U.S. Global Investors, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2020, compared with fiscal year ended June 30, 2019. The request metadata identifies “2019 Q4,” but the provided filing is an annual report for fiscal 2020.
Business Context
U.S. Global Investors is a registered investment adviser operating two continuing segments: Investment Management Services and Corporate Investments. It advises mutual funds and two ETFs, including the U.S. Global Jets ETF and the U.S. Global GO GOLD and Precious Metal Miners ETF. The Company had 21 full-time and two part-time employees at June 30, 2020.
The Company sold its 65% interest in Galileo Global Equity Advisors Inc. on March 2, 2020. Galileo’s results are presented as discontinued operations.
Key Financial Metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Operating revenues | $4.476 million | $3.459 million | +29.4% |
| Operating expenses | $6.879 million | $6.216 million | +10.7% |
| Operating loss | $2.403 million | $2.757 million | Improved by $354,000 |
| Investment loss | $2.211 million | $1.582 million | Loss increased $629,000 |
| Loss from continuing operations | $4.464 million | $3.292 million | Loss increased $1.172 million |
| Net loss attributable to U.S. Global | $4.684 million | $3.388 million | Loss increased $1.296 million |
| Basic and diluted loss per share | $0.31 loss | $0.22 loss | Loss increased $0.09 per share |
| Net cash used in operating activities | $240,000 | $1.075 million | Improved by $835,000 |
| Total assets | $18.816 million | $23.744 million | Down $4.928 million |
| Shareholders’ equity attributable to U.S. Global | $16.764 million | $21.712 million | Down $4.948 million |
Investment advisory fees increased 31.7% to $4.311 million, primarily due to ETF growth. ETF advisory fees increased to $1.743 million from $588,000, while USGIF advisory fees declined 4.4% to $2.568 million. Administrative services fees declined 10.8% to $165,000.
Operating margin remained negative but improved to approximately negative 53.7% from negative 79.7%, based on operating revenues and expenses. The Company’s net margin remained negative at approximately 104.6% of operating revenues.
Assets Under Management and Material Changes
| AUM | June 30, 2020 | June 30, 2019 | Change |
|---|---|---|---|
| USGIF | $425.9 million | $425.6 million | Essentially flat |
| ETF clients | $1.288 billion | $84.5 million | Substantial increase |
| Total AUM | $1.714 billion | $510.1 million | +236.0% |
- The increase in AUM was primarily attributable to inflows into the U.S. Global Jets ETF, which reached approximately $1.2 billion at fiscal year-end versus approximately $70 million a year earlier.
- Average AUM increased 32.2% to $699.5 million, although average USGIF assets declined because of shareholder redemptions.
- USGIF experienced net shareholder redemptions of $50.4 million in fiscal 2020, compared with $31.8 million in fiscal 2019.
- General and administrative expenses rose 25.4%, principally due to higher ETF fund and sales-promotion expenses.
- Investment loss increased to $2.2 million, including approximately $2.0 million of net unrealized losses, $285,000 of impairment losses and $232,000 of realized foreign-currency losses.
- The Company’s fair-value securities declined to $11.464 million from $15.187 million, with an unrealized loss of $1.464 million at June 30, 2020 versus an unrealized gain of $547,000 in 2019.
Cash Flow, Liquidity and Debt
- Cash and cash equivalents were $1.936 million; restricted cash was $1.025 million.
- Unrestricted securities at fair value were approximately $11.4 million. Management stated that cash and unrestricted marketable securities totaled approximately $13.4 million and were sufficient for foreseeable needs.
- Working capital was approximately $8.5 million, with a current ratio of 5.2 to 1.
- The Company received a $442,000 Paycheck Protection Program loan at a fixed 1% interest rate, maturing April 12, 2022. The amount potentially eligible for forgiveness was not determinable at filing.
- A $1 million secured credit facility remained unused at June 30, 2020. It is collateralized by approximately $1 million of restricted cash and expires May 31, 2021.
- Cash dividends paid were $452,000 in fiscal 2020. The Board authorized a monthly dividend of $0.0025 per share through September 2020, subject to reassessment.
- The Company repurchased 105,721 class A shares for $113,000 during fiscal 2020 and had approximately $2.64 million remaining under its repurchase authorization at June 30, 2020.
Outlook, Risks and Unusual Items
- Management expects the USGIF advisory and administrative agreements, which were subject to renewal in September 2020, to be renewed. ETF advisory agreements were renewed through September 2021.
- COVID-19 caused significant economic and market disruption. Management stated that remote work had not adversely affected operations or financial reporting controls, but the longer-term financial impact could not be estimated.
- Revenue is highly dependent on AUM, market values, investor flows, investment performance and performance-fee adjustments. Poor performance or redemptions could reduce revenue and profitability.
- The Company has substantial exposure to volatile corporate investments, including cryptocurrency-related investments. Its HIVE Blockchain Technologies investment was valued at approximately $2.4 million at year-end, compared with $3.6 million in 2019.
- Frank Holmes is CEO, CIO and beneficial owner of 99.8% of the voting class C shares. Publicly traded class A shares are nonvoting, creating significant voting control and governance concentration.
- The sale of Galileo generated approximately $746,000 of cash proceeds and a $151,000 realized gain, but Galileo produced a $338,000 discontinued-operations loss in fiscal 2020.
- The Company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2020.
Investor Verification Priorities
- Verify whether the exceptional increase in ETF AUM, particularly JETS, persisted after June 30, 2020 and translated into sustainable fee revenue and profitability.
- Review the composition, concentration and subsequent valuation of the Company’s corporate investment portfolio, especially HIVE and other cryptocurrency- or resource-related holdings.
- Confirm the final forgiveness amount and remaining balance of the $442,000 PPP loan.
- Confirm renewal of the USGIF advisory and administrative agreements and monitor ETF contract status.
- Assess the sustainability of dividends and share repurchases while the Company remains loss-making.
- Review the effect of continuing USGIF redemptions, fee waivers and performance-fee adjustments on future revenue.
- Evaluate COVID-19, market-volatility, regulatory, cybersecurity, foreign-currency and key-person risks disclosed in the filing.