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Edited Transcript of GROW earnings conference call or presentation 6-Sep-19 12:30pm GMT

Q4 2019 U.S. Global Investors Inc Earnings Call

SAN ANTONIO Sep 13, 2019 (Thomson StreetEvents) -- Edited Transcript of U.S. Global Investors Inc earnings conference call or presentation Friday, September 6, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frank Edward Holmes

U.S. Global Investors, Inc. - CEO, CIO & Director

* Holly Schoenfeldt

U.S. Global Investors, Inc. - Public Relations Leader

* Lisa Christine Callicotte

U.S. Global Investors, Inc. - CFO

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Presentation

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [1]

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Good morning, and thank you for joining us today for our webcast announcing U.S. Global Investors Results for Fiscal Year 2019. I'm Holly Schoenfeldt.

If you have any questions during the webcast, you can enter them in the questions area of the control panel side bar, which is normally to the right of your screen. Also, you may download a PDF of today's slides by clicking on the red handout button.

The presenters for today's program are Frank Holmes, U.S. Global Investors CEO and Chief Investment Officer; Lisa Callicotte, Chief Financial Officer; and myself, Holly Schoenfeldt, Marketing and Public Relations Manager.

During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-K filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and U.S. Global accepts no obligation to update them in the future.

And moving on to Slide 4, quickly, about U.S. Global Investors. We are an innovative investment manager with vast experience in global markets and specialized sectors, founded as an investment club. The company became a registered investment adviser in 1968 and has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. U.S. Global is well known for expertise in gold and precious metals, natural resources and emerging markets. And now let's go to Frank Holmes, CEO and CIO, for an overview of the period. Frank?

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [2]

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Thank you, Holly. So when you look at the volatility of GROW stock, the 2 factors that drives that, in the 30 years, it appears, the history of the company. Our fund flows are very significant. The direction of gold has a big impact. And now it's becoming also our investments, which we'll talk about that. And Lisa Callicotte, our CFO, will explain how some accounting changes have created volatility in our revenues and our cash flow or income statement, it sort of flows through. And this event has also taken place for other companies. But it's really -- the direction of gold has been significant, fund flows is the real underpinning and there's investments. And so in that context, we strive to be that go-to stock for exposure in emerging markets resources. And gold, no doubt, and digital currencies. We're debt free. We have a strong balance sheet with a reflexive cost structure and monthly dividend return on equity discipline. We've been through very, very challenging times.

Next slide, please. In this whole industry -- and I'm not going to comment on that, the mutual fund industry as a whole. But I wanted to take this moment during this presentation to thank the Royce Fund, Perritt and other people that have been shareholders in -- and maintained in our company. In particular, the other people that are in the mutual funds world, they've also experienced these sorts of challenges.

And the next slide, please. So we consistently paid a dividend for 10 years. Our yield is modest. And we continue to work on everything we can do to improve our revenue and our cash flow, to maintain this discipline of being able to pay dividend.

Next, please. The Board approved the repurchase of up to $2.75 million of outstanding common stock in the open market through calendar year 2019. And during the fiscal year 2019, the company repurchased 20,575 shares of Class A using cash of approximately $24,000. We may suspend this or discontinue at any time. What's important for investors is that, it's a quant model that basically buys on x percentage of dollars on a wide decline in the stock. And basically, only buys when there's an -- a big down day. So that's been the discipline of stock repurchase.

Next, please. So the balance sheet has no debt. As you can see, the assets how they've come up and gone down. And what they -- I guess the big part there is that it's been in a trend down our cash and funding the business and looking for acquisitions, and also, looking for investments and looking for a pivot change in this mutual fund world. And that's the reason why we want to launch some ETFs, which I'll comment on. But it's been a real challenge. And -- so we have to be really conscientious. And yes, I'm going to comment on some of the cost savings we've been doing in trying to maintain that cash position and rebuild it.

