usglobal10q033116.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2016
OR
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________.
Commission File Number 0-13928
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U.S. GLOBAL INVESTORS, INC.
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(Exact name of registrant as specified in its charter)
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Texas
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74-1598370
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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7900 Callaghan Road
San Antonio, Texas
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78229-1234
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(Address of principal executive offices)
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(Zip Code) |
(210) 308-1234
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller Reporting Company x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO x
On May 2, 2016, there were 13,866,421 shares of Registrant’s class A nonvoting common stock issued and 13,192,818 shares of Registrant’s class A nonvoting common stock issued and outstanding, no shares of Registrant’s class B nonvoting common shares outstanding, and 2,069,127 shares of Registrant’s class C voting common stock issued and outstanding.
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PART I. FINANCIAL INFORMATION
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PART II. OTHER INFORMATION
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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March 31, 2016
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June 30, 2015
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Assets
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(UNAUDITED)
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(dollars in thousands)
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Current Assets
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Cash and cash equivalents
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$ |
3,057 |
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$ |
3,507 |
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Investment securities - trading, at fair value
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13,102 |
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15,640 |
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Investment securities - held-to-maturity
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750 |
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- |
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Receivables
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749 |
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1,653 |
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Prepaid expenses
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329 |
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410 |
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Total assets held related to discontinued operations
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- |
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184 |
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Total Current Assets
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17,987 |
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21,394 |
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Net Property and Equipment
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2,537 |
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2,736 |
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Other Assets
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Investment securities - available-for-sale, at fair value
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4,013 |
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4,263 |
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Other investments
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2,025 |
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2,303 |
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Intangible assets, net
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8 |
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41 |
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Other assets, long term
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109 |
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33 |
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Total Other Assets
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6,155 |
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6,640 |
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Total Assets
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$ |
26,679 |
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$ |
30,770 |
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Liabilities and Shareholders' Equity
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Current Liabilities
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Accounts payable
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$ |
158 |
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$ |
114 |
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Accrued compensation and related costs
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342 |
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456 |
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Dividends payable
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115 |
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231 |
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Other accrued expenses
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509 |
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692 |
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Total liabilities held related to discontinued operations
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- |
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134 |
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Total Current Liabilities
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1,124 |
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1,627 |
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Commitments and Contingencies (Note 11)
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Shareholders' Equity
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Common stock (class A) - $0.025 par value; nonvoting; authorized, 28,000,000 shares; issued, 13,866,421 at March 31, 2016, and June 30, 2015
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347 |
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347 |
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Common stock (class B) - $0.025 par value; nonvoting; authorized, 4,500,000 shares; no shares issued
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- |
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- |
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Convertible common stock (class C) - $0.025 par value; voting; authorized, 3,500,000 shares; issued, 2,069,127 shares at March 31, 2016, and June 30, 2015
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52 |
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52 |
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Additional paid-in-capital
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15,653 |
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15,694 |
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Treasury stock, class A shares at cost; 664,894 and 555,786 shares at March 31, 2016, and June 30, 2015, respectively
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(1,624 |
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(1,464 |
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Accumulated other comprehensive loss, net of tax
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(45 |
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(483 |
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Retained earnings
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10,649 |
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14,423 |
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Total U.S. Global Investors Inc. Shareholders' Equity
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25,032 |
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28,569 |
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Non-Controlling Interest in Subsidiary
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523 |
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574 |
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Total Shareholders' Equity
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25,555 |
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29,143 |
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Total Liabilities and Shareholders' Equity
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$ |
26,679 |
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$ |
30,770 |
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The accompanying notes are an integral part of these consolidated financial statements.
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Nine Months Ended
March 31,
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Three Months Ended
March 31,
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(dollars in thousands, except per share data)
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2016
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2015
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2016
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2015
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Operating Revenues
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Advisory fees
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$ |
3,615 |
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$ |
5,359 |
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$ |
1,279 |
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$ |
1,248 |
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Administrative services fees
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254 |
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516 |
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51 |
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141 |
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3,869 |
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5,875 |
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1,330 |
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1,389 |
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Operating Expenses
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Employee compensation and benefits
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3,953 |
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4,101 |
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886 |
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1,269 |
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General and administrative
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2,963 |
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3,113 |
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765 |
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1,001 |
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Platform fees
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382 |
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671 |
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106 |
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166 |
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Advertising
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182 |
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81 |
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33 |
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43 |
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Depreciation and amortization
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240 |
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246 |
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80 |
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81 |
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7,720 |
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8,212 |
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1,870 |
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2,560 |
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Operating Loss
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(3,851 |
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(2,337 |
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(540 |
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(1,171 |
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Other Income
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Investment income
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411 |
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522 |
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148 |
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249 |
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Total Other Income
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411 |
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522 |
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148 |
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249 |
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Loss Before Income Taxes
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(3,440 |
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(1,815 |
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(392 |
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(922 |
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Provision for Federal Income Taxes
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Tax expense (benefit)
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(5 |
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22 |
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(16 |
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26 |
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Loss from Continuing Operations
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(3,435 |
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(1,837 |
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(376 |
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(948 |
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Discontinued Operations
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Loss from discontinued operations of distributor
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(18 |
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(89 |
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- |
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(47 |
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Tax benefit
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- |
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(1 |
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- |
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(1 |
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Loss from Discontinued Operations
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(18 |
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(88 |
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- |
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(46 |
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Net Loss
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(3,453 |
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(1,925 |
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(376 |
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(994 |
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Less: Net Income (Loss) Attributable to Non-Controlling Interest
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(23 |
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53 |
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(26 |
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13 |
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Net Loss Attributable to U.S. Global Investors, Inc.
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$ |
(3,430 |
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$ |
(1,978 |
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$ |
(350 |
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$ |
(1,007 |
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Basic Net Loss per Share:
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Loss from continuing operations
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$ |
(0.22 |
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$ |
(0.12 |
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$ |
(0.02 |
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$ |
(0.06 |
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Loss from discontinued operations
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- |
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(0.01 |
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- |
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(0.01 |
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Basic Net Loss per Share
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$ |
(0.22 |
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$ |
(0.13 |
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$ |
(0.02 |
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$ |
(0.07 |
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Diluted Net Loss per Share:
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Loss from continuing operations
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$ |
(0.22 |
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$ |
(0.12 |
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$ |
(0.02 |
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$ |
(0.06 |
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Loss from discontinued operations
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- |
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(0.01 |
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- |
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(0.01 |
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Diluted Net Loss per Share
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$ |
(0.22 |
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$ |
(0.13 |
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$ |
(0.02 |
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$ |
(0.07 |
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Basic weighted average number of common shares outstanding
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15,306,676 |
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15,406,189 |
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15,277,098 |
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15,379,365 |
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Diluted weighted average number of common shares outstanding
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15,306,676 |
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15,406,189 |
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15,277,098 |
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15,379,365 |
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The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
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Nine Months Ended
March 31,
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Three Months Ended
March 31,
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(dollars in thousands)
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2016
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2015
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2016
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2015
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Net Loss Attributable to U.S. Global Investors, Inc.
