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INVESTMENTS | 3 Months Ended
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Sep. 30, 2018
Disclosure Text Block Supplement [Abstract] |
Investments and Other Noncurrent Assets [Text Block] | NOTE 2. INVESTMENTS As of September 30, 2018, the Company held investments in securities at fair value totaling approximately $14.3 million with a cost basis of approximately $12.3 million. The fair value of these investments is 53.3 percent of the Company’s total assets at September 30, 2018. In addition, the Company held other investments of $2.2 million and investments of approximately $281,000 accounted for under the equity method of accounting. As discussed in Note 1, the Company adopted ASU 2016-01, which amended the guidance on the classification and measurement of investments in equity securities, effective July 1, 2018. There is no longer an available-for-sale classification (with changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values. Under the amended guidance, all of the Company’s equity investments with readily determinable fair values are classified as securities at fair value, and changes in unrealized gains or losses are reported in current period earnings. Other investments consist of equity investments in entities over which the Company is unable to exercise significant influence and which do not have readily determinable fair values. For these securities, the Company generally elects to value using the measurement alternative, under which such securities are measured at cost, less impairment, plus or minus observable price changes for identical or similar securities of the same issuer with such changes recorded in investment income (loss). Prior to fiscal year 2019 and the adoption of ASU 2106-01, these investments were accounted for under the cost method of accounting and evaluated periodically for impairment. See further information about these investments in a separate section of this note. The cost basis of investments may also be adjusted for amortization of premium or accretion of discount on debt securities held or the recharacterization of distributions from investments in partnerships. The following details the components of the Company’s investments recorded at fair value as of September 30, 2018, and June 30, 2018. Note that the change in presentation is the result of the adoption of ASU 2016-01.
|  | September 30, 2018 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains (Losses) |  |  | Fair Value |
Securities at fair value1 |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  | $ | 2,554 |  |  | $ | 2,151 |  |  | $ | 4,705 |
Common stock - Domestic |  |  | 45 |  |  |  | (45 | ) |  |  | - |
Mutual funds - Fixed income |  |  | 8,785 |  |  |  | 5 |  |  |  | 8,790 |
Mutual funds - Domestic equity |  |  | 929 |  |  |  | (109 | ) |  |  | 820 |
Total securities at fair value |  | $ | 12,313 |  |  | $ | 2,002 |  |  | $ | 14,315 |
1 | Changes in u nrealized and realized gains and losses on securities at fair value are included in earnings in the statement of operations.
|  | June 30, 2018 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains |  |  | Unrealized (Losses) |  |  | Fair Value |
Trading securities1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual funds - Fixed income |  | $ | 7,785 |  |  | $ | 22 |  |  | $ | - |  |  | $ | 7,807 |
Mutual funds - Domestic equity |  |  | 535 |  |  |  | - |  |  |  | (163 | ) |  |  | 372 |
Other |  |  | 45 |  |  |  | - |  |  |  | (45 | ) |  |  | - |
Total trading securities |  |  | 8,365 |  |  |  | 22 |  |  |  | (208 | ) |  |  | 8,179 |
Available-for-sale securities2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  |  | 2,554 |  |  |  | 3,213 |  |  |  | (94 | ) |  |  | 5,673 |
Mutual funds - Fixed income |  |  | 1,000 |  |  |  | - |  |  |  | (9 | ) |  |  | 991 |
Mutual funds - Domestic equity |  |  | 394 |  |  |  | 28 |  |  |  | - |  |  |  | 422 |
Total available-for-sale securities3 |  |  | 3,948 |  |  |  | 3,241 |  |  |  | (103 | ) |  |  | 7,086 |
Total securities at fair value |  | $ | 12,313 |  |  | $ | 3,263 |  |  | $ | (311 | ) |  | $ | 15,265 |
1 | Prior to July 1, 2018, changes in u nrealized and realized gains and losses on trading securities were included in earnings in the statement of operations.
2 | Prior to July 1, 2018, changes in u nrealized gains and losses on available-for-sale securities were excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.
3 | Net unrealized gains on available-for-sale securities gross and net of tax as of June 3 0, 201 8, were $3,138 and $2,089, respectively.
Included in the above table as of September 30, 2018, was $9.6 million at fair value invested in USGIF. The following table shows 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 were in a continuous unrealized loss position as of June 30, 2018. No disclosures are required as of September 30, 2018, due the adoption of ASU 2016-01.
|  | June 30, 2018 |
|  | 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 - International |  | $ | 39 |  |  | $ | (94 | ) |  | $ | - |  |  | $ | - |  |  | $ | 39 |  |  | $ | (94 | )
Mutual funds - Fixed income |  |  | 991 |  |  |  | (9 | ) |  |  | - |  |  |  | - |  |  |  | 991 |  |  |  | (9 | )
Total available-for-sale securities with unrealized losses |  | $ | 1,030 |  |  | $ | (103 | ) |  | $ | - |  |  | $ | - |  |  | $ | 1,030 |  |  | $ | (103 | )
Investment Income (Loss) For fiscal year 2019, after adoption of ASU 2016-01, investment income (loss) from the Company’s investments includes:
• | realized gains and losses on sales of securities;
• | unrealized gains and losses on securities at fair value;
• | realized foreign currency gains and losses;
• | other-than-temporary impairments on available-for-sale debt securities;
• | impairments on equity investments that do not have readily determinable fair values; and
• | dividend and interest income.