Next, please. So earnings per share, the quarterly -- fourth quarter end June 30, it just shows you the volatility. It basically -- due to cryptocurrencies it had a big impact, and is also the accounting. So in the old days, we used to make investments and they would be on a balance sheet until we sold them. And today, everything goes basically mark-to-market. And I think that, that's just something that's increased the volatility. And I think we're going to let Lisa talk more about those accounting changes in a few minutes.

Next, please. So earnings per share, as you can see, it's just really painful to see that a portion of that's from operating losses. And to try to deal with those operating losses, I would close down our top-performing ETF in Canada, which is a gold product, which is a mirror of GOAU, which is listed on the New York Stock Exchange. It's just the industry in Canada is controlled by 5 banks. And the ability to get fund flows, even though we did a fair amount of marketing, it's just really a challenge and the cost for putting a product like that on the shelf. It costs you almost $1,000 a day, you got to think of, is -- just keeping it alive. And so part of our sort of strategy going forward is if the product's not going to work out then we just have to cut it and it just start cutting costs.

Next, please. So this is the visual of the average assets under management. They seem to be in -- they've found a base. And the positive part for us is that we are getting recognition for our top-performing gold equity ETF GOAU. And so we're starting to see some great fund flows, and it's predominantly because of performance.

Next, please. So let's talk about an industry that's just really seen a difficult time of outflows from domestic equity funds, have gone to -- some have gone to the ETF world, as you can see here. And some have gone to some other mutual funds are just low cost. And most of those fund flows are not based on performance, they're based on just who's cheapest has been perceived as best. And then there's been other several rules that have come out in the past 5 years, the interpretation of a fiduciary rule, which was delayed in being implemented. But this -- that thought process, the Department of Labor coming out with this fiduciary rule and the conflict with the SEC and the debate. What it did is it triggered any fund family that had a top-half cost structure got thrown off platforms really across the board, because it was perceived that fund expenses would trigger litigation, and so therefore, it was a rational reason for the major banks platforms to kick you out. And the hard part for us is that we have a huge audience of direct, small gold investors because we advocate a 10% weighting in gold. If they have a $50,000 portfolio that's only $5,000. And this expense of -- when you add up all the costs and compliance and regulatory, et cetera. To maintain for a $5,000 account it's same for a $50,000 account. And so that gives us higher expense ratios, and that has an impact on the decision there on these platforms. So that has cost us over the past several years assets having to redeem. And so what's the positive part is that we are -- in recent surveys we did with the ETF trends. So even ETFs was only based on most of the fund flows, it was predominantly based on a hot theme. But really the majority of the fund flows was who is cheapest was perceived as best. However, the RIA space seems to now be focused more on performance, and performance is a more significant factor in that decision-making. And when we look at our gold equity ETF, it's about the same expenses as the GDX and GDXJ and this [cross], et cetera. But its performance has proven itself in the past 2 years of doing what the back-tested model suggested it would do. And as we all know, the past performance is no guarantee of future results. But before you go and launch anything, you have to do rigorous back testing like you do in the medical profession or you do in aeronautical profession, it's just tremendous testing the resiliency of your idea, of your model. And so we're happy to say that both -- JETS ETF is our first launch, has done exactly what it said. So the quanta-mental approach and they call it, smart beta 2, where it's not just factors for picking stocks. But the overall portfolio construction allow us to create and inspire this with GOAU. The 30% are 3 royalty companies and the rest are based on factors that are much more appreciated by the generalists, not just a gold fund manager. And the narrative in the gold space, it used to always be who's cheapest on the price to book or NAV. However, in today's world, with quants driving something like 70% of all trading decisions from high-frequency research to high-frequency trading. It is looking at other factors and that's why we basically created a proprietary algorithm for the launching of GOAU. And we don't feel very confident that it's just a superior product that's demonstrated it. And we believe it has lots of resiliency going forward. And in this gold market, this is a pretty bullish sign which we had to have to replenish our asset base, unless you go and acquire assets. And we're seeing that gold assets like top U.S. fund was sold at something like close to 200 basis points, whereas a USAA up the street became so exhausted from all the regulatory bodies that it had to cater to and the costs and the potential for bad reputation, et cetera. They got out of the business totally. And they sold theirs for something 80-some-odd basis points, their assets. So the gold assets do command a higher valuation. And the biggest part is you'd have to perform.

