The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) serves as investment adviser to U.S. Global Investors Funds (“USGIF” or the “Fund(s)”), a Delaware statutory trust that is a no-load, open-end investment company offering shares in numerous mutual funds to the investing public. The Company also provides administrative services to USGIF. For these services, the Company receives fees from USGIF. The Company also provides advisory services to SEC registered exchange traded funds (“ETFs”).
The Company has the following subsidiaries utilized primarily for corporate investment purposes: U.S. Global Investors (Bermuda) Limited (“USBERM”), incorporated in Bermuda, and U.S. Global Investors (Canada) Limited (“USCAN”). The Company created U.S. Global Indices, LLC, a Texas limited liability company, of which the Company is the sole member, to provide indexing services to exchange-traded funds managed by the Company.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: USBERM, 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 lacks certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns and consolidates the VIE on the basis of having a controlling financial interest.
The Company holds variable interests in, but is not deemed to be the primary beneficiary of, certain funds it advises, specifically, certain funds in USGIF. The Company’s interests in these VIEs consist of the Company’s direct ownership therein and any fees earned but uncollected. 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 4 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 $12.8 million at June 30, 2022, and $7.3 million at June 30, 2021.
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) | | June 30, 2022 | | | June 30, 2021 | |
Investments in securities at fair value | | $ | 12,138 | | | $ | 6,322 | |
Investments in equity securities at fair value, non-current | | | 623 | | | | 938 | |
Other receivables | | | 21 | | | | 54 | |
Total VIE assets, maximum exposure to loss | | | 12,782 | | | | 7,314 | |
Other accrued expenses | | | 110 | | | | - | |
Total carrying amount | | $ | 12,672 | | | $ | 7,314 | |
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.
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During the years ended June 30, 2022, and 2021, the Company held a variable interest in a fund organized as a limited partnership, but this entity did not qualify as a VIE. Since it was not a VIE, the Company evaluated if it should consolidate it 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 did not have control of the entity and, therefore, did not consolidate it. However, the Company was considered to have the ability to exercise significant influence. Thus, the investment was accounted for under the equity method of accounting. During the year ended June 30, 2022, this entity was dissolved. See further information about this investment in Note 3.
All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.
Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
Restricted Cash. Restricted cash represents cash invested in a money market account as collateral for credit facilities that is not available for general corporate use.
Investments. The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.
Investments in Equity Securities. Equity securities are generally carried at fair value on the Consolidated Balance Sheets with changes in the fair value recorded through earnings within investment income (loss).
Investments in Debt Securities. The Company classifies debt investments as available-for-sale or held-to-maturity based on the Company’s intent to sell the security or, its intent and ability to hold the debt security to maturity. Available-for-sale debt securities are carried at fair value, and changes in unrealized gains and losses are reported net of tax in accumulated other comprehensive income (loss), except for declines in fair value determined to be other than temporary, which are reported in earnings. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income (loss) to investment income (loss). Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are carried at amortized cost.
Embedded derivatives. The Company does not use derivatives for trading, speculation, or hedging exposures. Certain financial instruments the Company invests in contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative, with the non-derivative component representing the host contract. If the economic characteristics and risks of embedded derivative are not closely related to those of the host contract, and the changes in the fair value of the host contact itself is not recorded through earnings within investment income (loss), the embedded derivative is bifurcated and carried at fair value, with changes in the fair value recorded through earnings within investment income (loss) on the Consolidated Statements of Operations. The host contract will continue 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, the Consolidated Statements of Cash Flows, and tables within Note 3 Investments, unless otherwise indicated.
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. The Company has elected to value these investments 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 investment income (loss).
Equity Method Investments. Investments classified as equity method consist of investments in companies in which the Company is able to exercise significant influence but not control. Under the equity method of accounting, the investment is initially recorded at cost, then the Company’s proportional share of investee’s underlying net income or loss is recorded as a component of “other income” with a corresponding increase or decrease to the carrying value of the investment. Distributions received from the investee reduce the Company’s carrying value of the investment. These investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. No impairment was recognized for the Company’s equity method investment during the years presented.
Fair Value of Financial Instruments. The financial instruments of the Company are reported on the Consolidated Balance Sheets at market or fair values or at carrying amounts that approximate fair values.
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Receivables. Receivables other than notes receivable consist primarily of advisory and other fees owed to the Company by clients. The Company also may invest in notes receivable. Notes receivable are recorded in accordance with the terms of the agreement, and accrued interest is recorded when earned. Unearned fees are shown as a deduction from the related notes receivable and are amortized to interest income using the effective interest method. The Company reviews the need for an allowance for credit losses for notes and other receivables based on various factors including payment history, historical bad debt experience, existing economic conditions, aging and specific accounts identified as high risk. Uncollectible receivables, if any, are charged against the allowance when all reasonable efforts to collect the amounts due have been exhausted. The Company had no allowance for credit losses as of June 30, 2022, or 2021.
Property and Equipment. Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 14 to 40 years.
Leases. The Company leases equipment under various leasing arrangements. Leases may be classified as either financing leases or operating leases, as appropriate. The Company determines if a contract is a lease or contains a lease at inception. The Company accounts for lease and nonlease components as a single component for its leases. The Company elected the short-term lease exception for leases with an initial term of 12 months or less. Consequently, such leases are not recorded on the Consolidated Balance Sheets. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain they will be exercised or not, respectively.
Fixed lease payments are included in right of use (“ROU”) assets and lease liabilities within other assets and liabilities, respectively, on the Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date using the Company’s incremental borrowing rate as the discount rate. Fixed lease payments made over the lease term are recorded as lease expense on a straight-line basis. Variable lease payments based on usage, changes in an index or market rate are expensed as incurred.
For new leases, the discount rates are based on the entire noncancelable lease term.
The Company is the lessor of certain areas of its owned office building under operating leases. The Company determines if a contract is a lease or contains a lease at inception. The Company elected not to separate lease and related non-lease components and account for the combined component as an operating lease.
Impairment of Long-Lived Assets. The Company reviews property and equipment and other long-lived assets for impairment whenever events or changes in business circumstances indicate the net book values of the assets may not be recoverable. Impairment is indicated when the assets’ net book value is less than fair value of the asset. If this occurs, an impairment loss is recognized for the difference between the fair value and net book value. Factors that indicate potential impairment include: a significant decrease in the market value of the asset or a significant change in the asset’s physical condition or use. No impairments of long-lived assets were recorded during the years included in these financial statements.
Treasury Stock. Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.
Stock-Based Compensation. Stock-based compensation expense is measured at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the award’s vesting period. Forfeitures are recognized as they occur.
Income Taxes. The Company and its non-Canadian subsidiaries file a consolidated 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. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.
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The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2022, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years from 2018 through 2021 remain open to examination by the U.S. Federal tax jurisdictions to which the Company is subject. The tax years from 2015 through 2021 remain open to examination by the non-U.S. Federal tax jurisdictions to which the Company is subject.
The Company has elected to treat the global intangible low-taxed income (GILTI) tax as a period expense. The Company also elected to use the tax law ordering approach when assessing the realization of net operating losses related to GILTI.
Revenue Recognition. The Company’s operating revenue is earned from investment advisory and administrative services provided to clients. Each distinct service promised in the agreements is considered a performance obligation and is the basis for determining when revenue is recognized. The fees are allocated to each distinct performance obligation and revenue is recognized when, or as, promises are satisfied. The consideration for services is generally variable and included in net revenues when it is improbable that a significant reversal could occur in the future. The timing of when clients are billed and related payment received varies in accordance with agreed-upon contractual terms. For current agreements, billing occurs after the Company has recognized revenue which results in accounts receivable and revenue.