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$ |
(3,430 |
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$ |
(1,978 |
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$ |
(350 |
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$ |
(1,007 |
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Other Comprehensive Income (Loss), Net of Tax:
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Unrealized gains (losses) on available-for-sale securities arising during period
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774 |
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(862 |
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417 |
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(13 |
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Less: reclassification adjustment for gains/losses included in net income
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(286 |
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(321 |
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(14 |
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(69 |
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Net change from available-for-sale investments, net of tax
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488 |
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(1,183 |
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403 |
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(82 |
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Foreign currency translation adjustment
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(79 |
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(285 |
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95 |
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(136 |
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Other Comprehensive Income (Loss)
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409 |
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(1,468 |
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498 |
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(218 |
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Comprehensive Income (Loss)
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(3,021 |
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(3,446 |
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148 |
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(1,225 |
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Less: Comprehensive Income (Loss) Attributable to Non-Controlling Interest
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(28 |
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(100 |
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33 |
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(48 |
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Comprehensive Income (Loss) Attributable to U.S. Global Investors, Inc.
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$ |
(2,993 |
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$ |
(3,346 |
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$ |
115 |
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$ |
(1,177 |
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The accompanying notes are an integral part of these consolidated financial statements.
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Nine Months Ended March 31,
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(dollars in thousands)
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2016
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2015
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Cash Flows from Operating Activities:
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Net loss
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$ |
(3,453 |
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$ |
(1,925 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities:
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Depreciation and amortization
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240 |
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246 |
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Net recognized loss on disposal of fixed assets
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- |
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26 |
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Net recognized (gain) loss on securities
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2 |
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(483 |
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Provision for deferred taxes
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- |
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37 |
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Stock bonuses
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11 |
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9 |
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Changes in operating assets and liabilities:
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Accounts receivable
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1,080 |
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570 |
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Prepaid and other assets
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2 |
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21 |
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Trading securities
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2,505 |
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1,371 |
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Accounts payable and accrued expenses
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(378 |
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(510 |
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Total adjustments
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3,462 |
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1,287 |
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Net cash provided by (used in) operating activities
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9 |
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(638 |
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Cash Flows from Investing Activities:
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Purchase of property and equipment
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(13 |
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(40 |
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Purchase of available-for-sale securities
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- |
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(186 |
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Purchase of other investments
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(750 |
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(1,000 |
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Proceeds on sale of available-for-sale securities
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1,014 |
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|
754 |
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Return of capital on investment
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32 |
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19 |
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Net cash provided by (used in) investing activities
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283 |
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(453 |
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Cash Flows from Financing Activities:
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Issuance of common stock
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59 |
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91 |
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Repurchases of common stock
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(269 |
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(266 |
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Distributions to non-controlling interests in subsidiary
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- |
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(27 |
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Dividends paid
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(460 |
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|
(693 |
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Net cash used in financing activities
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(670 |
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|
(895 |
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Effect of exchange rate changes on cash and cash equivalents
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(72 |
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(253 |
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Net decrease in cash and cash equivalents
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(450 |
) |
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(2,239 |
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Beginning cash and cash equivalents
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|
|
3,507 |
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|
5,910 |
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Ending cash and cash equivalents
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|
$ |
3,057 |
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|
$ |
3,671 |
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|
Supplemental Disclosures of Cash Flow Information
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Cash paid for income taxes
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|
$ |
- |
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|
$ |
- |
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has prepared the consolidated financial statements pursuant to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) that permit reduced disclosure for interim periods. The financial information included herein reflects all adjustments (consisting solely of normal recurring adjustments), which are, in management’s opinion, necessary for a fair presentation of results for the interim periods presented. The Company has consistently followed the accounting policies set forth in the notes to the consolidated financial statements in the Company’s Form 10-K for the fiscal year ended June 30, 2015.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, United Shareholder Services, Inc. (“USSI”), U.S. Global Brokerage, Inc., U.S. Global Investors (Bermuda) Limited, U.S. Global Investors (Canada) Limited (“USCAN”), and U.S. Global Indices, LLC, and its 65 percent interest in Galileo Global Equity Advisor Inc. (“Galileo”). The Company’s wholly-owned subsidiary, USSI, which ceased operations in fiscal year 2014, was legally dissolved in December 2015. U.S. Global Brokerage, Inc. ceased operations in December 2015 as discussed in Note 12.
Galileo is consolidated with the operations of the Company. The non-controlling interest in this subsidiary is included in “non-controlling interest in subsidiaries” in the equity section of the Consolidated Balance Sheets. Frank Holmes, CEO, and Susan McGee, President and General Counsel, serve as directors of Galileo.
The Company's evaluation for consolidation includes whether entities in which it has an interest are variable interest entities (“VIEs”) and whether the Company is the primary beneficiary of any VIEs identified in its analysis. A VIE is an entity in which either (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b) the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of or right to receive benefits from the VIE that could potentially be significant to the VIE. If the VIE qualifies for the investment company deferral, 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.
The Company holds variable interests in, but is not deemed to be the primary beneficiary of, the funds it advises. The Company has determined that these entities qualify for the investment company deferral in Accounting Standards Codification (“ASC”) 810-10-65-2 (aa) and thus determines whether it is the primary beneficiary of these entities by virtue of its exposure to the expected losses and expected residual returns of the entity. The Company’s interests in these entities consist of the Company’s direct ownership therein, which in each case is insignificant to the total ownership of the fund, 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 managed entities is limited to the carrying value of its investments in, and fees receivable from, the entities. The Company does not consolidate these VIEs because it is not the primary beneficiary of these VIEs.
All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. The results of operations for the nine months ended March 31, 2016, are not necessarily indicative of the results to be expected for the entire year.
The unaudited interim financial information in these condensed financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s annual report.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 became effective for the Company on July 1, 2015. The adoption of ASU 2014-08 was not material to the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (“ASU 2014-15”). This update requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). When conditions or events raise substantial doubts about an entity’s ability to continue as a going concern, management shall disclose: i) the principal conditions or events that raise substantial doubt about the entity's ability to continue as a going concern; ii) management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and iii) management's plans that are intended to mitigate the conditions or events - and whether or not those plans alleviate the substantial doubt about the entity's ability to continue as a going concern. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and early application is permitted. Management does not currently anticipate that this update will have any impact on the Company’s financial statement disclosures.
In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis (“ASU 2015-02”), which amends the consolidation requirements in ASC 810, Consolidation. This standard modifies existing consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015, and requires either a retrospective or a modified retrospective approach to adoption. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements, as well as the available transition methods.
