund current activities.
Management believes current cash reserves, investments, and financing available will be sufficient to meet foreseeable cash needs for operating activities.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of other critical accounting policies that the Company follows, please refer to Item 7 in the Annual Report on Form 10-K for the year ended June 30, 2024.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Macroeconomic downturns, including inflationary pressures; geopolitical instability, such as the Russia-Ukraine and Israel-Palestine conflicts; escalating trade tensions; and adverse market conditions, including volatility driven by investor uncertainty and disruptions in cryptocurrency markets, may negatively impact the Company’s financial performance. These factors could reduce revenue, increase operational costs, and weaken the Company’s operating results, cash flow, and stock price.
Additionally, prolonged or intensifying trade wars, including tariffs, trade restrictions, and retaliatory measures, may disrupt global capital flows, heighten market volatility, and depress asset prices. Such uncertainty could lead to shifts in investor sentiment, changes in asset allocation trends, and increased redemption activity, all of which may result in lower assets under management (AUM) and reduced management fees. Market declines may also reduce the valuation of the Company’s corporate investments, further impacting the Company’s balance sheet and overall financial results.
Investment Management and Administrative Services Fees
Revenues are generally based upon a percentage of assets under management in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on the Company’s operating results. A portion of assets under management have exposure to international markets and/or natural resource sectors, which may experience volatility. In addition, fluctuations in interest rates may affect the value of assets under management in fixed income funds.
Performance Fees
USGIF advisory fees are comprised of two components: a base management fee and a performance fee. The performance fee is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward.
As a result, the Company’s revenues are subject to volatility beyond market-based fluctuations discussed in the investment management and administrative services fees section above. Due to these performance adjustments, the Company realized a decrease in its USGIF base advisory fee of $56,000 and $159,000 for the three and six months ended December 31, 2024, respectively, and $131,000 and $243,000 for the three and six months ended December 31, 2023, respectively.
Corporate Investments
The Company’s Consolidated Balance Sheets include substantial amounts of assets whose fair values are subject to market risk. The market risks are primarily associated with equity prices and foreign currency exchange rates. The fair values of corporate investments with exposure to the cryptocurrency industry are subject to considerable volatility.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices.
Equity price risk
Due to the Company’s investments in securities carried at fair value, equity price fluctuations represent a market risk factor affecting the Company’s consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported fair value.
The following table summarizes the Company’s equity price risks in securities recorded at fair value on a recurring basis as of December 31, 2024, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.
| Estimated Fair Value | Estimated Increase | ||||||||||||
| Fair Value at |
Hypothetical |
After Hypothetical |
(Decrease) in |
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| (dollars in thousands) |
December 31, 2024 |
Percentage Change |
Price Change |
Net Income (Loss)(1) |
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| Trading securities at fair value |
$ | 10,950 | 25% increase |
$ | 13,688 | $ | 2,163 | ||||||
| 25% decrease |
$ | 8,213 | $ | (2,163 | ) | ||||||||
| Embedded derivatives at fair value (2) |
$ | 1 | 25% increase |
$ | 1 | $ | 0 | ||||||
| 25% decrease |
$ | 1 | $ | (0 | ) | ||||||||
| 1. |
Changes in unrealized gains and losses on embedded derivatives and trading securities at fair value are included in earnings in the Consolidated Statements of Operations. The estimated increase (decrease) is after income taxes at the statutory rate in effect as of the balance sheet date. |
| 2. |
An embedded derivative and its related host contract represent one legal contract and are combined within the investments in available-for-sale debt securities on the Consolidated Balance Sheets. |
The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be significantly different due to both the nature of markets and the concentration of the Company’s investment portfolio.
The embedded derivatives subject to equity price risk shown in the above table are related to investments in convertible debentures of HIVE Digital Technologies Ltd. (“HIVE”). HIVE is discussed in more detail in Note 2, Investments, in the notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. HIVE is a company that is headquartered in Canada with cryptocurrency mining facilities in Iceland, Sweden and Canada. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. There is potential for significant volatility in the market price of HIVE, which could materially impact the investment’s value included on the Consolidated Balance Sheets and unrealized gain (loss) recognized in net investment income (loss).
Interest rate risk
Interest rate fluctuations present a market risk to the Company’s consolidated financial position due to its investments in debt securities. These securities are sensitive to changes in interest rates, typically decreasing in value when rates rise and increasing when rates fall. Such fluctuations can materially impact the Company’s debt securities included on the Consolidated Balance Sheets, as well as the unrealized gains (losses) and interest income recognized in net investment income (loss). Additionally, changes in interest rates can significantly affect the interest income earned from the Company’s cash and cash equivalents, also recognized in net investment income (loss).
Foreign currency risk
A portion of cash and certain corporate investments are held in foreign currencies, primarily Canadian. Adverse changes in foreign currency exchange rates would lower the value of those cash accounts and corporate investments. Certain assets under management also have exposure to foreign currency fluctuations in various markets, which could have an impact on their value and thus the revenue received by the Company.