Investment Advisory Fees. The investment advisory agreements have a single performance obligation, since the promised services are not separately identifiable from other promises in the agreements and, therefore, are not distinct. Investment advisory fees are comprised of two components, a base fee and a performance fee, if applicable. Base investment advisory fees are recognized as the services are performed over time and are based upon agreed-upon percentages of average assets under management (“AAUM”), depending on contractual terms. These fees are received in cash after the end of each monthly period within 30 days. Investment advisory fees are affected by changes in assets under management, including market appreciation or depreciation, foreign exchange translation, and net inflows or outflows. Investment advisory fees are reported net of fee waivers.
Performance Fees. USGI receives investment advisory performance fees from certain funds. Performance fees for the equity funds within USGIF are a fulcrum fee that is a 0.25 percent adjustment upwards or downwards of the base investment advisory fees when there is a 5 percent difference between a fund’s performance and that of its benchmark index over the prior rolling 12 months. Performance fees are recorded when it is determined that they are no longer probable of significant reversal. These fees are received in cash or paid in cash after the end of each monthly period within 30 days. Performance fees are affected by changes in fund performance, benchmark index performance, and assets under management.
Administrative Services Fees. The administrative services agreement has a single performance obligation, since the promised services are not separately identifiable from other promises in the agreement and, therefore, are not distinct. Administrative services fees are recognized as the services are performed over time and are based upon agreed-upon percentages of AAUM. These fees are received in cash after the end of each monthly period within 30 days. Administrative services fees are affected by changes in assets under management, including market appreciation or depreciation, foreign exchange translation, and net inflows or outflows. Administrative services fees are reported net of fee waivers.
Fee Waivers. For certain clients, the Company has agreed to contractually limit the expenses or voluntarily waived or reduced its fees and/or agreed to pay expenses for funds. These fee waivers are deemed to be a reduction of the transaction price and are reported as a reduction of investment advisory fees and/or administrative services fees. These fees are paid in cash after the end of each monthly period within 30 days.
Dividends and Interest. Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Any discount between the cost and the principal amount of debt investments is amortized to interest income using the effective interest method. Both dividends and interest income are included in investment income.
Advertising Costs. The Company expenses advertising costs as they are incurred. The Company is reimbursed for certain advertising expenses related to USGIF from the distributor for USGIF.
Foreign Exchange. The balance sheets of certain foreign subsidiaries of the Company and certain foreign-denominated investment products are translated at the current exchange rate as of the end of the accounting period and the related income or loss is translated at the average exchange rate in effect during the period. Net exchange gains and losses resulting from balance sheet translations of foreign subsidiaries are excluded from income and are recorded in “accumulated other comprehensive income (loss)” on the Consolidated Balance Sheets. Net exchange gains and losses resulting from income or loss translations are included in income and are recorded in “investment income (loss)” on the Consolidated Statements of Operations. Investment transactions denominated in foreign currencies are converted to U.S. dollars using the exchange rate on the date of the transaction and any related gain or loss is included in “investment income (loss)” on the Consolidated Statements of Operations.
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Use of Estimates. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
COVID-19 adversely affected the global financial markets, and in the future it or other epidemics, pandemics or outbreaks may adversely affect the Company’s results of operations, cash flows and financial position. The Company cannot reasonably estimate the future impact, given the uncertainty over the duration and severity of the economic impact.
Earnings Per Share. The Company computes and presents earnings per share in accordance with ASC 260, Earnings Per Share. Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) 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 Company has two classes of common stock with outstanding shares. Both classes share equally in dividend and liquidation preferences.
Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive income (loss), net of tax, is reported in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity and includes any unrealized gains and losses on debt securities classified as available-for-sale and foreign currency translation adjustments.
Recent Accounting Pronouncements and Developments
In June 2016, the 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) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU 2016-13 will be effective for smaller reporting companies, including U.S. Global, for fiscal years beginning after December 15, 2022. Earlier application is permitted only for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted. The standard became effective for the Company on July 1, 2021. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements or disclosures.
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”). The FASB issued ASU 2022-03 (1) 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, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
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NOTE 3. INVESTMENTS
As of June 30, 2022, the Company held investments carried at fair value on a recurring basis of $27.9 million and a cost basis of $28.5 million. The fair value of these investments is approximately 45.9 percent of the Company’s total assets at June 30, 2022. In addition, the Company held other investments of approximately $4.0 million, and held-to-maturity debt investments of $1.0 million.
The cost basis of investments is adjusted for amortization of premium or accretion of discount on debt securities held or the recharacterization of distributions from investments in partnerships, if applicable.
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 $12.8 million and $7.3 million as of June 30, 2022, and June 30, 2021, respectively, and investments in HIVE Blockchain Technologies Ltd. (“HIVE”), which were warrants and convertible debentures valued at $14.1 million at June 30, 2022, and $25.1 million at June 30, 2021, respectively. For these investments, the maximum amount of loss due to credit risk the Company could incur is the fair value of the financial instruments.
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 the 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. 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 pricing service 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.
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The following summarizes the major categories of investments with fair values adjusted on a recurring basis as of June 30, 2022, and June 30, 2021, and other investments with fair values adjusted on a nonrecurring basis, with fair values shown according to the fair value hierarchy.
| June 30, 2022 | |
| | | | | Significant | | | Significant | | | | | |
| | | | | Other | | | Unobservable | | | | | |
| Quoted Prices | | | Inputs | | | Inputs | | | | | |
(dollars in thousands) | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
Investments carried at fair value on a recurring basis: | | | | | | | | | | | | | | | |
Investments in equity securities: | | | | | | | | | | | | | | | |
Equities - International | $ | 1,024 | | | $ | - | | | $ | 2,643 | | | $ | 3,667 | |
Mutual funds - Fixed income | | 12,138 | | | | - | | | | - | | | | 12,138 | |
Mutual funds - Global equity | | 623 | | | | - | | | | - | | | | 623 | |
Total investments in equity securities: | $ | 13,785 | | | $ | - | | | $ | 2,643 | | | $ | 16,428 | |
Investments in debt securities: | | | | | | | | | | | | | | | |
Available-for-sale - Convertible debentures | | - | | | | - | | | | 11,449 | | | | 11,449 | |
Total investments carried at fair value on a recurring basis: | $ | 13,785 | | | $ | - | | | $ | 14,092 | | | $ | 27,877 | |
Investments carried at fair value on a nonrecurring basis: | | | | | | | | | | | | | | | |
Other investments1 | $ | - | | | $ | - | | | $ | 781 | | | $ | 781 | |
| June 30, 2021 | |
| | | | | Significant | | | Significant | | | | | |
| | | | | Other | | | Unobservable | | | | | |
| Quoted Prices | | | Inputs | | | Inputs | | | | | |
(dollars in thousands) | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
Investments carried at fair value on a recurring basis: | | | | | | | | | | | | | | | |
Investments in equity securities: | | | | | | | | | | | | | | | |
Equities - International | $ | 2,837 | | | $ | 135 | | | $ | 8,026 | | | $ | 10,998 | |
Mutual funds - Fixed income | | 6,322 | | | | - | | | | - | | | | 6,322 | |
Mutual funds - Global equity | | 938 | | | | - | | | | - | | | | 938 | |
Total investments in equity securities: | $ | 10,097 | | | $ | 135 | | | $ | 8,026 | | | $ | 18,258 | |
Investments in debt securities: | | | | | | | | | | | | | | | |
Available-for-sale - Convertible debentures | | - | | | | - | | | | 17,049 | | | | 17,049 | |
Total investments carried at fair value on a recurring basis: | $ | 10,097 | | | $ | 135 | | | $ | 25,075 | | | $ | 35,307 | |
Investments carried at fair value on a nonrecurring basis: | | | | | | | | | | | | | | | |
Other investments1 | $ | - | | | $ | - | | | $ | 2,554 | | | $ | 2,554 | |
1. Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates other than June 30, 2022, or June 30, 2021, respectively. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares.