In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. The update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, and early adoption is permitted. The update requires the retrospective adoption approach. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. It simplifies the current guidance, which requires entities to separately present deferred tax assets and liabilities as current or noncurrent in a classified balance sheet. Netting by tax jurisdiction is still required under the new guidance. The update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, and early adoption is permitted. Entities are permitted to apply the amendments either prospectively or retrospectively. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 amends the guidance on the classification and measurement of investments in equity securities. It also amends certain presentation and disclosure requirements. ASU 2016-01 is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts from Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). ASU 2016-08 amends the guidance in ASU 2014-09, which is not yet effective. Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. The effective date and transition requirements for the amendments in ASU 2016-08 are the same as the effective date and transition requirements of ASU 2014-09. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and disclosed. ASU 2016-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption will be permitted in any interim or annual period, as long as all elements of the new standard are adopted at the same time. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.
NOTE 2. INVESTMENTS
As of March 31, 2016, the Company held investments with a fair value of approximately $17.1 million and a cost basis of approximately $17.9 million. The fair value of these investments is approximately 64.2 percent of the Company’s total assets. In addition, the Company owned held-to-maturity and other investments of $750,000 and $2.0 million, respectively, accounted for at amortized cost and under the cost method of accounting, respectively. On March 31, 2016, the Company had $14.2 million and $345,000 at fair value invested in USGIF and an offshore fund the Company advises, respectively. These amounts were included in the Consolidated Balance Sheet as “trading securities” and “available-for-sale securities.”
Investments in securities classified as trading are reflected as current assets on the Consolidated Balance Sheets at their fair value. Unrealized holding gains and losses on trading securities are included in earnings in the Consolidated Statements of Operations.
Investments in securities classified as available-for-sale, which may not be readily marketable, are reflected as non-current assets on the Consolidated Balance Sheets at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income as a separate component of shareholders’ equity until realized.
Investments in securities held-to-maturity consist of debt securities, maturing October 2016, that are purchased with the intent and ability to hold until maturity. These investments are accounted for at amortized cost.
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. These investments are accounted for under the cost method of accounting and evaluated periodically for impairment.
The Company considers many factors in determining impairment, including the severity and duration of the decline in value below cost, the Company’s interest and ability to hold the security for a period of time sufficient for an anticipated recovery in value, and the financial condition and specific events related to the issuer. When an impairment of a security is determined to be other than temporary, the impairment is recognized as a loss in the Company’s earnings.
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.
The following details the components of the Company’s investments recorded as fair value as of March 31, 2016, and June 30, 2015.
| |
|
March 31, 2016
|
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Trading securities1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore fund
|
|
$ |
1,184 |
|
|
$ |
- |
|
|
$ |
(839 |
) |
|
$ |
345 |
|
|
Mutual funds - Fixed income
|
|
|
12,290 |
|
|
|
125 |
|
|
|
(1 |
) |
|
|
12,414 |
|
|
Mutual funds - Domestic equity
|
|
|
535 |
|
|
|
- |
|
|
|
(192 |
) |
|
|
343 |
|
|
Other
|
|
|
46 |
|
|
|
- |
|
|
|
(46 |
) |
|
|
- |
|
|
Total trading securities
|
|
$ |
14,055 |
|
|
$ |
125 |
|
|
$ |
(1,078 |
) |
|
$ |
13,102 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
$ |
109 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
118 |
|
|
Common stock - International
|
|
|
613 |
|
|
|
57 |
|
|
|
(50 |
) |
|
|
620 |
|
|
Corporate debt
|
|
|
1,355 |
|
|
|
152 |
|
|
|
- |
|
|
|
1,507 |
|
|
Mutual funds - Fixed income
|
|
|
1,229 |
|
|
|
14 |
|
|
|
(34 |
) |
|
|
1,209 |
|
|
Mutual funds - Domestic equity
|
|
|
394 |
|
|
|
5 |
|
|
|
- |
|
|
|
399 |
|
|
Other
|
|
|
163 |
|
|
|
2 |
|
|
|
(5 |
) |
|
|
160 |
|
|
Total available-for-sale securities3
|
|
$ |
3,863 |
|
|
$ |
239 |
|
|
$ |
(89 |
) |
|
$ |
4,013 |
|
| |
|
June 30, 2015
|
|
|
(dollars in thousands)
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
Trading securities1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore fund
|
|
$ |
1,184 |
|
|
$ |
- |
|
|
$ |
(703 |
) |
|
$ |
481 |
|
|
Mutual funds - Fixed income
|
|
|
14,691 |
|
|
|
68 |
|
|
|
(5 |
) |
|
|
14,754 |
|
|
Mutual funds - Domestic equity
|
|
|
535 |
|
|
|
- |
|
|
|
(130 |
) |
|
|
405 |
|
|
Other
|
|
|
81 |
|
|
|
- |
|
|
|
(81 |
) |
|
|
- |
|
|
Total trading securities
|
|
$ |
16,491 |
|
|
$ |
68 |
|
|
$ |
(919 |
) |
|
$ |
15,640 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
$ |
535 |
|
|
$ |
316 |
|
|
$ |
(9 |
) |
|
$ |
842 |
|
|
Common stock - International
|
|
|
695 |
|
|
|
309 |
|
|
|
(39 |
) |
|
|
965 |
|
|
Corporate debt
|
|
|
1,433 |
|
|
|
- |
|
|
|
(817 |
) |
|
|
616 |
|
|
Mutual funds - Fixed income
|
|
|
1,227 |
|
|
|
9 |
|
|
|
(22 |
) |
|
|
1,214 |
|
|
Mutual funds - Domestic equity
|
|
|
543 |
|
|
|
- |
|
|
|
(80 |
) |
|
|
463 |
|
|
Other
|
|
|
169 |
|
|
|
1 |
|
|
|
(7 |
) |
|
|
163 |
|
|
Total available-for-sale securities3
|
|
$ |
4,602 |
|
|
$ |
635 |
|
|
$ |
(974 |
) |
|
$ |
4,263 |
|
|
1
|
Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.
|
|
2
|
Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.
|
|
3
|
Net unrealized gains (losses) on available-for-sale securities gross and net of tax as of March 31, 2016, are $150 and $150, respectively, and as of June 30, 2015, are $(339) and $(339), respectively.