Next, please. So as regulations increased, net sales slow. You're seeing net sales of regulated of open ended long-term funds in the United States have slowed substantially. In 2018, there was a surge in 2017, with the buoyant market, which was predominantly the indexes -- cheap indexes. But even that quickly reversed itself.

Next, please. So there's another important visual showing you that the number of mutual fund sponsors are diminishing. So either they are just unwinding, merging their funds or they're liquidating their funds and they're leaving the industry. And those new entrants that are coming in, there's very few that come in to a mutual fund product. If they do come in, it's through an ETF type of platform. And it's -- this is just a -- if I'd like to be as positive an optimist, but to show you that the -- it's just a burden of what's going on in the industry as a whole and how we have to navigate our ship within that industry.

Next, please. This is the number of mutual funds entering and exiting the industry, and this is liquidated as you can see. The -- just the cost of trying to acquire another fund group is very, very expensive. And so several fund groups said for $100 million is best just that it's liquidated. And so the -- in that industry what we've seen is that RIA is the premium paid for RIAs it's because they're not experiencing these 20% redemptions a year of fund flows going out, it's about 2%. So the valuations on RIAs have gone up substantially. And it's easier and cheaper to go buy an RIA which has more stable fund flows, clients coming and going than the mutual fund arena. So mutual fund evaluation metrics for acquisitions, et cetera, have dropped substantially except for the recent Tokyo gold assets.

The next visual. So even during market rise domestic funds lost ground. Net new cash flow and domestic equity mutual funds in 2018 versus the S&P 500, was just trying to put this in context the -- what took place in December of last year. And what our big challenge has been is that we have a model that says that we can earn extra basis points if we outperform the benchmark that's in our prospectus by 5% of the rolling 12-month periods. But however, if we don't outperform it, then we have to give back money, if we lag by 5% then we have to give back money. And that's been a real challenge that we've had with the performance in the active end of the market. And there's a couple of things that are sort of industry-specific that have impacted. And now it is just about executing off the models, how fast we execute. So we're revisiting and looking at what do we do in that scope of -- because it's a lot of money for us in a small complex. And if we were not lagging in so many of the funds, I think the number is on average probably $50,000 a month that's been costing. It's improving slightly in the past month or so. But I think it's a big issue that internally I'm very focused on working on.

Next, please. So GOAU, it's the darling right now. It's -- the assets are higher than when we did this slide. We had another 5 creates yesterday, it doesn't reflect this. So we're having a strong growth in that close to $5 million of additional money came in yesterday. And so we've seen this 84% increase in assets since June of this year. And I think the big part was just the recognition that the model that we launched. It has teeth to it. And the sort of concept of looking at 5 factors in a proprietary model are able to pick gold stocks better. I also believe this is because of concentrated portfolio. And so I'm really thrilled about it. I think that when you look at the total number of gold ETFs -- equity ETFs, they are over $10 billion. About a 1/3 of them are because of Direxion's triple bull and bear that goes into them. So lot of the speculators have not gone into junior mining, they've gone and speculated with a triple bull in this sort of cycle here. But for us, it's -- we have a better product. And I think we've applied our skill set from active fund managers and looking for those sweet factors for gold producers. These are not exploration companies but gold producers. And I think that this is a $1 billion fund. It's just a better product for investors because it's intelligently designed and it's intelligently rebalancing, recalibrating the stocks in this portfolio every quarter. This time last year, we end up having our biggest turnover in the GOAU, why was that? Because Vanguard left the industry, the gold fund business. And it's interesting for us because we did an analysis last year is that our gold fund outperformed Vanguard for 1, 3, 5 and 10 years, but it didn't matter because Vanguard had a cheaper fund expense ratio. And the psychology was that, it's not performance that was important it's just cheapness is important. And even with that, with their billions of dollars of assets they got out of having a gold fund. And so that allowed us, as they dump great quality gold stocks to be able to reposition GOAU to buy them inexpensively and has helped our alpha creation.