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The securities classified as Level 3 and carried at fair value on a recurring basis in the preceding tables are investments in HIVE Blockchain Technologies Ltd. (“HIVE”), which were warrants and convertible debentures valued at $14.1 million at June 30, 2022, and $25.1 million at June 30, 2021. The Company utilizes an independent third-party to estimate the fair values of the investments in HIVE.
The following table is a reconciliation of investments recorded at fair value for which unobservable inputs (Level 3) were used in determining fair value during the year ended June 30, 2022:
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis | |
| | June 30, 2022 | |
| | Investments in | | | Investments in | |
(dollars in thousands) | | equity securities | | | debt securities | |
Beginning Balance | | $ | 8,026 | | | $ | 17,049 | |
Principal repayments | | | - | | | | (3,000 | ) |
Amortization of day one premium | | | - | | | | (331 | ) |
Accretion of bifurcation discount | | | - | | | | 975 | |
Total unrealized gains or losses included in: | | | | | | | | |
Investment Income (Loss) | | | (5,383 | ) | | | (348 | ) |
Other Comprehensive Income (Loss) | | | - | | | | (2,896 | ) |
Ending Balance | | $ | 2,643 | | | $ | 11,449 | |
During the fiscal year ended June 30, 2021, the Company purchased convertible securities of HIVE, a company that is headquartered in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada, for $15.0 million. The convertible securities are comprised of 8.0% interest-bearing unsecured convertible debentures, payable in quarterly installments with a final maturity in January 2026, and 5 million common share purchase warrants in the capital of HIVE. Under the original terms, the principal amount of each debenture was convertible into common shares in the capital of HIVE at a conversion rate of $2.34. Each whole warrant, expiring in January 2024, entitled the Company to acquire one common share at a price of $3.00 (Canadian). Under the current terms, which reflect a reverse stock split, the principal amount of each debenture is convertible into common shares in the capital of HIVE at a conversion rate of $11.70. The remaining principal amount is $10.6 million as of June 30, 2022. Each five whole warrants, expiring in January 2024, entitles the Company to acquire one common share at a price of $15.00 (Canadian). Cryptocurrency markets and related securities have been, and are expected to continue to be, volatile. There has been significant volatility in the market price of HIVE, which has materially impacted the value of the investments included on the balance sheet, unrealized gain recognized in investment income (loss), and unrealized gain recognized in other comprehensive income (loss). The investments did not represent ownership in HIVE as of June 30, 2022. The securities are subject to Canadian securities regulations. Frank Holmes serves on the board as executive chairman of HIVE and held shares and options at June 30, 2022. Effective August 31, 2018, Mr. Holmes was named Interim CEO and Interim Executive Chairman of HIVE. Effective December 22, 2020, Mr. Holmes became the Executive Chairman of HIVE.
The Company recorded the warrants at the estimated fair value of $5.9 million on purchase date. The debentures were recorded at the estimated fair value of $16.0 million on purchase date, and an unrealized gain of $6.9 million was recognized in other comprehensive income (loss), which will be realized in investment income (loss) ratably using the effective interest method until maturity, conversion, or other disposition. During the fiscal years ended June 30, 2022, and 2021, $2.2 million and $1.2 million, respectively, was reclassified from other comprehensive income and realized in investment income (loss). The fair value of the warrants and debentures was $2.6 million and $11.4 million, respectively, at June 30, 2022, and $8.0 million and $17.0 million, respectively, at June 30, 2021.
The Company currently considers the related fair value measurements to contain Level 3 inputs. The following is quantitative information as of June 30, 2022, with respect to the securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3):
| | June 30, 2022 | |
(dollars in thousands) | | Fair Value | | Principal Valuation Techniques | | Unobservable Inputs | |
Investments in equity securities: | | | | | | | | | | | |
Common share purchase warrants | | $ | 2,643 | | Option pricing model | | | | | | |
| | | | | | | Volatility | | | 104.3 | % |
Investments in debt securities: | | | | | | | | | | | |
Available-for-sale - Convertible debentures | | $ | 11,449 | | Binomial lattice model | | | | | | |
| | | | | | | Volatility | | | 111.5 | % |
| | | | | | | Credit Adjusted Discount Rate | | | 4.7 | % |
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During the fiscal year ended June 30, 2021, the Company sold its investment of 10 million common shares in HIVE. The cost of the 10 million shares was $2.4 million. In fiscal year 2019, the Company adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) and its amendments. On July 1, 2018, the Company reclassified $3.2 million of unrealized gains related to its investment in HIVE from Accumulated Other Comprehensive Income (Loss) into Retained Earnings. Therefore, when the HIVE investment in common shares was sold, the amount included in realized gains on sales of fair valued securities was the proceeds of $20.6 million, less the cost of $2.4 million and the ASU 2016-01 reclassified unrealized gains of $3.2 million, or $15.0 million.
During the fiscal year ended June 30, 2022, the Company sold its investment in Thunderbird Entertainment Group Inc. (“Thunderbird”), a company headquartered and traded in Canada, which was valued at approximately $2.7 million at June 30, 2021, and classified as Level 1 in the fair value hierarchy. Realized gains on sales totaled $1.9 million and $936,000 during the fiscal years ended June 30, 2022, and June 30, 2021, respectively. The Company’s ownership of Thunderbird was approximately 1.6 percent as of June 30, 2021. Frank Holmes served on the board of this company as a director from June 2014 to March 2021.
During the year ended June 30, 2021, the Company sold its investment in GoldSpot Discoveries Corp. (“GoldSpot”), a technology company headquartered and traded in Canada which leverages machine learning in natural resource exploration, and recorded realized gains on sales of fair valued securities of $600,000. Frank Holmes served on the board of this company as director from February 2019 to June 2020 and as independent chairman from February 2019 to May 2020.
Equity Investments at Fair Value
Investments in equity securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported in current period earnings.
The following details the components of the Company’s equity investments carried at fair value as of June 30, 2022, and 2021.
| | June 30, 2022 |
(dollars in thousands) | | Cost | | | Unrealized Gains (Losses) | | | Fair Value |
Equity securities at fair value | | | | | | | | | | | |
Equities - International | | $ | 6,680 | | | $ | (3,013 | ) | | $ | 3,667 |
Equities - Domestic | | | 45 | | | | (45 | ) | | | - |
Mutual funds - Fixed income | | | 12,313 | | | | (175 | ) | | | 12,138 |
Mutual funds - Global equity | | | 929 | | | | (306 | ) | | | 623 |
Total equity securities at fair value | | $ | 19,967 | | | $ | (3,539 | ) | | $ | 16,428 |
| | June 30, 2021 |
(dollars in thousands) | | Cost | | | Unrealized Gains (Losses) | | | Fair Value |
Equity securities at fair value | | | | | | | | | | | |
Equities - International | | $ | 7,076 | | | $ | 3,922 | | | $ | 10,998 |
Equities - Domestic | | | 45 | | | | (45 | ) | | | - |
Mutual funds - Fixed income | | | 6,313 | | | | 9 | | | | 6,322 |
Mutual funds - Global equity | | | 929 | | | | 9 | | | | 938 |
Total equity securities at fair value | | $ | 14,363 | | | $ | 3,895 | | | $ | 18,258 |
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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, 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 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.