|
The following tables show the gross unrealized losses and fair values of available-for-sale investment securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
| |
|
March 31, 2016
|
|
| |
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
| |
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
| |
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Common stock - International
|
|
|
164 |
|
|
|
(31 |
) |
|
|
27 |
|
|
|
(19 |
) |
|
|
191 |
|
|
|
(50 |
) |
|
Corporate debt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Mututal funds - Fixed income
|
|
|
2 |
|
|
|
- |
|
|
|
194 |
|
|
|
(34 |
) |
|
|
196 |
|
|
|
(34 |
) |
|
Mutual funds - Domestic equity
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Other
|
|
|
101 |
|
|
|
(5 |
) |
|
|
- |
|
|
|
- |
|
|
|
101 |
|
|
|
(5 |
) |
|
Total available-for-sale securities
|
|
$ |
267 |
|
|
$ |
(36 |
) |
|
$ |
221 |
|
|
$ |
(53 |
) |
|
$ |
488 |
|
|
$ |
(89 |
) |
| |
|
June 30, 2015
|
|
| |
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
| |
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
| |
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
(dollars in thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
$ |
77 |
|
|
$ |
(7 |
) |
|
$ |
107 |
|
|
$ |
(2 |
) |
|
$ |
184 |
|
|
$ |
(9 |
) |
|
Common stock - International
|
|
|
114 |
|
|
|
(23 |
) |
|
|
39 |
|
|
|
(16 |
) |
|
|
153 |
|
|
|
(39 |
) |
|
Corporate debt
|
|
|
386 |
|
|
|
(817 |
) |
|
|
- |
|
|
|
- |
|
|
|
386 |
|
|
|
(817 |
) |
|
Mututal funds - Fixed income
|
|
|
67 |
|
|
|
(7 |
) |
|
|
139 |
|
|
|
(15 |
) |
|
|
206 |
|
|
|
(22 |
) |
|
Mutual funds - Domestic equity
|
|
|
463 |
|
|
|
(80 |
) |
|
|
- |
|
|
|
- |
|
|
|
463 |
|
|
|
(80 |
) |
|
Other
|
|
|
112 |
|
|
|
(7 |
) |
|
|
- |
|
|
|
- |
|
|
|
112 |
|
|
|
(7 |
) |
|
Total available-for-sale securities
|
|
$ |
1,219 |
|
|
$ |
(941 |
) |
|
$ |
285 |
|
|
$ |
(33 |
) |
|
$ |
1,504 |
|
|
$ |
(974 |
) |
Investment income can be volatile and varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. The Company expects that gains and losses will continue to fluctuate in the future.
Investment income (loss) from the Company’s investments includes:
|
•
|
realized gains and losses on sales of securities;
|
|
•
|
unrealized gains and losses on trading securities;
|
|
•
|
realized foreign currency gains and losses;
|
|
•
|
other-than-temporary impairments on available-for-sale securities;
|
|
•
|
other-than-temporary impairments on held-at-cost securities; and
|
|
•
|
dividend and interest income.
|
The following summarizes investment income reflected in earnings for the periods discussed:
|
(dollars in thousands)
|
|
Nine Months Ended March 31,
|
|
|
Three Months Ended March 31,
|
|
|
Investment Income
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Realized gains on sales of available-for-sale securities
|
|
$ |
545 |
|
|
$ |
591 |
|
|
$ |
14 |
|
|
$ |
209 |
|
|
Realized gains (losses) on sales of trading securities
|
|
|
(32 |
) |
|
|
(3 |
) |
|
|
3 |
|
|
|
3 |
|
|
Unrealized gains (losses) on trading securities
|
|
|
(103 |
) |
|
|
(548 |
) |
|
|
30 |
|
|
|
(21 |
) |
|
Realized foreign currency gains (losses)
|
|
|
24 |
|
|
|
82 |
|
|
|
(28 |
) |
|
|
58 |
|
|
Other-than-temporary declines in available-for-sale securities
|
|
|
(259 |
) |
|
|
(105 |
) |
|
|
- |
|
|
|
(105 |
) |
|
Other-than-temporary declines in securities held at cost
|
|
|
(258 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Dividend and interest income
|
|
|
494 |
|
|
|
505 |
|
|
|
129 |
|
|
|
105 |
|
|
Total Investment Income
|
|
$ |
411 |
|
|
$ |
522 |
|
|
$ |
148 |
|
|
$ |
249 |
|
Included in investment income were other-than temporary declines in value on available-for-sale securities of approximately $259,000 for the nine months ended March 31, 2016, and $105,000 for the three and nine months ended March 31, 2015. The impairment losses resulted from fair values of securities being lower than book value and from proposed changes to debt securities. For the nine months ending March 31, 2016, there were eight securities with a combined cost basis of $702,000 that were written down to a combined fair value of $466,000. Also during the nine months ended March 31, 2016, another security with a cost basis of $970,000 was written down to $947,000 based on the net present value of estimated cash flows. The impairment losses in the 2015 fiscal year resulted from issuers defaulting on scheduled payments. One security with a cost basis of $44,000 was written down to its fair value of $15,000, and another security with a cost basis of $310,000 was written down to $234,000 based on the net present value of estimated cash flows. In making these determinations, the Company considered the length of time and extent to which the fair value has been less than the cost basis, financial condition and prospects of the issuers, and the Company's ability to hold the investment until recovery. Also included in investment income were other-than-temporary declines in value on securities held at cost of approximately $258,000 for the nine months ended March 31, 2016. The impairment loss resulted from the estimated values of certain securities being lower than cost. Three securities held at cost with a combined cost basis of $1.1 million were written down to a combined adjusted cost basis of $867,000.
NOTE 3. FAIR VALUE DISCLOSURES
ASC 820, Fair Value Measurement and Disclosures, defines fair value 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. ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy (i.e., Levels 1, 2, and 3 inputs, as defined below). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, value of these products does not entail a significant degree of judgment.
Level 2 – Valuations based on quoted prices in markets for which not all significant inputs are observable, directly or indirectly. Corporate debt securities valued in accordance with the evaluated price supplied by an independent service are categorized as Level 2 in the hierarchy. Other securities categorized as Level 2 include securities valued at the mean between the last reported bid and ask quotation.
Level 3 – Valuations based on inputs that are unobservable and significant to the fair value measurement.
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.
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. Mutual funds, which include open- and closed-end funds, exchange-traded funds, and offshore funds, are valued at net asset value or closing price, as applicable. Certain corporate debt securities are valued by an independent pricing service using an evaluated quote based on such factors as institutional-size trading in similar groups of securities, yield, quality maturity, coupon rate, type of issuance and individual trading characteristics and other market data. As part of its independent price verification process, the Company reviews the fair value provided by the pricing service using information such as transactions in these investments, broker quotes, market transactions in comparable investments, general market conditions and the issuer's financial condition. Debt securities that are not valued by an independent pricing service are valued based on review of similarly structured issuances in similar jurisdictions, when possible, or based on other traded debt securities issued by the issuer. The Company also takes into consideration numerous other factors that could affect valuation such as overall market conditions, liquidity of the security and bond structure. Securities for which market quotations are not readily available are valued at their fair value as determined by the portfolio management team. The portfolio management team includes representatives from the investment, accounting and legal/compliance departments. The portfolio management team meets periodically to consider 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 portfolio management team reviews inputs and assumptions and reports material items to the board of directors.