Next, please. So there is GOAU ETF. I'm thrilled about it. It's up 60% over a 1-year period. It's outperformed all the active gold fund managers that I know in the industry. It could change by day-to-day or week-to-week. But it's just really -- importantly, it's far outperformed the GDX and -- it's particularly GDXJ year-to-date and over 1 and 2 years, it's outperformed in. And the back testing said it would -- it suggested that's what it would do, and I'm happy to report it has done that and now is getting credibility and fund flows.

Next, please. So what's driving a lot of this volatility? And I'd like to speak about these macro forces that India -- it's actually owners in China and India are 40% of the world's population. And they drive a big part of the love trade for gold because 60% of all demand for gold is love. In fact, Indian women have 6x more gold that they wear than there's in Fort Knox. And every time there's weddings seasons coming up, there's a new year, there's a birthday, if -- especially in China, if it's a year of the tiger, you get a gold tiger, 24 carat. And the wealthier the families are, they buy more grams of gold for wedding season in India or they buy a bigger gold tiger. And to me it's remarkable to see this sort of fluidness that takes place all through this region. And Southeast Asia and the Middle East are big buyers of gold for love.

Next visual. It's just sort of fear trade. And what's interesting is for China to make their currency more valuable and have credibility. They've been increasing reserves for 8 straight years -- basically 8 straight months now. But they've been doing it for like a decade. And China used to be the price taker that is and London was the price maker with the London fix every day. But after the 2008 and 2009 the sort of drama crisis that we went through, that switched. So now China is the price maker. And interesting enough, China has been -- consistently been buying all the gold consumed in their country, and now their country is the largest gold producer of the world, and they buy outside the world, they're taking gold. And it's a mechanism for them to basically create support behind their fiat money. So I think that, that's an important part of that fear trade, that's the 40% of the equation for demand for gold, and it continues.

Next, please. And we've seen something else, a seismic shift in gold, countries like Poland. They increased their holdings by 228 tons last year. And Turkey increased their holdings. When Turkey had difficulties with the currency prices in the short term, they blew out some gold and Hungary buys it. You find out this 2 months later. And so you're seeing, it's just basically increase. And Turkey has done everything with the 16% interest rates to try to stop their currency from being devalued. And they have 16% inflation. But something they've done with the paper money machinery is been buying gold.

Interesting enough, the Swiss and the Japanese have not been buying gold with this paper printing of 0% interest rates or their quantum -- they call it quantade easings. They've been buying the stock market. So they're big shareholders in their own stock markets for the ETF business. So I think that that's interesting that they're all trying to buy real assets. And so the more developed -- so Japan has a very developed market, and so does Swiss have very substantial big-cap stocks. And I think it's an interesting shift that's taken place in the past 10 years.

Next, please. So the central banks bought a record amount of gold in fiscal half of 2019; Russia, 100 tons; China, 74 tons; Kazakhstan, 24 tons; and others, India, Ecuador, Colombia, et cetera. So we're seeing a trend of increasing exposure to gold as an asset class and as a currency because gold is -- remember -- it's important to remember, it's the fourth most liquid asset class in the world. So it's a form of money in addition to jewelry. And it has this dual capacity to be both, especially in Asia. And if you read the history books, the Vietnamese people, the boat people that got out first, they were able to have gold. Gold was just -- become all of a sudden, because it's 24 carat, becomes jewelry. It becomes the ticket, the insurance policy to get out of Vietnam. And we've seen this also recently in Syria, that Syrian women first to get out were able to buy their way out with gold.