The following details the components of the Company’s available-for-sale debt investments at June 30, 2022, and June 30, 2021.
| June 30, 2022 |
(dollars in thousands) | Amortized Cost | | | Gross Unrealized Gains in Other Comprehensive Income | | | Gross Unrealized Losses in Investment Income (Loss) | | | Fair Value |
Available-for-sale - Convertible debentures 1 | $ | 8,576 | | | $ | 5,412 | | | $ | (2,539 | ) | | $ | 11,449 |
| June 30, 2021 |
(dollars in thousands) | Amortized Cost | | | Gross Unrealized Gains in Other Comprehensive Income | | | Gross Unrealized Losses in Investment Income (Loss) | | | Fair Value |
Available-for-sale - Convertible debentures 1 | $ | 8,741 | | | $ | 8,308 | | | $ | - | | | $ | 17,049 |
1. Changes in unrealized gains and losses are included in the statement of comprehensive income (loss), except for embedded derivatives. Changes in unrealized and realized gains and losses for embedded derivatives are included in earnings in the statement of operations.
The following details the components of the Company’s held-to-maturity debt investments at June 30, 2022, and June 30, 2021.
| June 30, 2022 |
(dollars in thousands) | Amortized Cost | | | Gross Unrecognized Holding Gains | | | Gross Unrecognized Holding Losses | | | Fair Value |
Held-to-maturity - Debentures1 | $ | 1,000 | | | $ | - | | | $ | (133 | ) | | $ | 867 |
| June 30, 2021 |
(dollars in thousands) | Amortized Cost | | | Gross Unrecognized Holding Gains | | | Gross Unrecognized Holding Losses | | | Fair Value |
Held-to-maturity - Debentures1 | $ | 1,000 | | | $ | 3 | | | $ | - | | | $ | 1,003 |
1. Held-to-maturity debt instruments are carried at amortized cost, and the fair value is classified as Level 2 according to the fair value hierarchy
At June 30, 2022, and June 30, 2021, the Company held $1.0 million in one security classified as held-to-maturity. The security had an estimated fair value that was lower than the carrying value by $133,000 at June 30, 2022. We have evaluated the unrealized loss on the security at June 30, 2022, and determined it to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuer to meet their obligations. The security has been in a loss position for less than 12 months.
The following summarizes the net carrying amount and estimated fair value of debt securities at June 30, 2022, by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.
| | June 30, 2022 |
| | Available-for-sale | | | Held-to-maturity |
| | debt securities | | | debt securities |
| | Convertible | | | Due after one year |
(dollars in thousands) | | debentures 1 | | | through five years |
Net Carrying Amount | | $ | 8,576 | | | $ | 1,000 |
Fair Value | | $ | 11,449 | | | $ | 867 |
1. Principal payments of $750,000 are due quarterly with a final maturity in January 2026.
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 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 reflected above. The Company held one financial instrument containing an embedded derivative, which represents an investment in HIVE, at June 30, 2022, and June 30, 2021.
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The following table summarizes the fair values of embedded derivatives on the Consolidated Balance Sheet, categorized by risk exposure, at June 30, 2022, and June 30, 2021
| June 30, 2022 | | | June 30, 2021 |
| Other Assets | | | Other Assets |
(dollars in thousands) | Investments in available-for-sale debt securities | | | Investments in available-for-sale debt securities |
Embedded Derivatives: | | | | | | |
Equity price risk exposure | $ | 3 | | | $ | 2,542 |
The embedded derivatives presented in the table above were bifurcated from the related host contract on June 30, 2021; as such, there was no effect on the Consolidated Statement of Operations for the year ended June 30, 2021. The following table presents the effect of embedded derivatives on the Consolidated Statements of Operations, categorized by risk exposure, for the for the year ended June 30, 2022.
| Year Ended June 30, |
| 2022 | | | 2021 |
| Other Income (Loss) | | | Other Income (Loss) |
(dollars in thousands) | Investment Income (Loss) | | | Investment Income (Loss) |
Embedded Derivatives: | | | | | | |
Equity price risk exposure | $ | (2,539 | ) | | $ | - |
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 investment income (loss).
The following table presents the carrying value of equity securities without readily determinable fair values held as of June 30, 2022, and 2021, that are measured under the measurement alternative, and the related adjustments recorded during the periods presented for those securities with observable price changes or impairments. These securities are included in the nonrecurring fair value hierarchy tables when applicable price changes are observable, or when impairments occur.
| | Year Ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Other Investments | | | | | | | | |
Carrying value | | $ | 3,992 | | | $ | 3,453 | |
Upward carrying value changes | | | 187 | | | | 1,561 | |
Downward carrying value changes/impairments | | | (13 | ) | | | (164 | ) |
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 $2.5 million since their respective acquisitions through June 30, 2022. The cumulative amount of impairments and other downward adjustments, which include return of capital distributions and observable price changes, to all equity securities without readily determinable fair values total $1.5 million since their respective acquisitions through June 30, 2022.
The Company has an investment in The Sonar Company (“Sonar”), a company headquartered in the United States, at a cost of $175,000. The investment had a carrying value of approximately $362,000 and $100,000 at June 30, 2022, and June 30, 2021, respectively. During the year ended June 30, 2022, the Company purchased additional common shares, resulting in an observable price change and upward adjustment for the existing common shares held of approximately $187,000, using the measurement alternative. Roy D. Terracina, Director and Vice Chairman of the Board of Directors for U.S. Global, has served as the CEO of Sonar since July 2021, and the Company’s ownership of Sonar was approximately 3.7 percent as of June 30, 2022.
Investments Classified as Equity Method
The Company had an equity method investment in Galileo New Economy Fund LP (previously known as Galileo Technology and Blockchain LP), a Canadian limited partnership, during fiscal year 2021, and through its dissolution date, which occurred during the third quarter of fiscal 2022. The Company owned approximately 22 percent of the LP prior to dissolution, and the Company was considered to have the ability to exercise significant influence. Thus, the investment was accounted for under the equity method of accounting. Included in other income (loss) for the years ended June 30, 2022, and 2021, is ($206,000) and $347,000, respectively, of equity method income (loss) for this investment. The Company’s investment in the LP had a carrying value of approximately $532,000 at June 30, 2021. Upon dissolution, the Company received a distribution, which included cash of $85,000, and common shares of an investment held in the LP, which had a fair value of approximately $228,000 when received.
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Investment Income (Loss)
The following summarizes investment income (loss) reflected in earnings for the periods presented.
| | Year Ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Investment Income (Loss) | | | | | | | | |
Realized gains on equity securities | | $ | 1,848 | | | $ | 16,566 | |
Realized gains on debt securities | | | 2,191 | | | | 1,180 | |
Unrealized gains (losses) on equity securities | | | (7,247 | ) | | | 9,909 | |
Unrealized losses on embedded derivatives | | | (2,539 | ) | | | - | |
Dividend and interest income | | | 1,949 | | | | 464 | |
Realized foreign currency gains (losses) | | | (248 | ) | | | 219 | |
Total Investment Income (Loss) | | $ | (4,046 | ) | | $ | 28,338 | |
For the years ended June 30, 2022, and 2021, realized gains on principal payment proceeds in the amount of $2.2 million and $1.2 million, respectively, was reclassified from other comprehensive income (loss). Realized foreign currency gains (losses) for the year ended June 30, 2022, includes $10,000 in foreign currency gains reclassified from other comprehensive income (loss) upon the dissolution of the Galileo New Economy Fund LP, the Company's equity method investment.
