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INVESTMENTS | 9 Months Ended
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Mar. 31, 2020
Disclosure Text Block Supplement [Abstract] |
Investments and Other Noncurrent Assets [Text Block] | NOTE 3. INVESTMENTS As of March 31, 2020, the Company held investments in securities at fair value totaling approximately $9.5 million with a cost basis of approximately $12.9 million. The fair value of these investments is 56.7 percent of the Company’s total assets at March 31, 2020. In addition, the Company held other investments of approximately $1.5 million and investments of approximately $150,000 accounted for under the equity method of accounting. 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). 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 March 31, 2020, and June 30, 2019.
|  | March 31, 2020 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains (Losses) |  |  | Fair Value |
Securities at fair value |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  | $ | 5,641 |  |  | $ | (3,034 | ) |  | $ | 2,607 |
Common stock - Domestic |  |  | 45 |  |  |  | (45 | ) |  |  | - |
Mutual funds - Fixed income |  |  | 6,313 |  |  |  | - |  |  |  | 6,313 |
Mutual funds - Domestic equity |  |  | 929 |  |  |  | (369 | ) |  |  | 560 |
Total securities at fair value |  | $ | 12,928 |  |  | $ | (3,448 | ) |  | $ | 9,480 |
|  | June 30, 2019 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains (Losses) |  |  | Fair Value |
Securities at fair value |  |  |  |  |  |  |  |  |  |  |  |
Common stock - International |  | $ | 5,641 |  |  | $ | 790 |  |  | $ | 6,431 |
Common stock - Domestic |  |  | 45 |  |  |  | (45 | ) |  |  | - |
Mutual funds - Fixed income |  |  | 8,025 |  |  |  | (4 | ) |  |  | 8,021 |
Mutual funds - Domestic equity |  |  | 929 |  |  |  | (194 | ) |  |  | 735 |
Total securities at fair value |  | $ | 14,640 |  |  | $ | 547 |  |  | $ | 15,187 |
Included in the above table was $6.9 million and $8.8 million as of March 31, 2020, and June 30, 2019, respectively, at fair value invested in USGIF. Investment Income (Loss) 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 and observable price changes on equity investments without readily determinable fair values; and
• | dividend and interest income.
The following summarizes investment income (loss) reflected in earnings from continuing operations:
|  | Nine Months Ended |  |  | Three Months Ended |
(dollars in thousands) |  | March 31, |  |  | March 31, |
Investment Income (Loss) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Unrealized gains (losses) on fair valued securities |  | $ | (3,995 | ) |  | $ | (2,387 | ) |  | $ | (342 | ) |  | $ | 1,987 |
Unrealized losses on equity securities without readily determinable fair values |  |  | - |  |  |  | - |  |  |  | (100 | ) |  |  | - |
Realized gains on sales of fair valued securities |  |  | - |  |  |  | 16 |  |  |  | - |  |  |  | 16 |
Realized gain on sale of subsidiary |  |  | 151 |  |  |  | - |  |  |  | 151 |  |  |  | - |
Realized foreign currency gains (losses) |  |  | (234 | ) |  |  | (28 | ) |  |  | (234 | ) |  |  | 16 |
Impairments in equity securities without readily determinable fair values |  |  | - |  |  |  | (114 | ) |  |  | - |  |  |  | (28 | )
Dividend and interest income |  |  | 156 |  |  |  | 282 |  |  |  | 84 |  |  |  | 109 |
Total Investment Income (Loss) |  | $ | (3,922 | ) |  | $ | (2,231 | ) |  | $ | (441 | ) |  | $ | 2,100 |
Realized gain from sale of subsidiary shown in the table above is from the sale of Galileo. See Note 2 for further information on this transaction. Realized foreign currency gains (losses) for the three and nine months ended March 31, 2020, includes $228,000 in foreign currency losses released from other comprehensive income (loss) upon the sale of Galileo. The three and nine months ended March 31, 2020, included approximately $442,000 and $4.0 million of net unrealized losses recognized on equity securities still held at March 31, 2020. Investment income (loss) 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 and exchange-traded 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 March 31, 2020, and June 30, 2019, for the major categories of U.S. Global’s investments measured at fair value on a recurring basis:
|  | March 31, 2020 |
|  | 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 |  | $ | 2,386 |  |  | $ | 221 |  |  | $ | - |  |  | $ | 2,607 |
Common stock - Domestic |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Mutual funds - Fixed income |  |  | 6,313 |  |  |  | - |  |  |  | - |  |  |  | 6,313 |
Mutual funds - Domestic equity |  |  | 560 |  |  |  | - |  |  |  | - |  |  |  | 560 |
Total securities at fair value |  | $ | 9,259 |  |  | $ | 221 |  |  | $ | - |  |  | $ | 9,480 |
|  | June 30, 2019 |
|  | 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 |  | $ | 5,599 |  |  | $ | 832 |  |  | $ | - |  |  | $ | 6,431 |
Common stock - Domestic |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Mutual funds - Fixed income |  |  | 8,021 |  |  |  | - |  |  |  | - |  |  |  | 8,021 |
Mutual funds - Domestic equity |  |  | 735 |  |  |  | - |  |  |  | - |  |  |  | 735 |
Total securities at fair value |  | $ | 14,355 |  |  | $ | 832 |  |  | $ | - |  |  | $ | 15,187 |