Prior to the adoption of ASU 2016-01, investment income (loss) from the Company’s investments included:
• | 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 (loss) reflected in earnings:
|  | Three Months Ended |
(dollars in thousands) |  | September 30, |
Investment Income (Loss) |  | 2018 |  |  | 2017 |
Realized losses on sales of fair valued securities 1 |  | $ | - |  |  | $ | (647 | )
Unrealized gains (losses) on fair valued securities 2 |  |  | (951 | ) |  |  | 686 |
Realized foreign currency gains (losses) |  |  | 2 |  |  |  | (22 | )
Impairments in equity investments that do not have readily determinable fair values |  |  | (29 | ) |  |  | - |
Dividend and interest income |  |  | 71 |  |  |  | 192 |
Total Investment Income (Loss) |  | $ | (907 | ) |  | $ | 209 |
1 | The p rior year amount shown includes $654 in realized losses on sales of trading securities and $7 in realized gains on sales of available-for-sale securities for the three months ended September 30, 2017. These classifications were used prior to the adoption of ASU 2016-01 effective July 1, 2018.
2 | The prior year amount shown includes $686 in unrealized gains on trading securities for the three months ended September 30, 2017 (classification used prior to the adoption of ASU 2016-01 effective July 1, 2018).
The three months ended September 30, 2018, includes $951,000 of net unrealized losses recognized on securities at fair value; all of these investments were still held at September 30, 2018. The majority of this amount is related to declines in unrealized gains on securities formerly classified as available-for-sale, which previously would have been reported through other comprehensive income rather than in investment income. Proceeds from sales of available-for-sale investments were approximately $32,000 for the three months ended September 30, 2017. Gross gains on sales of available-for-sale investments were approximately $7,000 and there were no gross losses on sales of available-for-sale investments for the three months ended September 30, 2017. No disclosures are required for fiscal year 2019 due to the adoption of ASU 2016-01. Prior to fiscal year 2019, gains and losses realized upon sales of available-for-sale investments were reclassified from other comprehensive income into investment income. 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. Fair Value Hierarchy 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 and securities valued with an adjustment to the quoted price due to restrictions. 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. The fair value of a security that has a restriction is based on the quoted price for an otherwise identical unrestricted instrument that trades in a public market, adjusted for the estimated effect of the restriction. Mutual funds, which include open- and closed-end funds, exchange-traded funds, and offshore funds, are valued at net asset value or closing price, as applicable. Certain corporate debt securities not traded on an exchange may be 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, a portfolio management team, which includes representatives from the investment and accounting departments, periodically 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. Certain debt securities may be 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 portfolio management team also takes into consideration numerous other factors that could affect valuation such as overall market conditions, liquidity of the security and bond structure. For other securities included in the fair value hierarchy with unobservable inputs, the portfolio management team considers a number of factors in determining a security’s fair value, including the security’s trading volume, market values of similar class issuances, investment personnel’s judgment regarding the market experience of the issuer, financial status of the issuer, the issuer’s management, and back testing, as appropriate. The fair values may differ from what may have been used had a broader market for these securities existed. The portfolio management team reviews inputs and assumptions and reports material items to the board of directors. Securities which do not have readily determinable fair values are also periodically reviewed by the portfolio management team. The following presents fair value measurements, as of September 30, 2018, and June 30, 2018, for the major categories of U.S. Global’s investments measured at fair value on a recurring basis:
|  | September 30, 2018 |
|  | Quoted Prices |  |  | Significant Other Inputs |  |  | Significant Unobservable Inputs |  |  |
(dollars in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Securities at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  | $ | 4,705 |  |  | $ | - |  |  | $ | - |  |  | $ | 4,705 |
Common stock - Domestic |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Mutual funds - Fixed income |  |  | 8,790 |  |  |  | - |  |  |  | - |  |  |  | 8,790 |
Mutual funds - Domestic equity |  |  | 820 |  |  |  | - |  |  |  | - |  |  |  | 820 |
Total securities at fair value |  | $ | 14,315 |  |  | $ | - |  |  | $ | - |  |  | $ | 14,315 |
|  | June 30, 2018 |
|  | Quoted Prices |  |  | Significant Other Inputs |  |  | Significant Unobservable Inputs |  |  |  |  |
(dollars in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Trading securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mutual funds - Fixed income |  | $ | 7,807 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,807 |
Mutual funds - Domestic equity |  |  | 372 |  |  |  | - |  |  |  | - |  |  |  | 372 |
Other |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total trading securities |  |  | 8,179 |  |  |  | - |  |  |  | - |  |  |  | 8,179 |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  |  | 5,673 |  |  |  | - |  |  |  | - |  |  |  | 5,673 |