The following table presents unrealized gains and losses recognized during the years ended June 30, 2022, and 2021, on equity investments still held at each respective date.
| | Year Ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Net gains (losses) recognized during the period on equity securities | | $ | (5,399 | ) | | $ | 26,475 | |
Less: Net gains (losses) recognized during the period on equity securities sold during the period | | | (178 | ) | | | (20,585 | ) |
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date1 | | $ | (5,577 | ) | | $ | 5,890 | |
1. Included $187,000 for the year ended June 30, 2022, of net gains (losses) as a result of the measurement alternative. There were net gains (losses) of $1.4 million as a result of the measurement alternative for the year ended June 30, 2021.
Investment income (loss) can be volatile and varies depending on market fluctuations. The Company expects that gains and losses will continue to fluctuate in the future.
NOTE 4. INVESTMENT MANAGEMENT AND OTHER FEES
The following table presents operating revenues disaggregated by performance obligation:
| | Year Ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
ETF advisory fees | | $ | 20,962 | | | $ | 17,127 | |
USGIF advisory fees | | | 3,543 | | | | 3,836 | |
USGIF performance fees earned | | | 20 | | | | 482 | |
Total Advisory Fees | | | 24,525 | | | | 21,445 | |
USGIF administrative services fees | | | 189 | | | | 209 | |
Total Operating Revenue | | $ | 24,714 | | | $ | 21,654 | |
The Company serves as investment adviser to USGIF and receives a fee based on a specified percentage of net assets under management. The advisory agreement for the equity funds within USGIF provides for a base advisory fee that is adjusted upwards or downwards by 0.25 percent if 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.
The Company has agreed to contractually limit the expenses of the Near-Term Tax Free Fund and the Global Luxury Goods Fund through April 2023. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the remaining USGIF funds. These caps will continue on a voluntary basis at the Company’s discretion. The aggregate fees waived and expenses borne by the Company for USGIF were $667,000 and $701,000 for the years ended June 30, 2022, and 2021, respectively. USGIF revenue included on the Consolidated Statements of Operations is net of fee waivers. Management cannot predict the impact of future waivers due to the number of variables and the range of potential outcomes.
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The Company receives administrative service fees from USGIF based on an annual rate of 0.05 percent of average daily net assets of each fund.
The Company serves as investment advisor to three U.S.-based exchange-traded funds (ETFs): U.S. Global Jets ETF (ticker JETS), U.S. Global GO GOLD and Precious Metal Miners ETF (ticker GOAU), and U.S. Global Sea to Sky Cargo ETF (ticker SEA). The Company receives a unitary management fee of 0.60 percent of average net assets of the ETFs, and has agreed to bear all expenses of the ETFs, except the U.S. Global Sea to Sky Cargo ETF. The Company has agreed to contractually limit the expenses of the U.S. Global Sea to Sky Cargo ETF through April 2023. The Company also serves as investment advisor to one European-based ETF, the U.S. Global Jets UCITS ETF. The Company receives a unitary management fee of 0.65 percent of average net assets and has agreed to bear all expenses of the ETF.
As of June 30, 2022, the Company had $1.6 million in receivables from fund clients, of which $188,000 was from USGIF and $1.4 million from ETFs. As of June 30, 2021, the Company had $2.4 million in receivables from fund clients, of which $432,000 was from USGIF and $2.0 million from ETFs.
NOTE 5. 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 Statements of Cash Flows is shown below:
| | | June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Cash and cash equivalents | | $ | 22,314 | | | $ | 14,436 | |
Restricted cash | | | 1,000 | | | | 1,000 | |
Total cash, cash equivalents, and restricted cash | | $ | 23,314 | | | $ | 15,436 | |
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment are composed of the following:
| | June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Building and land | | $ | 4,606 | | | $ | 4,606 | |
Furniture, equipment, and other | | | 987 | | | | 871 | |
| | | 5,593 | | | | 5,477 | |
Accumulated depreciation | | | (4,223 | ) | | | (4,101 | ) |
Net property and equipment | | $ | 1,370 | | | $ | 1,376 | |
Depreciation expense totaled $226,000 and $196,000 in fiscal years 2022 and 2021, respectively.
NOTE 7. LEASES
The Company has lease agreements for office equipment that expire in fiscal year 2026. Lease expense totaled $168,000 and $155,000 for the years ended June 30, 2022, and 2021, respectively.
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The components of lease expense included in general and administrative expense on the Consolidated Statements of Operations for the years ended June 30, 2022, and June 30, 2021, and qualitative information concerning the Company’s leases were as follows:
| | Year Ended | | | Year Ended | |
| | June 30, | | | June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Operating lease cost | | $ | 44 | | | $ | 53 | |
Short-term lease cost | | | 124 | | | | 102 | |
Total lease cost | | $ | 168 | | | $ | 155 | |
| | | | | | | | |
Cash paid for amounts included in measurement of lease liabilities: | | | | | | | | |
Operating cash flows from operating leases | | $ | 44 | | | $ | 53 | |
| | | | | | | | |
Right-of-use assets obtained in exchanged for: | | | | | | | | |
Net finance lease liabilities | | $ | 93 | | | $ | - | |
| | | | | | | | |
Finance leases: | | | | | | | | |
Weighted-average remaining lease term (in years) | | | 3.25 | | | | - | |
Weighted-average discount rate | | | 4.75 | % | | | - | |
| | | | | | | | |
Operating leases: | | | | | | | | |
Weighted-average remaining lease term (in years) | | | - | | | | 0.83 | |
Weighted-average discount rate | | | - | | | | 4.11 | % |
Maturities of lease liabilities as of June 30, 2022, are as follows:
(dollars in thousands) | | | | |
Fiscal Year | | Finance Leases | |
2023 | | $ | 31 | |
2024 | | | 31 | |
2025 | | | 31 | |
2026 | | | 8 | |
2027 | | | - | |
Total lease payments | | | 101 | |
Less imputed interest | | | (8 | ) |
Total | | $ | 93 | |
The Company is the lessor of certain areas of its owned office building under operating leases expiring in various years through fiscal year 2025. At the commencement of an operation lease, no income is recognized; subsequently, lease payments received are recognized on a straight-line basis. Lease income included in other income on the Consolidated Statements of Operations was $115,000 and $91,000, for fiscal years 2022 and 2021, respectively. The cost of obtaining lessor contracts, which is included in other assets on the Consolidated Balance Sheets, was $9,000 and $4,000 at June 30, 2022, and June 30, 2021, respectively.
A summary analysis of annual undiscounted cash flows to be received on leases as of June 30, 2022, is as follows:
(dollars in thousands) | | | | |
Fiscal Year | | Operating Leases | |
2023 | | $ | 75 | |
2024 | | | 42 | |
2025 | | | 36 | |
Total lease payments | | $ | 153 | |
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.
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NOTE 8. OTHER ACCRUED EXPENSES
Other accrued expenses consist of the following:
| | June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Professional fees | | $ | 889 | | | $ | 548 | |
Vendors payable | | | 460 | | | | 225 | |
ETF operating and distribution expenses | | | 385 | | | | 496 | |
Other taxes payable | | | 97 | | | | 76 | |
Other accrued expenses | | $ | 1,831 | | | $ | 1,345 | |
NOTE 9. BORROWINGS
The Company has access to a $1 million credit facility 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 fiscal years ended June 30, 2022, and 2021. The credit agreement will expire on May 31, 2023, and the Company intends to renew annually. The credit facility is collateralized by approximately $1 million at June 30, 2022, included in restricted cash on the balance sheet, held in deposit in a money market account at the financial institution that provided the credit facility. As of June 30, 2022, the credit facility remains unutilized by the Company.
Effective April 12, 2020, the Company was approved for a loan of approximately $442,000 under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company has under 25 employees and is considered a small business. The Company was granted forgiveness of the entire PPP loan and any accrued interest during the year ended June 30, 2021; thus, there was no balance remaining on the loan as of June 30, 2022, or June 30, 2021. Included in Other Income (Loss) for the year ended June 30, 2021, the Company recognized a gain on extinguishment of debt, including interest, of $444,000.