Next, please. So this understanding of the gold fear trade is so important. It's a simple binomial model. There's this huge global tension around the world, it's not just in America, between monetary and fiscal policies. And there's a new thesis that monetary policy could do everything. And the socialist, idealist about that at the EU is basically increased regulations, which is an indirect form of taxation, just like tariff wars are, taxation on the flow of funds and capital. And so you are seeing this tension and an imbalance. So to try to spur economic activity, interest rates fall to 0% or negative. Government goes out to print, raise money, investors don't buy it. So then the government buys back its own debt and they print money. And we're talking about trillions of dollars now. And we're taking about trillions of dollars that have negative real interest rates. And that is the key factor for driving gold. And there's the lack of will to draw corporate taxes, individual taxes. There's a lack of will to streamline regulations and there's all these cute buzzwords that the EU likes to come out, what's called harmonization. And it's harmony that means in the U.S. sort of increases regulations and taxation to comply with the EU. And so we push back against that. And that's why we -- in the past 2 days, in New York City at Cornerstone Macro conference, and it's really interesting for me to hear quant funds. And listen to other people with their themes on what's happening globally and the tension that's taking place. So I think for me, it must have been very insightful. And especially, if you listen to Phil Fisher yesterday. Dr. Phil Fisher was head of the Israeli -- their Federal Reserve. And then he was Chair here in the U.S. And it really amazed me when I asked him about gold. And why central banks as you know, why they're all buying gold, and his response was gold goes up and down. And he basically tried to be evasive and not answer the question. And you're seeing that more conservative -- fiscally-conservative central bankers are the ones who're pushing the button to buy gold.

Next, please. So the trade wars. There's -- it has impacted GDP growth, you have Fed policy and trade war. But really, it's important on this visual really it's more important to have the China versus the U.S. So why is that? I mentioned earlier that Chindia is 40% of the world's population. And so it's very important to follow them for consumption because people have to eat every day and people buy gifts every day. And so that's important when you look at the global scene. But when you look at global trade, it's really the U.S. and China. 40% of that global trade is these 2 countries. And so when they are in this sort of spat about trying to harmonize tariffs. And basically, that the U.S. is saying, that you want to sell into our $14 trillion economy, you have to drop your tariffs and give us the same tariffs, less friction going into your country. And the Chinese have basically not been very cooperative. Now what gets a lot of drama is to stealing our technology and IT, intellectual capital, et cetera. But the real basic line is there's just -- it's an unlevel playing field in the flow of products and services going back and forth. And the game changer of this conference is they said the positive thing they said about Trump was that he's shown that you can challenge the world and that globalization did not rise all boats. And that there has to be tweaks to the globalization, this big global trade. And it did help lift lot of people out of poverty but it was not ubiquitous. And so other people have those disruptions and now they're trying to fine tune that. And so the fact that what's happened is that no one wanted to take that leadership. And there's sort of groupthink between the G-20 finance ministers and the G-20 central bankers. Some say collusion, but there was this thought process. So this -- all this stuff and the reason that I want to talk so much about this, it's impacting economic growth, it's impacting negative news, it's actually positive, because rates are going to have to fall in the U.S., like they're falling every place of the world. And that drives up the gold price. So the trade war has impacted GDP growth. And in fact, in Denmark, they pay you to take out a mortgage, it's just how severe this idea of trying to stimulate economic growth.

Next, please. So inflation is bigger than the CPI reports. I've written about this many times and this is just a classic data point that if you look at the cost of products at Walmart and Target, which is basically the bottom half of the economic spectrum in America and the middle class to upper middle class with Target. Inflation is running at 5%, not 1.8%. So this means -- basically says that your government bonds are trading at a massive discount, negative real interest rates.