The following presents fair value measurements, as of March 31, 2016, and June 30, 2015, for the major categories of U.S. Global’s investments measured at fair value on a recurring basis:
| |
|
March 31, 2016
|
|
| |
|
Quoted Prices
|
|
|
Significant Other Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
|
(dollars in thousands)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore fund
|
|
$ |
- |
|
|
$ |
345 |
|
|
$ |
- |
|
|
$ |
345 |
|
|
Mutual funds - Fixed income
|
|
|
12,414 |
|
|
|
- |
|
|
|
- |
|
|
|
12,414 |
|
|
Mutual funds - Domestic equity
|
|
|
343 |
|
|
|
- |
|
|
|
- |
|
|
|
343 |
|
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total trading securities
|
|
|
12,757 |
|
|
|
345 |
|
|
|
- |
|
|
|
13,102 |
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
|
118 |
|
|
|
- |
|
|
|
- |
|
|
|
118 |
|
|
Common stock - International
|
|
|
620 |
|
|
|
- |
|
|
|
- |
|
|
|
620 |
|
|
Corporate debt
|
|
|
1,001 |
|
|
|
294 |
|
|
|
212 |
|
|
|
1,507 |
|
|
Mutual funds - Fixed income
|
|
|
1,209 |
|
|
|
- |
|
|
|
- |
|
|
|
1,209 |
|
|
Mutual funds - Domestic equity
|
|
|
399 |
|
|
|
- |
|
|
|
- |
|
|
|
399 |
|
|
Other
|
|
|
160 |
|
|
|
- |
|
|
|
- |
|
|
|
160 |
|
|
Total available-for-sale securities
|
|
|
3,507 |
|
|
|
294 |
|
|
|
212 |
|
|
|
4,013 |
|
|
Total
|
|
$ |
16,264 |
|
|
$ |
639 |
|
|
$ |
212 |
|
|
$ |
17,115 |
|
| |
|
June 30, 2015
|
|
| |
|
Quoted Prices
|
|
|
Significant Other Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
|
|
|
(dollars in thousands)
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
Trading securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore fund
|
|
$ |
- |
|
|
$ |
481 |
|
|
$ |
- |
|
|
$ |
481 |
|
|
Mutual funds - Fixed income
|
|
|
14,754 |
|
|
|
- |
|
|
|
- |
|
|
|
14,754 |
|
|
Mutual funds - Domestic equity
|
|
|
405 |
|
|
|
- |
|
|
|
- |
|
|
|
405 |
|
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total trading securities
|
|
|
15,159 |
|
|
|
481 |
|
|
|
- |
|
|
|
15,640 |
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - Domestic
|
|
|
842 |
|
|
|
- |
|
|
|
- |
|
|
|
842 |
|
|
Common stock - International
|
|
|
965 |
|
|
|
- |
|
|
|
- |
|
|
|
965 |
|
|
Corporate debt
|
|
|
- |
|
|
|
77 |
|
|
|
539 |
|
|
|
616 |
|
|
Mutual funds - Fixed income
|
|
|
1,214 |
|
|
|
- |
|
|
|
- |
|
|
|
1,214 |
|
|
Mutual funds - Domestic equity
|
|
|
463 |
|
|
|
- |
|
|
|
- |
|
|
|
463 |
|
|
Other
|
|
|
163 |
|
|
|
- |
|
|
|
- |
|
|
|
163 |
|
|
Total available-for-sale securities
|
|
|
3,647 |
|
|
|
77 |
|
|
|
539 |
|
|
|
4,263 |
|
|
Total
|
|
$ |
18,806 |
|
|
$ |
558 |
|
|
$ |
539 |
|
|
$ |
19,903 |
|
As of March 31, 2016, approximately 95 percent of the Company’s financial assets measured at fair value were derived from Level 1 inputs, four percent of the Company’s financial assets measured at fair value were derived from Level 2 inputs, and the remaining one percent was Level 3 inputs. As of June 30, 2015, approximately 94 percent of the Company’s financial assets measured at fair value were derived from Level 1 inputs, three percent of the Company’s financial assets measured at fair value were derived from Level 2 inputs, and the remaining three percent were Level 3 inputs. The Company recognizes transfers between levels at the end of each quarter.
In Level 2, the Company has an investment in an affiliated offshore fund, classified as trading and which invests in companies in the energy and natural resources sectors, with a fair value of $345,000 as of March 31, 2016, based on the net asset value per share. The Company may redeem this investment on the first business day of each month after providing a redemption notice at least forty-five days prior to the proposed redemption date.
In addition, the Company has Level 2 investments in corporate debt securities maturing in 2018 which were valued at $294,000 as of March 31, 2016, using the mean between the last reported bid/ask quotation.
The Level 3 corporate debt, maturing in 2017, is valued at cost of $212,000 as of March 31, 2016, which approximates fair value as a result of the Company’s review of similar structured issuances in similar jurisdictions. Corporate debt maturing in 2020 which was valued at $1.0 million at March 31, 2016, was transferred during the quarter from Level 3, where it had been valued based on other traded debt from the issuer, to Level 1, as it now also trades on a market.
The following table is a reconciliation of investments for which unobservable inputs (Level 3) were used in determining fair value during the nine months ended March 31, 2016, and March 31, 2015:
|
Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
|
|
| |
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
(dollars in thousands)
|
|
Corporate Debt
|
|
|
Corporate Debt
|
|
|
Beginning Balance
|
|
$ |
539 |
|
|
$ |
250 |
|
|
Return of capital
|
|
|
(13 |
) |
|
|
(19 |
) |
|
Total gains or losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
Included in earnings (investment income)
|
|
|
(23 |
) |
|
|
- |
|
|
Included in other comprehensive income (loss)
|
|
|
710 |
|
|
|
- |
|
|
Purchases
|
|
|
- |
|
|
|
- |
|
|
Sales
|
|
|
- |
|
|
|
- |
|
|
Transfers into Level 3
|
|
|
- |
|
|
|
343 |
|
|
Transfers out of Level 3
|
|
|
(1,001 |
) |
|
|
- |
|
|
Ending Balance
|
|
$ |
212 |
|
|
$ |
574 |
|
NOTE 4. INVESTMENT MANAGEMENT AND OTHER FEES
The Company serves as investment adviser to U.S. Global Investors Funds (“USGIF” or the “Funds”) and receives a fee based on a specified percentage of net assets under management. The Company recorded base advisory fees from USGIF totaling $869,000 and $2.6 million for the three and nine months ended March 31, 2016, respectively, compared with $1.1 million and $4.4 million, respectively, for the corresponding periods in the prior fiscal year.