NOTE 10. BENEFIT PLANS
The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 100 percent of participants’ contributions up to the first 3 percent of compensation and 50 percent of the next 2 percent of compensation. The Company recorded expenses for contributions to the 401(k) plan of $111,000 and $99,000 for fiscal years 2022 and 2021, respectively.
The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the Board of Directors. The Company made a profit sharing contribution of $200,000 and $80,000 in fiscal years 2022 and 2021, respectively.
The Company offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company. Employees may contribute to an IRA, and the Company matches these contributions on a limited basis. A similar savings plan utilizing Uniform Gifts to Minors Act (“UGMA”) accounts is offered to employees to save for their minor relatives. The Company match, reflected in base salary expense, aggregated in all programs to $14,000 and $15,000 in fiscal years 2022 and 2021, respectively.
The Company has an Employee Stock Purchase Plan whereby eligible employees can purchase treasury shares at market price. During fiscal years 2022 and 2021, employees purchased 10,191 and 2,330, respectively, shares of treasury stock from the Company. The Company matches these contributions on a limited basis. The Company match, reflected in base salary expense, was $38,000 and $6,000 in fiscal years 2022, and 2021, respectively.
NOTE 11. SHAREHOLDERS’ EQUITY
The Company has three classes of common equity: class A, class B, and class C common stock. The Company’s class A common stock is traded over-the-counter and is quoted daily under NASDAQ’s Capital Markets under the symbol “GROW.” There is no established public trading market for the Company’s class B and class C common stock. There are no shares of class B stock issued as of June 30, 2022, or 2021.
The Company’s class A and class B common stock have no voting privileges.
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Dividends
Dividends totaling $1.1 million and $552,000 were paid to holders of class A common stock in fiscal years 2022 and 2021, respectively. Dividends of $171,000 and $88,000 were paid to holders of class C common stock in fiscal years 2022 and 2021, respectively. The dividend rate per share for both classes was $0.0025 per month for July 2020 through January 2021, $0.0050 per month for February 2021 through September 2021, and $0.0075 per month for October 2021 through June 2022.
As of June 30, 2022, the Board has authorized a monthly dividend of $0.0075 per share through September 2022, at which time it will be considered for continuation by the Board. 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. On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s Board of Directors.
Share Repurchase Plan
The Company has a share repurchase program, approved by the Board of Directors, authorizing the Company to annually purchase up to $5.0 million of its outstanding common shares, as market and business conditions warrant, on the open market in compliance with Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934. The repurchase program has been in place since December 2012, and the Board of Directors has annually renewed the repurchase program each calendar year. The Company announced on February 25, 2022, 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 acquired shares may be used for corporate purposes, including shares issued to employees in the Company’s stock-based compensation programs. As of June 30, 2022, approximately $4.7 million remains available for repurchase under this authorization.
During fiscal years 2022 and 2021, the Company repurchased 89,287 and 53,151, respectively, of its class A shares on the open market using cash of $452,000 and $314,000, respectively. To date, the Company has repurchased a total of 808,969 class A shares under the repurchase program using cash of $2.2 million.
Other Activity
During fiscal year 2021, the Company granted 4,000 shares of class A common stock to certain employees at a weighted average fair value of $2.50. No shares were granted in fiscal year 2022.
The Company granted 3,300 of class A common stock at a weighted average fair value of $2.68 per share to its non-employee directors in fiscal year 2021. No shares were granted in fiscal year 2022.
All stock grants vest immediately after issuance. Issuances of treasury stock for grants, bonuses, and the share repurchase plan are accounted for using the weighted-average cost basis of the shares issued.
Shareholders of class C shares are allowed to convert to class A. During fiscal year 2022, 86 shares were converted from class C to class A. During fiscal year 2021, no shares were converted from class C to class A. Conversions are one class A share for one class C share and are recorded at par value. There are no restrictions or requirements to convert.
Stock Option Plans
In November 1989, the Board of Directors adopted the 1989 Non-Qualified Stock Option Plan (“1989 Plan”), amended in December 1991, which provides for the granting of options to purchase 1,600,000 shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. Options issued under the 1989 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Options issued under the 1989 Plan expire ten years after issuance. There were 231,000 options granted during the year ended June 30, 2021, with a weighted-average grant date fair value price of $3.36 and a vesting period of six months. The options vested during the year ended June 30, 2022. The fair value is estimated at the date of the grant using a Black-Scholes option pricing model. There were no options granted during the year ended June 30, 2022.
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The assumptions utilized to estimate the fair value of options granted under the 1989 Plan during the year ended June 30, 2021, are presented in the following table:
Risk-free interest rate | | | 0.9 | % |
Expected volatility | | | 70.0 | % |
Expected life (in years) | | | 5.25 | |
Expected dividend yield | | | 1.0 | % |
The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. Expected volatility is based on historical volatility of the Company’s common stock. The Company did not have historical post-vesting activity under the 1989 Plan and utilized the simplified method to calculate expected term for stock options granted during the year ended June 30, 2021. The simplified method calculates the expected term as mid-point between the weighted-average time to vest and the contractual maturity. The expected dividend yield is based on the date of grant.
The estimated fair value of options granted is amortized to expense over the options’ vesting period. During the year ended June 30, 2022, $733,000 was recognized as compensation expense and $154,000 was recognized as a deferred tax asset. During the year ended June 30, 2021, $43,000 was recognized as compensation expense and $9,000 was recognized as a deferred tax asset. As of June 30, 2022, there was no unrecognized compensation costs related to nonvested stock options under the Plan. As of June 30, 2021, $733,000 of total unrecognized compensation costs related to nonvested stock options under the Plan was expected to be recognized over a weighted average period of 0.47 years. There were no options forfeited or exercised during the year ended June 30, 2022, or June 30, 2021. Under the 1989 Plan, there were 231,000 options outstanding and exercisable as of June 30, 2022, and 231,000 options outstanding and nonvested as of June 30, 2021, with a weighted-average grant date fair value price of $3.36.
Stock option transactions under the 1989 Plan for the last two fiscal years are summarized below.
| | | | | | Weighted Average | | | Weighted Average Remaining | | | Aggregate Intrinsic | |
| | | | | | Exercise | | | Contractual | | | Value | |
(dollars in thousands, except price data) | | Options | | | Price | | | Life in Years | | | (net of tax) | |
Outstanding June 30, 2020 | | | - | | | | n/a | | | | | | | | | |
Granted | | | 231,000 | | | $ | 6.05 | | | | | | | | | |
Exercised | | | - | | | | n/a | | | | | | | | | |
Forfeited | | | - | | | | n/a | | | | | | | | | |
Outstanding June 30, 2021 | | | 231,000 | | | $ | 6.05 | | | | | | | | | |
Granted | | | - | | | | n/a | | | | | | | | | |
Exercised | | | - | | | | n/a | | | | | | | | | |
Forfeited | | | - | | | | n/a | | | | | | | | | |
Outstanding June 30, 2022 | | | 231,000 | | | $ | 6.05 | | | | 8.98 | | | $ | - | |
In April 1997, the Board of Directors adopted the 1997 Non-Qualified Stock Option Plan (“1997 Plan”), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase 400,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. Options issued under the 1997 Plan expire ten years after issuance. There were no options granted, exercised, or forfeited during the years ended June 30, 2022, or June 30, 2021. There were 2,000 options outstanding and exercisable under the 1997 Plan as of June 30, 2022, and 2021.
The estimated fair value of options granted is amortized to expense over the options’ vesting period. The fair value of these options is estimated at the date of the grant using a Black-Scholes option pricing model.