Next, please. So it's -- gold often provides a heads during downturn, this is Ray Dalio talks about. It's interesting that the best performing asset class for the past 20 years, they're REITs, are real assets, REITs, and they pay dividends. So as REITs have been falling and you see gold as the second best performing asset class. And REITs -- so it's fascinating to me to see that people still buy into that REITs are now a sector of the S&P 500. Couple of years ago, they went from 10 to 11 sectors. And gold is -- there it is. It's one of those great asset classes, Ray Dalio was the largest hedge fund in the world. And you have a case between 6% and 10% and you recalibrate, rebalance your portfolio of gold as an asset class.

Next, please. So gold equities are cheap. And this to me is one of those great visuals to show you that when we go look at this time period, over the past 10 years the gold index -- the -- is minus 12%, and bullion is plus 66%. Only the royalty companies like the Franco-Nevadas have done exceptionally well over that 10-year period because of their superior business model. And that's what makes GOAU unique because 30% are royalty companies, and they have a better business model. So what is really showing you, there's lots of upside in the gold equities on this cycle.

Next, please. So we made a strategic investment in GoldSpot. The reason for that is artificial intelligence. The frackers changed the oil industry, the dynamics, and I believe that AI machine learning is going to change. And GoldSpot has 9 PhDs, and a PhD in Silicon Valley is worth about $5 million for fundraising. So that makes it worth USD 45 million, and the market cap is $20 million. So it's very inexpensive. It's off from when we bought it. It's been pulled into as a junior micro cap gold stock when really it's a technology stock. It services industry. And they do what is called a swap, that they'll make an investment if they use our services so that they also get equity in these positions. And so I'm thrilled to be involved with all these really smart young people that are applying AI.

And yesterday at the Cornerstone Conference, one of Steve Cohen's hedge fund, Point72, they're head of quant investing, basically came out and talk about how it's been a significant part of how they're growing, is applying machine learning as a tool. As a tool, like you use a Bloomberg to look at stock growth and stock screens and information that they use in quant data mining, and this is the leading company with contracts from major mining companies down to junior.

So this has been an important investment. However, and on the short term, it's hurt our overall -- the decline. So it hurts our income, which Lisa can talk about income statement, but not real income, as we call it. There's no realized loss.

So the validated technology, Hochschild is the second largest mining company in Peru, listed on London Stock Exchange. The CFO is on the Board, and it has very strong institutional sponsorship. There are shareholders, along with theirselves, like Eric Sprott's a major shareholder, Rob McEwen's a major shareholder, Elliot Management through Triple Flag. They're royalty company in Canada. They're also a significant shareholder. So I think -- but interesting sponsorship in this industry, and I think that GoldSpot is -- could be a huge game changer for the exploration business. And so as I said, it's -- let's say, 6 but it's 9 PhDs and 12 analysts.

Next visual please. So it's been recommended as a nano cap stock using AI to disrupt the $2 billion gold mining sector. There's been no major discoveries, next please, in this space. And that's something that's really important. There's no significant 3 million ounce discoveries because all the low-hanging fruit's been picked off. And just like the energy space, the frackers were the game changers. And I believe that GoldSpot can be the significant game changer in the exploration game. And that gives its -- when they take back shares and they take back a royalty on a new exploration area, they get huge upside potential.

But in that whole scheme of things, what's really important for our investors to recognize, this DNA in volatility, and it drives GROW stock. And you can see, the DNA of volatility of the S&P is -- gold bullion for 1-year rolling going back 10 years, it's a nonevent for gold to be 17%. And it says the S&P is plus or minus 11%. That's very surprising to me, that number, because it was always very, very similar. And so I'll get that double check for me as it -- that -- in a rolling period. And then when I look at the emerging markets, they've always twice what the S&P 500 has been, and gold stocks have always been 3 to 4x the volatility of bullion, which -- also very volatile is oil prices.

Next, please. Holly?

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [3]

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This is still your section but...

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [4]

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Well, you want to talk about insights, that we're -- you're working on speaking at conferences and from television or going on to tell the story of what's happening in global markets, et cetera.