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 when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. For the three months ended March 31, 2016, the Company realized an increase in its base advisory fee of $58,000. For the nine months ended March 31, 2016, the Company realized a decrease in its base advisory fee of $180,000. For the corresponding periods in fiscal year 2015, base advisory fees were adjusted downward by $281,000 and $710,000, respectively.
The Company has agreed to contractually limit the expenses of the Near-Term Tax Free Fund through April 2017. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the remaining 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 for the three and nine months ended March 31, 2016, were $311,000 and $1.1 million, respectively, compared with $391,000 and $1.0 million, respectively, for the corresponding periods in the prior fiscal year.
Prior to the U.S. Government Securities Ultra-Short Bond Fund (“Government Fund”) conversion in December 2013 to a non-money market fund, the Company voluntarily agreed to waive fees and/or reimburse the Government Fund to the extent necessary to maintain the fund’s yield at a certain level as determined by the Company (“Minimum Yield”). The Company may recapture any fees waived and/or expenses reimbursed to maintain the Minimum Yield within three years after the end of the fund’s fiscal year of such waiver and/or reimbursement. Thus, $498,000 of the waiver for the Government Fund is recoverable by the Company through December 31, 2016.
The Company receives administrative service fees from USGIF based on the average daily assets. However, effective December 10, 2015, administrative service fees paid to the Company by USGIF changed from an annual rate of 0.10 percent, plus a base fee of $7,000 per fund, to 0.05 percent per investor class and from 0.08 percent to 0.04 percent per institutional class of each fund, based on average daily net assets. The Company no longer receives a flat base fee per fund.
As of March 31, 2016, the Company had $395,000 in receivables from USGIF.
The Company also serves as investment adviser to an exchange traded fund (“ETF’) client, U. S. Global Jets ETF, that commenced operations in April 2015. The Company receives a unitary management fee of 0.60 percent of average net assets and has agreed to bear all expenses of the ETF. The Company recorded ETF advisory fees totaling $74,000 and $217,000 for the three and nine months ended March 31, 2016, respectively.
The Company provides advisory services for offshore clients and receives advisory fees based on the net asset values of the clients and performance fees, if any, based on the overall increase in net asset values. The Company recorded advisory and performance fees from these clients totaling $22,000 and $66,000 for the three and nine months ended March 31, 2016, and $25,000 and $103,000, respectively, for the corresponding periods in the prior fiscal year. Frank Holmes, CEO, serves as a director of the offshore clients.
Galileo provides advisory services for clients in Canada and receives advisory fees based on the net asset values of the clients. Galileo recorded advisory fees from these clients totaling $255,000 and $879,000 for the three and nine months ended March 31, 2016, respectively, and $413,000 and $1.6 million, respectively, for the corresponding period in the prior fiscal year.
NOTE 5. BORROWINGS
As of March 31, 2016, the Company has no borrowings or long-term liabilities.
The Company has access to a $1 million credit facility, which can be utilized for working capital purposes and is available through May 31, 2016. The credit agreement requires the Company to maintain certain quarterly financial covenants to access the line of credit. The Company has been in compliance with all financial covenants during the fiscal year. As of March 31, 2016, this credit facility remained unutilized by the Company.
NOTE 6. STOCKHOLDERS’ EQUITY
Payment of cash dividends is within the discretion of the Company’s board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. A monthly dividend of $0.0025 per share is authorized through September 30, 2016, and will be reviewed by the board quarterly.
The Board of Directors approved a share repurchase program on December 7, 2012, authorizing the Company to purchase up to $2.75 million of its outstanding common shares, as market and business conditions warrant, on the open market in compliance with Rule 10b-18 of the Securities Exchange Act of 1934 through December 31, 2013. On December 12, 2013, December 10, 2014, and December 9, 2015, the Board of Directors renewed the repurchase program for calendar years 2014, 2015 and 2016, respectively. The total amount of shares that may be repurchased in 2016 under the renewed program is $2.75 million. The acquired shares may be used for corporate purposes, including shares issued to employees in the Company’s stock-based compensation programs. For the three and nine months ended March 31, 2016, the Company repurchased 19,277 and 152,505 class A shares using cash of $26,000 and $269,000, respectively. For the three and nine months ended March 31, 2015, the Company repurchased 19,245 and 86,250 class A shares using cash of $60,000 and $266,000, respectively.
Stock compensation plans
The Company’s stock option plans provide for the granting of class A shares as either incentive or nonqualified stock options to employees and non-employee directors. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors. There were 2,000 options outstanding and exercisable at March 31, 2016, at a weighted average exercise price of $12.31. No options were granted or exercised during the nine months ended March 31, 2016. There were 20,000 options forfeited during the three months ended March 31, 2016.
The Company accounts for stock-based compensation in accordance with ASC 718 Compensation – Stock Compensation. Stock-based compensation expense is recorded for the cost of stock options. There was no stock-based compensation expense for the three and nine months ended March 31, 2016, and 2015. As of March 31, 2016, and 2015, there was no unrecognized share-based compensation cost related to share-based compensation granted under the plans to be recognized over the remainder of their respective vesting periods.
NOTE 7. EARNINGS PER SHARE
The basic earnings per share (“EPS”) calculation excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.
The following table sets forth the computation for basic and diluted EPS:
| |
|
Nine Months Ended March 31,
|
|
|
Three Months Ended March 31,
|
|
|
(dollars in thousands, except per share data)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(3,435 |
) |
|
$ |
(1,837 |
) |
|
$ |
(376 |
) |
|
$ |
(948 |
) |
|
Less: Income (loss) attributable to non-controlling interest in subsidiary
|
|
|
(23 |
) |
|
|
53 |
|
|
|
(26 |
) |
|
|
13 |
|
|
Loss from continuing operations attributable to U.S. Global Investors, Inc.
|
|
|
(3,412 |
) |
|
|
(1,890 |
) |
|
|
(350 |
) |
|
|
(961 |
) |
|
Loss from discontinued operations attributable to U.S. Global Investors, Inc.
|
|
|
(18 |
) |
|
|
(88 |
) |
|
|
- |
|
|
|
(46 |
) |
|
Net loss attributable to U.S. Global Investors, Inc.
|
|
$ |
(3,430 |
) |
|
$ |
(1,978 |
) |
|
$ |
(350 |
) |
|
$ |
(1,007 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,306,676 |
|
|
|
15,406,189 |
|
|
|
15,277,098 |
|
|
|
15,379,365 |
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Diluted
|
|
|
15,306,676 |
|
|
|
15,406,189 |
|
|
|
15,277,098 |
|
|
|
15,379,365 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to U.S. Global Investors, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(0.22 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
|
Loss from discontinued operations
|
|
|
- |
|
|
|
(0.01 |
) |
|
|
- |
|
|
|
(0.01 |
) |
|
Net loss attributable to U.S. Global Investors, Inc.
|
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(0.22 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
|
Loss from discontinued operations
|
|
|
- |
|
|
|
(0.01 |
) |
|
|
- |
|
|
|
(0.01 |
) |
|
Net loss attributable to U.S. Global Investors, Inc.
|
|
$ |
(0.22 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.07 |
) |
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the three and nine months ended March 31, 2016, 2,000 options were excluded from diluted EPS. For the three and nine months ended March 31, 2015, 22,000 options were excluded from diluted EPS.