Additionally, escalating trade tensions and retaliatory measures, such as tariffs, trade restrictions, or capital controls, could contribute to currency volatility, disrupt cross-border transactions, and affect the liquidity and valuation of foreign-denominated assets. These factors may further impact the Company's financial condition and operating results.
Indirect exposure to cryptocurrencies risk
Cryptocurrencies (also referred to as “virtual currencies” and “digital currencies”) are digital assets that are designed to act as a medium of exchange. Although the Company has no current intention of directly investing in cryptocurrencies, the Company has indirect exposure to cryptocurrencies by investing in securities of issuers with exposure to the cryptocurrency industry. Cryptocurrencies (some of the most well-known include Bitcoin and Ethereum) are not backed by any government, corporation, or other identified body. Trading markets for cryptocurrencies are often unregulated and may be more exposed to operational or technical issues as well as the potential for fraud or manipulation than established, regulated exchanges for securities, derivatives and traditional currencies.
Cryptocurrencies have been subject to significant fluctuations in value. The value of a cryptocurrency may significantly fluctuate precipitously (including declining to zero) and unpredictably for a variety of reasons, including, but not limited to: investor perceptions and expectations; regulatory changes; general economic conditions; adoption and use in the retail and commercial marketplace; public opinion regarding the environmental impact of the creation (“minting” or “mining”) of cryptocurrency; confidence in, and the maintenance and development of, its network and open-source software protocols such as blockchain for ensuring the integrity of cryptocurrency transactional data; and general risks tied to the use of information technologies, including cybersecurity risks.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2024, was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of December 31, 2024, due to the existence of the material weakness in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures).
The material weakness in internal controls over financial reporting that was disclosed in our annual report on Form 10-K as of and for the year ended June 30, 2024, was also present as of December 31, 2024. Notwithstanding the material weakness, we believe that the Consolidated Financial Statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the period, presented, in conformity with U.S. GAAP.
Other than as described above, there has been no change in the Company’s internal control over financial reporting that occurred during the three and six months ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. INFORMATION
For a discussion of risk factors which could affect the Company, please refer to Item 1A, “Risk Factors” in the Annual Report on Form 10-K for the year ended June 30, 2024. There have been no material changes since the fiscal year end to the risk factors listed therein.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
| (dollars in thousands, except price data) |
|||||||||||||||||||||
| Total Number |
Total Number of Shares |
Approximate Dollar Value |
|||||||||||||||||||
| of Shares |
Total Amount |
Average Price |
Purchased as Part of |
of Shares that May Yet Be |
|||||||||||||||||
| Period |
Purchased (1) |
Purchased |
Paid Per Share (2) |
Publicly Announced Plan(3) |
Purchased Under the Plan |
||||||||||||||||
| 10-01-24 to 10-31-24 | 107,660 | $ | 268 | $ | 2.49 | 107,660 | $ | 4,648 | |||||||||||||
| 11-01-24 to 11-30-24 | 65,910 | 164 | $ | 2.48 | 65,910 | $ | 4,484 | ||||||||||||||
| 12-01-24 to 12-31-24 | 63,161 | 155 | $ | 2.45 | 63,161 | $ | 4,329 | ||||||||||||||
| Total |
236,731 | $ | 587 | $ | 2.48 | 236,731 | |||||||||||||||
| 1. |
The Board of Directors of the Company approved on December 7, 2012, and has renewed annually, repurchases of up to $2.75 million in each of calendar years 2013 through 2022 of its outstanding class A common stock from time to time on the open market in accordance with all applicable rules and regulations. On February 25, 2022, the Company announced that the Board of Directors of the Company approved an increase to the limit of its annual share buyback program from $2.75 million to $5.0 million. The Board of Directors of the Company approved and has renewed annually, repurchases of up to $5.0 million in each calendar years 2023 through 2024. On September 19, 2024, the Company announced that the Board of Directors of the Company approved an update authorizing the repurchase of up to $5.0 million of its outstanding common shares between September 13, 2024, and December 31, 2024. |
| 2. |
The average price paid per share of stock repurchased under the stock repurchase program includes the commissions paid to brokers. |
| 3. |
The total amount of shares that may be repurchased in 2024 under the program is $6.5 million. |
| 1. Exhibits – |
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| 31.1 |
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| 32.1 |
Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act Of 2002), included herein. |
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
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U.S. GLOBAL INVESTORS, INC. |
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| DATED: |
February 12, 2025 |
BY: /s/ Frank E. Holmes |
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Frank E. Holmes |
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Chief Executive Officer |
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| DATED: |
February 12, 2025 | BY: /s/ Lisa C. Callicotte |
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Lisa C. Callicotte |
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Chief Financial Officer |
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