Next, please. So the 1-day volatility, as you can see, for bullion and the S&P are approximately the same whereas bitcoin, Ethereum, substantially greater. And there's still yet to be an ETF that allows you to buy bitcoin. The greatest concern we discovered couple of years ago was AML, anti-money laundering risks, et cetera. And so that's why we made investment in HIVE Blockchain, which has been a roller coaster event.

Next, please. So major events are moving the price of bitcoin. It went through this, a couple of years ago, from a $7,000 up to $19,000, down to $3,000. Now it's back to $10,400. It's interesting that it peaked when the Chicago Board came up with -- commodities exchange came out with their futures market. That was the peak in bitcoin. And the bottom took place when we had -- JPMorgan which kept knocking bitcoin as a bad investment, and that bottom took place when they launched their stablecoin this year in February. And we've seen a modest climb at the beginning and then it start to accelerate. And then we had Facebook announced their global Libra coin. And there was bitcoin, then it explode on the upside. So it's interesting for me to share with all of you is that both Facebook and Google stopped allowing any type of advertising on their platforms while Facebook was busy creating their own stablecoin, and JPMorgan kept knocking digital money, well, until they came out with their stable coin. So these are positive trends that are taking place in that crypto space.

Next, please. And what's important for me in recognizing is this, the number of wallet users. This means there's basically the number of people opening accounts and buying a bitcoin. So as bitcoin prices fell, it didn't really deter new speculators, investors coming in and buying the coin. And it's a really unleveraged marketplace. When you look at it overall, it's predominantly a cash economy. And to me, I saw this in the gold space that in 2003 from -- sorry, [raising] 2002 to 2006, there were some great gold corrections. And even though the gold sold off and the gold funds sold off, the funds kept coming into the gold funds. There was actually net fund flows. And so investors kept averaging down for the next wave up, and that usually led to -- what it did was gold went from $275 to close to $900 and -- before it corrected. And then it went on to $1,900. So it's a very positive sign in the crypto space as stablecoin's keep coming out and the number of wallet users keeps rising.

Next, please. So last year, this -- no, 2 years ago, we launched of HIVE. As I said, it was a roller coaster ride. We made a strategic investment, and it's been very volatile to our overall GROW stock because the underlying stock in cryptocurrency and HIVE seems to -- it was correlating very tightly with bitcoin and Ethereum, particularly Ethereum price action almost on a daily basis. It became a proxy for those who did not want to open a wallet and trade bitcoin, Ethereum directly. HIVE became a proxy for investors.

Next, please. So HIVE 2.0 is growing. It's a coin inventory. And we've been -- we've sold and bought. And so we assess opportunities to participate in the blockchain technology ecosystem, and we evaluate, execute accretive M&A deals.

But -- the next visual, please. But we have been consumed this year. We had a proxy battle. We had great concerns with our largest investor, who earns the bulk of their shares through a swap at the beginning of the creation of HIVE. And so what really transpire when I became the interim CEO was transparency, the GMPs of the world who took the company public and helped raise $200 million, their research analyst who kept talking about lack of transparency on cost, et cetera. And Genesis Mining is a private company, and the management there had big turnover in change. And they were just basically said we're a private company, and they weren't going to give us the transparency that we needed to raise money with or to make investors feel that we weren't gouged for pricing. And that led to a big dispute. And -- but we prevailed. We resolved at the end of June. We had a peace and prosperity agreement. And so now we've seen HIVE has been sold down. It was sold down in particular -- it came out that Genesis sold a lot of stock in the month of July.

And then we've had delays in getting our audits out and done. And the reason for that big part of this whole delay is new accounting rules in Canada for any public blockchain crypto company came out. The accounting Board of Canada made these pronouncements the fourth quarter of last year. And most of the companies had their year-end was in December, ours was March. So we didn't get this notice that all the major audit firms were basically pushed to drop audits on -- and mid cap audit firms on anything with blockchain. And so there was turmoil in the industry, we didn't think we're going to go through it. And in February, we got a letter that we had to find new auditors. So we had to go through that process, and it delayed us by 6 weeks. We were able to secure a firm that has great expertise now in this space and dominates audits on the micro cap stocks in Canada. So Davidson Partners (sic) [Davidson & Company], so they're a great firm, and they're rigorously doing the audit. And hopefully, we get it out as soon as possible in this -- the month of July is -- as we -- every 2 weeks, we make announcement that we're making progress on this. And so I think that that's been sort of a headwind until we get this out. And once that's done, that audit's done, then I think that it recalibrates itself, HIVE.