During the three and nine months ended March 31, 2016, and March 31, 2015, the Company repurchased class A shares on the open market. Upon repurchase, these shares are classified as treasury shares and are deducted from outstanding shares in the earnings per share calculation.
NOTE 8. INCOME TAXES
The Company and its non-Canadian subsidiaries file a consolidated U.S. federal income tax return. USCAN and Galileo file separate tax returns 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 current deferred tax asset primarily consists of unrealized losses on trading securities. The long-term deferred tax asset is composed primarily of unrealized losses and other-than-temporary impairments on available-for-sale securities, differences in tax and book accumulated depreciation and net operating loss carryovers. The Company has not recognized deferred income taxes on undistributed earnings of USCAN and Galileo since such earnings are considered to be reinvested indefinitely. At March 31, 2016, the Company had a full valuation allowance recorded against the short-term and long-term deferred tax assets.
For federal income tax purposes at March 31, 2016, the Company has charitable contribution carryovers totaling approximately $125,000, with $68,000 expiring in fiscal year 2018, $34,000 expiring in fiscal year 2019, $19,000 expiring in fiscal year 2020 and $4,000 expiring in 2021. The Company has federal net operating loss carryovers of $5.5 million with $2.7 million expiring in fiscal year 2035 and $2.8 million expiring in fiscal year 2036. For Canadian income tax purposes, Galileo has cumulative eligible capital carryovers of $273,000 with no expiration and net operating loss carryovers of $66,000, $120,000, $45,000, and $84,000 expiring in fiscal 2025, 2027, 2030 and 2031, respectively. If certain changes in the Company's ownership should occur, there could be an annual limitation on the amount of net operating loss carryovers that could be utilized.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. At March 31, 2016, and June 30, 2015, a valuation allowance of $3.1 million and $2.1 million, respectively, was included related to net operating loss carryovers, other carryovers and book/tax differences in the balance sheet.
NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents change in accumulated other comprehensive income (loss) (“AOCI”) by component:
|
(dollars in thousands)
|
|
Unrealized gains (losses) on available-for-sale investments 1
|
|
|
Foreign currency adjustment
|
|
|
Total
|
|
|
Nine Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2015
|
|
$ |
(339 |
) |
|
$ |
(144 |
) |
|
$ |
(483 |
) |
|
Other comprehensive income (loss) before reclassifications
|
|
|
774 |
|
|
|
(50 |
) |
|
|
724 |
|
|
Tax effect
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Amount reclassified from AOCI
|
|
|
(286 |
) |
|
|
- |
|
|
|
(286 |
) |
|
Tax effect
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net other comprehensive income (loss) for nine months ended March 31, 2016
|
|
|
488 |
|
|
|
(50 |
) |
|
|
438 |
|
|
Balance at March 31, 2016
|
|
$ |
149 |
|
|
$ |
(194 |
) |
|
$ |
(45 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$ |
(254 |
) |
|
$ |
(257 |
) |
|
$ |
(511 |
) |
|
Other comprehensive income before reclassifications
|
|
|
417 |
|
|
|
63 |
|
|
|
480 |
|
|
Tax effect
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Amount reclassified from AOCI
|
|
|
(14 |
) |
|
|
- |
|
|
|
(14 |
) |
|
Tax effect
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net other comprehensive income for quarter
|
|
|
403 |
|
|
|
63 |
|
|
|
466 |
|
|
Balance at March 31, 2016
|
|
$ |
149 |
|
|
$ |
(194 |
) |
|
$ |
(45 |
) |
|
(dollars in thousands)
|
|
Unrealized gains (losses) on available-for-sale investments 1
|
|
|
Foreign currency adjustment
|
|
|
Total
|
|
|
Nine Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2014
|
|
$ |
888 |
|
|
$ |
18 |
|
|
$ |
906 |
|
|
Other comprehensive loss before reclassifications
|
|
|
(1,306 |
) |
|
|
(185 |
) |
|
|
(1,491 |
) |
|
Tax effect
|
|
|
444 |
|
|
|
- |
|
|
|
444 |
|
|
Amount reclassified from AOCI
|
|
|
(486 |
) |
|
|
- |
|
|
|
(486 |
) |
|
Tax effect
|
|
|
165 |
|
|
|
- |
|
|
|
165 |
|
|
Net other comprehensive loss for nine months ended March 31, 2015
|
|
|
(1,183 |
) |
|
|
(185 |
) |
|
|
(1,368 |
) |
|
Balance at March 31, 2015
|
|
$ |
(295 |
) |
|
$ |
(167 |
) |
|
$ |
(462 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$ |
(213 |
) |
|
$ |
(78 |
) |
|
$ |
(291 |
) |
|
Other comprehensive loss before reclassifications
|
|
|
(20 |
) |
|
|
(89 |
) |
|
|
(109 |
) |
|
Tax effect
|
|
|
7 |
|
|
|
- |
|
|
|
7 |
|
|
Amount reclassified from AOCI
|
|
|
(105 |
) |
|
|
- |
|
|
|
(105 |
) |
|
Tax effect
|
|
|
36 |
|
|
|
- |
|
|
|
36 |
|
|
Net other comprehensive loss for quarter
|
|
|
(82 |
) |
|
|
(89 |
) |
|
|
(171 |
) |
|
Balance at March 31, 2015
|
|
$ |
(295 |
) |
|
$ |
(167 |
) |
|
$ |
(462 |
) |
1 Amounts reclassified from unrealized gains (losses) on available-for-sale investments, net of tax, were recorded in investment income (loss) on the Consolidated Statements of Operations.
