NOTE 2. DISCONTINUED OPERATIONS

USCAN entered into a binding letter of intent dated December 30, 2019, with Galileo whereby Galileo, pursuant to a capital restructuring, will repurchase all of its common shares owned by USCAN for $1.0 million (Canadian). The transaction is subject to the approval of Canadian securities regulatory authorities and to the satisfaction of other closing conditions. It is anticipated that the transaction will close on or about March 2, 2020. After the transaction, the Company will have no continuing involvement with the operations of Galileo, except for an equity method investment in a fund managed by Galileo. See further information on this equity method investment in Note 3, Investments.

The results of Galileo are reflected as “discontinued operations” in the Consolidated Statements of Operations and are therefore, excluded from continuing operations results. Comparative periods shown in the Consolidated Financial Statements have been adjusted to conform to this presentation. Operations of Galileo had previously been presented as the separate business segment of Investment Management Services – Canada.

The components of assets and liabilities classified as discontinued operations were as follows:

(dollars in thousands)	December 31, 2019		June 30, 2019
Assets
Cash and cash equivalents	$	1,078	$	1,482
Accounts and other receivables		67		200
Prepaid expenses		47		52
Net property and equipment		33		38
Right of use assets		207		-
Other assets, non-current		8		8
Total assets held related to discontinued operations	$	1,440	$	1,780
Liabilities
Accounts payable	$	42	$	135
Accrued compensation and related costs		-		84
Lease liability, short-term		54		-
Other accrued expenses		142		262
Lease liability, long-term		156		-
Total liabilities held related to discontinued operations	$	394	$	481

The components of income (loss) from discontinued operations were as follows:

	Six Months Ended December 31,					Three Months Ended December 31,
(dollars in thousands)	2019			2018		2019			2018
Revenues
Advisory fees	$	185		$	1,185	$	85		$	1,005
		185			1,185		85			1,005
Expenses
Employee compensation and benefits		54			301		26			185
General and administrative		383			581		166			284
Depreciation and amortization		5			5		3			3
		442			887		195			472
Other Income (Loss)
Investment income (loss)		3			30		(7	)		36
Other income		1			6		-			2
		4			36		(7	)		38
Income (loss) from discontinued operations of investment management services in Canada before income taxes		(253	)		334		(117	)		571
Tax expense		-			11		-			11
Income (loss) from discontinued operations of investment management services in Canada		(253	)		323		(117	)		560
Less: net income (loss) attributable to non-controlling interest from discontinued operations		(88	)		113		(40	)		196
Net income (loss) attributable to U.S. Global Investors, Inc. from discontinued operations of investment management services in Canada	$	(165	)	$	210	$	(77	)	$	364

Galileo provides advisory services for clients in Canada and receives advisory fees based on the net asset values of the clients. Galileo may also receive performance fees from certain clients when market appreciation or realized net gains exceeds established benchmarks. Performance fees, which are included in advisory fees in the table above, are recognized when it is determined that they are no longer probable of significant reversal. Galileo recorded no performance fees from these clients for the three and six months ended December 31, 2019, and $870,000 from these clients for three and six months ended December 31, 2018. Prior to November 2018, performance fees were typically recognized on an annual basis at calendar year-end. Due to changes in funds managed and new agreements in the second quarter of fiscal year 2019, these fees are recognized on a quarterly basis. The receipt of performance fees in the future is uncertain as the fees are dependent upon many factors, including market conditions. Galileo may, at its discretion, waive and absorb some of its clients’ operating expenses. The amount of fund expenses waived and absorbed (recovered) was ($20,000) and $20,000 for the three and six months ended December 31, 2019, and $45,000 and $161,000 for the three and six months ended December 31, 2018, respectively.

Galileo has leases for office equipment that expire in fiscal years 2023 and 2024 and for office facilities that expire in fiscal 2023. See further information on these leases in Note 7, Leases.

Galileo files a separate tax return in Canada. Galileo has net operating loss carryovers of $737,000 expiring between fiscal years 2027 and 2039. At December 31, 2019, and June 30, 2019, a valuation allowance for Galileo of $257,000 and $183,000, respectively, was included to fully reserve for net operating loss carryovers, other carryovers and certain book/tax differences in the balance sheet.