Stock option transactions under the 1997 Plan for the past two fiscal years are summarized below:
| | | | | | Weighted Average | | | Weighted Average Remaining | | | Aggregate Intrinsic | |
| | | | | | Exercise | | | Contractual | | | Value | |
(dollars in thousands, except price data) | | Options | | | Price | | | Life in Years | | | (net of tax) | |
Outstanding June 30, 2020 | | | 2,000 | | | $ | 2.74 | | | | | | | | | |
Granted | | | - | | | | n/a | | | | | | | | | |
Exercised | | | - | | | | n/a | | | | | | | | | |
Forfeited | | | - | | | | n/a | | | | | | | | | |
Outstanding June 30, 2021 | | | 2,000 | | | $ | 2.74 | | | | | | | | | |
Granted | | | - | | | | n/a | | | | | | | | | |
Exercised | | | - | | | | n/a | | | | | | | | | |
Forfeited | | | - | | | | n/a | | | | | | | | | |
Outstanding June 30, 2022 | | | 2,000 | | | $ | 2.74 | | | | 5.72 | | | $ | 3.00 | |
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NOTE 12. 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.
Carryovers
For U.S. federal income tax purposes at June 30, 2022, the Company has no U.S. federal net operating loss carryovers and no capital loss carryovers.
For Canadian income tax purposes, USCAN has no net operating loss carryovers and no capital loss carryovers.
Additional Disclosures
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 no valuation allowance included at June 30, 2022, or June 30, 2021.
The Company's components of income (loss) before tax by jurisdiction are as follows:
| | Year ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
United States | | $ | 7,621 | | | $ | 17,889 | |
Canada | | | (525 | ) | | | 19,549 | |
Total | | $ | 7,096 | | | $ | 37,438 | |
The reconciliation of income tax computed at U.S. federal statutory rates to income tax expense is as follows:
| | Year ended June 30, | |
| | | | | | % of | | | | | | | % of | |
(dollars in thousands) | | 2022 | | | Pretax | | | 2021 | | | Pretax | |
Tax expense at statutory rate | | $ | 1,490 | | | | 21.0 | % | | $ | 7,862 | | | | 21.0 | % |
Tax expense (benefit) from change in foreign unrealized gain/loss | | | (281 | ) | | | (4.0 | )% | | | 281 | | | | 0.7 | % |
Non-taxable investment income (loss) | | | 294 | | | | 4.2 | % | | | (3,302 | ) | | | (8.8 | )% |
Change in valuation allowance | | | - | | | | 0.0 | % | | | (2,762 | ) | | | (7.4 | )% |
Income from controlled foreign corporation | | | 307 | | | | 4.3 | % | | | 3,534 | | | | 9.4 | % |
Rate difference on foreign deferred income (loss) | | | (262 | ) | | | (3.7 | )% | | | 777 | | | | 2.1 | % |
Rate difference on foreign income (loss) | | | (29 | ) | | | (0.4 | )% | | | 1,075 | | | | 2.9 | % |
Foreign tax credit | | | (153 | ) | | | (2.2 | )% | | | (1,825 | ) | | | (4.9 | )% |
Other | | | 231 | | | | 3.3 | % | | | (163 | ) | | | (0.4 | )% |
Total tax expense | | $ | 1,597 | | | | 22.5 | % | | $ | 5,477 | | | | 14.6 | % |
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Components of total tax expense (benefit) are as follows:
| | Year ended June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Current tax expense - U.S. Federal | | $ | 3,886 | | | $ | 2,004 | |
Current tax expense - Non-U.S. | | | 154 | | | | 2,418 | |
Deferred tax expense (benefit) - U.S. Federal | | | (2,209 | ) | | | 576 | |
Deferred tax expense (benefit) - Non-U.S. | | | (234 | ) | | | 479 | |
Total tax expense | | $ | 1,597 | | | $ | 5,477 | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred assets and liabilities are as follows:
| | June 30, | |
(dollars in thousands) | | 2022 | | | 2021 | |
Deferred Income Tax Assets: | | | | | | | | |
Accumulated depreciation | | $ | 102 | | | $ | 110 | |
Investments in securities at fair value | | | 217 | | | | - | |
Accrued expenses | | | 407 | | | | 320 | |
Product start-up costs | | | 99 | | | | 84 | |
Stock-based compensation expense | | | 164 | | | | - | |
Other | | | 16 | | | | 25 | |
Total Deferred Tax Assets | | | 1,005 | | | | 539 | |
Deferred Income Tax Liabilities: | | | | | | | | |
Investments in securities at fair value | | $ | - | | | $ | (2,600 | ) |
Prepaid expenses | | | (64 | ) | | | (60 | ) |
Other investments | | | (430 | ) | | | (389 | ) |
Equity method investments | | | - | | | | (40 | ) |
Foreign tax on undistributed earnings | | | (259 | ) | | | (249 | ) |
Total Deferred Tax Liabilities | | | (753 | ) | | | (3,338 | ) |
Net Deferred Tax Asset (Liability) | | $ | 252 | | | $ | (2,799 | ) |
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NOTE 13. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted earnings per share (EPS):
| | Year Ended June 30, | |
(dollars in thousands, except per share data) | | 2022 | | | 2021 | |
Net Income | | $ | 5,499 | | | $ | 31,961 | |
| | | | | | | | |
Weighted average number of outstanding shares | | | | | | | | |
Basic | | | 15,010,138 | | | | 15,067,044 | |
Effect of dilutive securities: | | | | | | | | |
Stock options | | | 990 | | | | 909 | |
Diluted | | | 15,011,128 | | | | 15,067,953 | |
| | | | | | | | |
Earnings Per Share | | | | | | | | |
Basic Net Income per Share | | $ | 0.37 | | | $ | 2.12 | |
Diluted Net Income per Share | | $ | 0.37 | | | $ | 2.12 | |
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2022, and 2021, 231,000 employee stock options were excluded from diluted EPS.
During fiscal years 2022 and 2021, the Company repurchased class A shares on the open market. Repurchased shares are classified as treasury shares and are deducted from outstanding shares in the earnings per share calculation.
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents changes in accumulated other comprehensive income (loss) by component:
(dollars in thousands) | | Unrealized gains (losses) on available-for-sale investments | | | Foreign currency translation adjustment 1 | | | Total | |
Balance at June 30, 2020 | | $ | - | | | $ | (4 | ) | | $ | (4 | ) |
Other comprehensive income before reclassifications | | | 9,488 | | | | 27 | | | | 9,515 | |
Tax effect | | | (1,992 | ) | | | - | | | | (1,992 | ) |
Amount reclassified from AOCI | | | (1,180 | ) | | | - | | | | (1,180 | ) |
Tax effect | | | 248 | | | | - | | | | 248 | |
Net other comprehensive income for 2021 | | | 6,564 | | | | 27 | | | | 6,591 | |
Balance at June 30, 2021 | | | 6,564 | | | | 23 | | | | 6,587 | |
Other comprehensive loss before reclassifications | | | (705 | ) | | | (13 | ) | | | (718 | ) |
Tax effect | | | 148 | | | | - | | | | 148 | |
Amount reclassified from AOCI | | | (2,191 | ) | | | (10 | ) | | | (2,201 | ) |
Tax effect | | | 460 | | | | - | | | | 460 | |
Net other comprehensive loss for 2022 | | | (2,288 | ) | | | (23 | ) | | | (2,311 | ) |
Balance at June 30, 2022 | | $ | 4,276 | | | $ | - | | | $ | 4,276 | |
1. | Amounts include no tax expense or benefit. |
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NOTE 15. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company manages the following business segments:
| 1. | Investment management services, by which the Company offers, to USGIF and ETF clients, a range of investment management products and services to meet the needs of individual and institutional investors; and |
| 2. | Corporate investments, through which the Company invests for its own account in an effort to add growth and value to its cash position |
These segments are managed separately. The Company’s segment information is prepared on the same basis that management uses to review the financial information for operational and investment decision-making purposes. The Company's chief operating and investment decision maker, the Chief Executive Officer, evaluates the performance of the Company’s Corporate Investments segment separately from the Investment Management Services segment based on investment income (loss), and the Corporate Investments segment does not include any allocated company expenses. All segment accounting policies are the same as those described in the summary of significant accounting policies.