Mutual funds - Fixed income |  |  | 991 |  |  |  | - |  |  |  | - |  |  |  | 991 |
Mutual funds - Domestic equity |  |  | 422 |  |  |  | - |  |  |  | - |  |  |  | 422 |
Total available-for-sale securities |  |  | 7,086 |  |  |  | - |  |  |  | - |  |  |  | 7,086 |
Total securities at fair value |  | $ | 15,265 |  |  | $ | - |  |  | $ | - |  |  | $ | 15,265 |
As of September 30, 2018, and June 30, 2018, 100 percent of the Company’s financial assets were classified in the fair value hierarchy as Level 1. The Company has an investment in 10 million common shares of HIVE Blockchain Technologies Ltd. (“HIVE”), a company that is headquartered and traded in Canada with cryptocurrency mining facilities in Iceland and Sweden, at a cost of $2.4 million. The shares are subject to Canadian securities regulations. The investment, classified as available-for-sale prior to the adoption of ASU 2016-01, was valued at approximately $4.6 million at September 30, 2018, and $5.6 million at June 30, 2018. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. Cryptocurrency mining is considered an early stage high-risk industry, and the nature of mining is expected to evolve. There has been significant volatility in the market price of HIVE, which has materially impacted the investment’s value included on the balance sheet and unrealized gain (loss) recognized in investment income. The unit trust investment fund managed by Galileo described below that was held as of September 30, 2018, also holds common shares of HIVE. The Company had both a direct ownership of HIVE and a combined direct and indirect ownership of HIVE of approximately 3.0 percent as of September 30, 2018. Frank Holmes is the non-executive chairman of HIVE and held shares and options at September 30, 2018. Effective August 31, 2018, Mr. Holmes was named Interim Executive Chairman of HIVE while a search for a new CEO is undertaken. Other Investment s The carrying value of equity securities without readily determinable fair values as of September 30, 2018, is approximately $2.2 million. There was an impairment adjustment to one security of $29,000 during the three months ended September 30, 2018. Cumulative impairment adjustments to all equity securities without readily determinable fair values are $378,000 since their acquisitions through September 30, 2018. Impairments are recognized as a loss in the Company’s earnings. The cumulative amount of other downward adjustments, which primarily consist of return of capital distributions, is $605,000. There have been no upward adjustments to these investments. Investment s Classified as Equity Method Investments classified as equity method consist of investments in companies in which the Company is able to exercise significant influence but not control. Under the equity method of accounting, the investment is initially recorded at cost, then the Company’s proportional share of investee’s underlying net income or loss is recorded as a component of “other income (loss)” with a corresponding increase or decrease to the carrying value of the investment. Distributions received from the investee reduce the Company’s carrying value of the investment. These investments are evaluated for impairment if events or circumstances arise that indicate that the carrying amount of such assets may not be recoverable. During fiscal year 2018, the Company, through USCAN, invested approximately $401,000 in the Galileo Technology and Blockchain Fund, a Canadian unit trust investment fund managed by Galileo. The Company owns approximately 25 percent of the fund as of September 30, 2018, and the Company is considered to have the ability to exercise significant influence. Thus, the investment is accounted for under the equity method of accounting. Under the equity method, the Company’s proportional share of the fund’s net income or loss, which primarily consists of realized and unrealized gains and losses on investments offset by fund expenses, is recognized in the Company’s earnings. Included in other income for the three months ended September 30, 2018, is $7,000 of equity method loss for this investment. The Company’s investment in the fund was valued at approximately $281,000 at September 30, 2018. This investment was not held at September 30, 2017. Frank Holmes also directly held an investment in the fund as of September 30, 2018. This fund has a concentration in technology and blockchain companies, which may result in volatility in the fund’s valuation. During fiscal year 2018, the Company, through USCAN, invested approximately $500,000 in the Galileo Partners Fund, a Canadian unit trust investment fund managed by Galileo. The investment was subsequently redeemed in full during fiscal year 2018, and the Company no longer had an investment in the Galileo Partners Fund as of June 30, 2018, or September 30, 2018. During the period of ownership, the investment was accounted for under the equity method of accounting. Included in other income for the three months ended September 30, 2017, is $1.5 million of equity method income of Galileo Partners Fund. Summarized income statement information on the Galileo Partners Fund for the period of the Company’s investment through September 30, 2017, is as follows:
Galileo Partners Fund |  |  |  |
Summary Financial Information |  |  |  |
For the Period from August 31, 2017 (investment) to September 30, 2017 |
(dollars in thousands) |  |  |  |
Realized gains on sales of investments |  | $ | 154 |
Unrealized gains on investments |  |  | 6,102 |
Fund fees and expenses, including performance fees |  |  | (1,432 | )
Net income of fund |  | $ | 4,824 |
Company's share of income from equity method investment |  | $ | 1,513 |

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