As of March 31, 2020, 98 percent of the Company’s financial assets were classified in the fair value hierarchy as Level 1 and 2 percent as Level 2. As of June 30, 2019, 95 percent of the Company’s financial assets were classified in the fair value hierarchy as Level 1 and 5 percent as Level 2 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 was valued at approximately $1.3 million at March 31, 2020, and $3.6 million at June 30, 2019. 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 Company’s direct ownership of HIVE was approximately 3.1 percent as of March 31, 2020. Frank Holmes serves on the board as non-executive chairman of HIVE and held shares and options at March 31, 2020. Effective August 31, 2018, Mr. Holmes was named Interim Executive Chairman of HIVE while a search for a new CEO is undertaken. The Company has an investment in Thunderbird Entertainment Group Inc. (“Thunderbird”), a company headquartered and traded in Canada, which was valued at approximately $562,000 at March 31, 2020, of which $361,000 was classified as Level 1 and $201,000 was classified as Level 2 in the fair value hierarchy. The investment was valued at approximately $1.1 million at June 30, 2019, of which $377,000 was classified as Level 1 and $675,000 was classified as Level 2 in the fair value hierarchy. The portion of the investment classified in Level 2 is restricted for resale due to escrow provisions; its valuation is based on the quoted market price adjusted for the restriction on resale. The remaining shares in escrow will be released in April 2020. The shares are subject to Canadian securities regulations. The Company’s ownership of Thunderbird was approximately 2.5 percent as of March 31, 2020. Frank Holmes serves on the board of this company as a director and held options at March 31, 2020. The Company has an investment in GoldSpot Discoveries Corp. (“GoldSpot”), a technology company headquartered and traded in Canada which leverages machine learning in natural resource exploration. The investment was valued at approximately $695,000 at March 31, 2020, of which $675,000 was classified as Level 1 and $20,000 was classified as Level 2 in the fair value hierarchy. The investment was valued at approximately $1.7 million at June 30, 2019, of which $1.6 million was classified as Level 1 and $157,000 was classified as Level 2 in the fair value hierarchy. The portion of the investment classified in Level 2 is restricted for resale due to escrow and regulatory provisions; its valuation is based on the quoted market price adjusted for the restriction on resale. The remaining shares in escrow will be released in August 2020. The shares are subject to Canadian securities regulations. The Company’s ownership of GoldSpot was approximately 7.5 percent as of March 31, 2020. Frank Holmes serves on the board of this company as independent chairman and held common stock and options at March 31, 2020. Other Investments The carrying value of equity securities without readily determinable fair values was approximately $1.5 million and $1.4 million as of March 31, 2020, and June 30, 2019, respectively. The carrying value of equity securities without readily determinable fair values has been adjusted as follows:
|  | Nine Months Ended |  |  | Three Months Ended |
|  | March 31, |  |  | March 31, |
(dollars in thousands) |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Carrying amount, beginning of period |  | $ | 1,404 |  |  | $ | 2,207 |  |  | $ | 1,488 |  |  | $ | 602 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchases |  |  | 75 |  |  |  | 100 |  |  |  | 75 |  |  |  | 100 |
Reclassification to securities at fair value |  |  | - |  |  |  | (1,499 | ) |  |  | - |  |  |  | - |
Impairments |  |  | - |  |  |  | (114 | ) |  |  | - |  |  |  | (28 | )
Other downward adjustments |  |  | (124 | ) |  |  | (49 | ) |  |  | (108 | ) |  |  | (29 | )
Upward adjustments |  |  | 163 |  |  |  | - |  |  |  | 63 |  |  |  | - |
Carrying amount, end of period |  | $ | 1,518 |  |  | $ | 645 |  |  | $ | 1,518 |  |  | $ | 645 |
Cumulative impairment adjustments to all equity securities without readily determinable fair values total $251,000 since their respective acquisitions through March 31, 2020. The cumulative amount of other downward adjustments, which primarily consist of return of capital distributions, is $777,000, which includes $108,000 and $124,000 for the three and nine months ended March 31, 2020, respectively. The cumulative amount of upward adjustments is $781,000 through March 31, 2020, which includes $63,000 and $163,000 in the three months and nine months ended March 31, 2020, respectively. Investments 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 fund reorganized in a taxable transaction into a limited partnership effective November 30, 2018, and the fund terminated. See further discussion below. During the period of ownership, the Company’s ownership ranged between approximately 20 and 25 percent, and the Company was considered to have the ability to exercise significant influence. Thus, the investment was accounted for under the equity method of accounting. 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 (loss) for the nine months ended March 31, 2019, is ($50,000) of equity method loss for the Galileo Technology and Blockchain Fund. Frank Holmes also directly held an investment in the fund. This fund had a concentration in technology and blockchain companies, which resulted in volatility in the fund’s valuation. As noted above, the Galileo Technology and Blockchain Fund reorganized into a limited partnership effective November 30, 2018. The investment portfolio and unitholders’ interests of the Galileo Technology and Blockchain Fund and the Galileo Partners Fund transferred to the new entity, named Galileo Technology and Blockchain LP. The valuation of the Company’s investment in the Galileo Technology and Blockchain Fund as of November 30, 2018, of approximately $230,000 transferred to the Galileo Technology and Blockchain LP. The Company owns approximately 22 percent of the LP as of March 31, 2020, 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. Included in other income (loss) for the three and nine months ended March 31, 2020, is ($91,000) and ($146,000) of equity method loss for this investment. Included in other income (loss) for the three and nine months ended March 31, 2019, is $3,000 and ($2,000) of equity method income (loss) for this investment. The Company’s investment in the LP was valued at approximately $150,000 at March 31, 2020. Frank Holmes also directly held an investment in the LP as of March 31, 2020. This investment has a concentration in technology and blockchain companies, which may result in volatility in its valuation.

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