NOTE 10. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates principally in three business segments: providing investment management services to USGIF, offshore clients and an ETF client, investment management services in Canada, and investing for its own account in an effort to add growth and value to its cash position. The following schedule details total revenues and income by business segment:
|
(dollars in thousands)
|
|
Investment Management Services
|
|
|
Investment Management Services - Canada
|
|
|
Corporate Investments
|
|
|
Consolidated
|
|
|
Nine months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$ |
2,990 |
|
1 |
|
$ |
879 |
|
2 |
|
$ |
- |
|
|
$ |
3,869 |
|
|
Net other income
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
411 |
|
|
$ |
411 |
|
|
Income (loss) from continuing operations before income taxes
|
|
$ |
(3,727 |
) |
|
|
$ |
(130 |
) |
|
|
$ |
417 |
|
|
$ |
(3,440 |
) |
|
Loss from discontinued operations
|
|
$ |
(18 |
) |
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
(18 |
) |
|
Depreciation and amortization
|
|
$ |
192 |
|
|
|
$ |
48 |
|
|
|
$ |
- |
|
|
$ |
240 |
|
|
Capital expenditures
|
|
$ |
13 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
13 |
|
|
Gross identifiable assets at March 31, 2016
|
|
$ |
4,652 |
|
|
|
$ |
1,664 |
|
|
|
$ |
20,363 |
|
|
$ |
26,679 |
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
Consolidated total assets at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,679 |
|
|
Nine months ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$ |
4,281 |
|
1 |
|
$ |
1,594 |
|
2 |
|
$ |
- |
|
|
$ |
5,875 |
|
|
Net other income
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
522 |
|
|
$ |
522 |
|
|
Income (loss) from continuing operations before income taxes
|
|
$ |
(2,333 |
) |
|
|
$ |
3 |
|
|
|
$ |
515 |
|
|
$ |
(1,815 |
) |
|
Loss from discontinued operations
|
|
$ |
(88 |
) |
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
(88 |
) |
|
Depreciation and amortization
|
|
$ |
190 |
|
|
|
$ |
56 |
|
|
|
$ |
- |
|
|
$ |
246 |
|
|
Capital expenditures
|
|
$ |
40 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
40 |
|
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$ |
1,075 |
|
3 |
|
$ |
255 |
|
4 |
|
$ |
- |
|
|
$ |
1,330 |
|
|
Net other income
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
148 |
|
|
$ |
148 |
|
|
Income (loss) from continuing operations before income taxes
|
|
$ |
(511 |
) |
|
|
$ |
(41 |
) |
|
|
$ |
160 |
|
|
$ |
(392 |
) |
|
Loss from discontinued operations
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
Depreciation and amortization
|
|
$ |
64 |
|
|
|
$ |
16 |
|
|
|
$ |
- |
|
|
$ |
80 |
|
|
Capital expenditures
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
Three months ended March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues
|
|
$ |
976 |
|
3 |
|
$ |
413 |
|
4 |
|
$ |
- |
|
|
$ |
1,389 |
|
|
Net other income
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
249 |
|
|
$ |
249 |
|
|
Income (loss) from continuing operations before income taxes
|
|
$ |
(1,128 |
) |
|
|
$ |
(39 |
) |
|
|
$ |
245 |
|
|
$ |
(922 |
) |
|
Loss from discontinued operations
|
|
$ |
(46 |
) |
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
(46 |
) |
|
Depreciation and amortization
|
|
$ |
63 |
|
|
|
$ |
18 |
|
|
|
$ |
- |
|
|
$ |
81 |
|
|
Capital expenditures
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
1
|
Includes operating revenues from USGIF of $2,707 and $4,178 for the nine months ended March 31, 2016, and March 31, 2015, respectively.
|
|
2
|
Includes operating revenues from Galileo mutual funds of $689 and $1,307 for the nine months ended March 31, 2016, and March 31, 2015, respectively.
|
|
3
|
Includes operating revenues from USGIF of $977 and $952 for the three months ended March 31, 2016, and March 31, 2015, respectively.
|
|
4
|
Includes operating revenues from Galileo mutual funds of $193 and $332 for the three months ended March 31, 2016, and March 31, 2015, respectively.
|
NOTE 11. 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 Board has authorized a monthly dividend of $0.0025 per share through September 30, 2016, 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. The total amount of cash dividends expected to be paid to class A and class C shareholders from April to September 2016 is approximately $230,000.
NOTE 12. DISCONTINUED OPERATIONS
In December 2015, USGIF elected a new slate of trustees to the Board of Trustees of the Funds. The Company proposed the election of new trustees with the intention of streamlining the Company’s responsibilities, so it can better focus on strategic activities. The new Board of Trustees of USGIF adopted several new agreements. As anticipated, effective December 10, 2015, the Company, through its wholly-owned subsidiary, U.S. Global Brokerage, Inc., ceased to be the distributor for USGIF and no longer receives distribution fees and shareholder services fees from USGIF. Due to this transition, the Company is no longer responsible for paying certain distribution and shareholder servicing related expenses and will be reimbursed for certain distribution expenses from the new distributor for USGIF. As a result of this change, the Company filed Form BDW, the Uniform Request Withdrawal From Broker-Dealer Registration, with FINRA, which was approved in February 2016. This constitutes a strategic shift that has started to have, and will continue to have, a major effect on the Company’s operating revenues and expenses.
The distribution and shareholder services revenues and the expenses associated with certain distribution operations for USGIF are reflected as discontinued operations in the statement of operations and are, therefore, excluded from continuing operations results. Comparative periods shown in the Statement of Operations have been adjusted to conform with this presentation. These revenues and expenses were included in the investment management services segment in previous reporting periods.
The discontinued operations did not have depreciation, amortization, capital expenditures or significant non-cash operating and investing items.
The assets and liabilities related to distribution discontinued operations are as follows at March 31, 2016, and June 30, 2015:
|
(dollars in thousands)
|
|
March 31, 2016
|
|
|
June 30, 2015
|
|
|
Assets
|
|
|
|
|
|
|
|
Receivables
|
|
$ |
- |
|
|
$ |
184 |
|
|
Total assets held related to discontinued operations
|
|
$ |
- |
|
|
$ |
184 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
- |
|
|
$ |
5 |
|
|
Other accrued expenses
|
|
|
- |
|
|
|
129 |
|
|
Total liabilities held related to discontinued operations
|
|
$ |
- |
|
|
$ |
134 |
|
The components of income from discontinued operations were as follows for the three and nine months ended March 31, 2016, and 2015:
| |
|
Nine Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
|
(dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution fees
|
|
$ |
425 |
|
|
$ |
1,118 |
|
|
$ |
- |
|
|
$ |
299 |
|
|
Shareholder services fees
|
|
|
183 |
|
|
|
507 |
|
|
|
- |
|
|
|
143 |
|
| |
|
|
608 |
|
|
|
1,625 |
|
|
|
- |
|
|
|
442 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
188 |
|
|
|
411 |
|
|
|
- |
|
|
|
120 |
|
|
General and administrative
|
|
|
77 |
|
|
|
135 |
|
|
|
- |
|
|
|
47 |
|
|
Platform fees
|
|
|
347 |
|
|
|
963 |
|
|
|
- |
|
|
|
269 |
|
|
Advertising
|
|
|
14 |
|
|
|
205 |
|
|
|
- |
|
|
|
53 |
|
| |
|
|
626 |
|
|
|
1,714 |
|
|
|
- |
|
|
|
489 |
|
|
Loss from Discontinued Operations Before Income Taxes
|
|
|
(18 |
) |
|
|
(89 |
) |
|
|