The following schedule details total revenues and income by business segment:
| | Investment | | | | | | | | | |
| | Management | | | Corporate | | | | | |
(dollars in thousands) | | Services | | | Investments | | | Consolidated | |
Year ended June 30, 2022 | | | | | | | | | | | | |
Net operating revenues | | $ | 24,714 | | | $ | - | | | $ | 24,714 | |
Investment loss | | $ | - | | | $ | (4,046 | ) | | $ | (4,046 | ) |
Loss from equity method investments | | $ | - | | | $ | (206 | ) | | $ | (206 | ) |
Other income | | $ | 235 | | | $ | - | | | $ | 235 | |
Income (loss) before income taxes | | $ | 11,622 | | | $ | (4,526 | ) | | $ | 7,096 | |
Depreciation and amortization | | $ | 226 | | | $ | - | | | $ | 226 | |
Gross identifiable assets at June 30, 2022 | | $ | 23,003 | | | $ | 37,439 | | | $ | 60,442 | |
Deferred tax asset | | | | | | | | | | $ | 252 | |
Consolidated total assets at June 30, 2022 | | | | | | | | | | $ | 60,694 | |
Year ended June 30, 2021 | | | | | | | | | | | | |
Net operating revenues | | $ | 21,654 | | | $ | - | | | $ | 21,654 | |
Investment income | | $ | - | | | $ | 28,338 | | | $ | 28,338 | |
Income from equity method investments | | $ | - | | | $ | 347 | | | $ | 347 | |
Gain on forgiveness of PPP loan | | $ | 444 | | | $ | - | | | $ | 444 | |
Other income | | $ | 144 | | | $ | - | | | $ | 144 | |
Income before income taxes | | $ | 10,866 | | | $ | 26,572 | | | $ | 37,438 | |
Depreciation and amortization | | $ | 196 | | | $ | - | | | $ | 196 | |
Gross identifiable assets at June 30, 2021 | | $ | 17,522 | | | $ | 44,755 | | | $ | 62,277 | |
Net operating revenues from investment management services include revenues from USGIF of $3.8 million and $4.5 million in fiscal years 2022 and 2021, respectively. Net operating revenues from investment management services also include operating revenues from ETF clients of $21.0 million and $17.1 million in fiscal years 2022 and 2021, respectively.
NOTE 16. RELATED PARTY TRANSACTIONS
On June 30, 2022, and 2021, the Company had $12.8 million and $7.3 million, respectively, at fair value invested in USGIF funds the Company advised. These amounts were included in the Consolidated Balance Sheets as “investments in equity securities at fair value.” During the year ended June 30, 2022, the Company made an additional investment for $6.0 million. The Company recorded $146,000 and $15,000 in income from capital gain distributions and dividends from USGIF investments in fiscal years 2022 and 2021, respectively. There was no net realized gains or losses on its investments in the Funds in fiscal years 2022 or 2021.
The Company earned advisory and administrative services fees, as applicable, from the various funds for which it acts as investment adviser, as disclosed in Note 4. Receivables include amounts due from the funds for those fees and out-of-pocket expenses, net of amounts payable to the funds for expense reimbursements. As of June 30, 2022, and 2021, the Company had $1.6 million and $2.4 million, respectively, of receivables from funds included in the Consolidated Balance Sheets within “receivables.” As of June 30, 2022, the Company had $110,000 of payables to funds included in the Consolidated Balance Sheets within “other accrued expenses.”
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The Company has had various investments in HIVE that were valued at approximately $14.1 million and $25.1 million and as of June 30, 2022, and 2021, respectively. As discussed in Note 3, in January 2021, the Company purchased convertible securities in HIVE, and an unrealized gain was recognized in other comprehensive income (loss) for the convertible debentures, which will be realized in investment income (loss) ratably using the effective interest method until maturity, conversion, or other disposition. During the fiscal year ended June 30, 2022, and 2021, $3.0 million and $1.4 million, respectively, in principal payments were received, and $2.2 million and $1.2 million, respectively, was included in investment income (loss) as realized gains on principal payment proceeds. On July 1, 2018, the Company reclassified $3.2 million of unrealized gains related to its investment in HIVE from Accumulated Other Comprehensive Income (Loss) into Retained Earnings. Therefore, when a HIVE investment was sold during the fiscal year ended June 30, 2021, the amount included in realized gains on sales of fair valued securities was the proceeds of $20.6 million, less the cost of $2.4 million and the ASU 2016-01 reclassified unrealized gains of $3.2 million, or $15.0 million. The Company recorded $1.6 million and $368,000 in interest income from HIVE investments during the fiscal year ended June 30, 2022, and 2021, respectively. The Company earned other income from HIVE for consulting fees in the amount of $120,000 and $40,000 during the fiscal year ended June 30, 2022, and 2021, respectively. The Company had $140,000 and $40,000 of receivables from HIVE included in the Consolidated Balance Sheets within “receivables” as of June 30, 2022, and 2021, respectively. Frank Holmes, a director and Chief Executive Officer of the Company, is the executive chairman of HIVE, for which he received director fees from HIVE during fiscal years 2022 and 2021. Mr. Holmes held shares and options of HIVE at June 30, 2022, and 2021. Effective August 31, 2018, Mr. Holmes was named Interim CEO and Interim Executive Chairman of HIVE. Effective December 22, 2020, Mr. Holmes became the Executive Chairman of HIVE.
As discussed in Note 3, the Company held an investment in Thunderbird that was valued at approximately $2.7 million as of 2021. Realized gains on sales totaled $1.9 million and $936,000 during the fiscal years ended June 30, 2022, and 2001, respectively. Frank Holmes served on the board of this company as a director, for which he received fees, from June 2014 to March 2021.
As discussed in Note 3, the Company has an investment in Sonar that had a carrying value of approximately $362,000 and $100,000 at June 30, 2022, and 2021, respectively. During the year ended June 30, 2022, the Company purchased additional common shares for $75,000, resulting in an observable price change and upward adjustment for the existing common shares held of approximately $187,000, using the measurement alternative. The Company earned lease income from Sonar in the amount of $15,000 during the fiscal year ended June 30, 2022, and none in 2021. Roy D. Terracina, Director and Vice Chairman of the Board of Directors for U.S. Global, has served as the CEO of Sonar since July 2021.
NOTE 17. CONTINGENCIES AND COMMITMENTS
The Company continuously reviews all 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 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. The Company recorded no accruals for contingencies as of June 30, 2022, or June 30, 2021.
The Board of Directors has authorized a monthly dividend of $0.0075 per share from July through September 2022, at which time it will be considered for continuation by the Board of Directors. 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 total amount of cash dividends to be paid to class A and class C shareholders from July to September 2022 will be approximately $337,000.
The outbreak of the COVID-19 pandemic and the resulting actions to control or slow the spread have affected global and domestic economies and financial markets, and in the future it or other epidemics, pandemics or outbreaks may adversely affect the Company's results of operations, cash flows and financial position. The Company cannot reasonably estimate the future impact of these events, given the uncertainty over the duration and severity of the economic impact.