HIVE is producing again in Sweden. And so we're major Ethereum producer globally, and we're taking over the facilities. That transition is taking several months because of the technology and et cetera and hardware and software. But we've got revenue and we've got cash flow. And that's very positive for us as we go into being able to provide more transparency for the investors. And Genesis can go on and do what they want to do. It's a private company, and we can go on to be able to be more independent and be able to get transparency that investors and brokers are requiring of us to provide.

Next, please. Lisa?

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [5]

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Thank you, Frank. Good morning. Before I summarize the results of operations, I'd like to discuss an accounting pronouncement that we adopted this year. Slide 44 notes changes in the accounting rules related to investments that have and are expected to continue to cause our earnings to be more volatile. We adopted accounting standards ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective July 1, 2018. This amended the guidance on the classification and measurement of investments and equity securities and certain disclosures.

Starting this fiscal year, some of our corporate investments were accounted for differently than in the past. There is no longer an available-for-sale classification for equity securities. As part of the adoption of this new standard, we may require cumulative effect adjustment to reclassify $3.1 million in unrealized net gains and $1 million in related deferred tax expense out of accumulated comprehensive income and into retained earnings. Effective July 1, 2018, unrealized changes in our fair value of these investments, formerly classified as available-for-sale, are reported through earnings rather than equity. This includes any changes in the market value of our investment in HIVE. The related unrealized losses for -- on securities formerly classified as AFS for the year June 20, 2019, and was approximately $2 million. And this would have been in comprehensive income in the prior year, but this year was included in investment income. Due to the accounting change, it doesn't matter if the investments are short or long term in nature. The change in market value will be recorded quarterly, causing income to be more volatile.

Slide 45 summarizes our investment in HIVE. As of June 30, 2019, we own 10 million shares of HIVE, which is approximately 3.1% of the outstanding shares, and it had a value of $3.6 million.

Now I'll discuss the results of operations for fiscal year 2019. Beginning on Slide 46, we recorded total operating revenues of $4.9 million for the year. This is a decrease of $1.3 million or 22% from the $6.3 million in 2018. This is primarily due to decreases in assets under management related to market depreciation and shareholder redemption. The decrease was slightly offset by an increase in Galileo performance fees.

Operating expenses for the year was $7.9 million, a decrease of $668,000 or 8%, primarily for the following reasons, employee compensation and benefits decreased $852,000 or 20% mainly due to decreases in bonuses. And this decrease was somewhat offset by an increase in general and administrative expenses of $175,000 or 5%. G&A increased due to increases in Canadian fund expenses and consultants fees. We see that our operating loss for fiscal year 2019 is $3 million.

On Slide 47, we see that other income was a loss of $1.5 million in fiscal year 2019. In prior year, we had other income of $3.2 million. Investment income decreased $3.1 million compared to fiscal year 2018 primarily due to net unrealized losses on investments of $1.8 million compared to a prior year net unrealized gains of $742,000. There was also a reduction in investment and dividend income of $540,000 due to certain interest-producing investments being redeemed or paid off. The investment loss in the current year included approximately $2 million of unrealized losses on securities formerly classified as available for sale, which would have previously been included in other comprehensive income. Income from equity method investments also decreased from income of $1.6 million last year to $23,000 in the current year. Net loss attributable to USGI after taxes for the year is $3.4 million or a loss of $0.22 per share, which is a decrease of $4 million compared to our net income of $647,000 or $0.04 per share in fiscal year 2018.

Moving to Slide 48. We see we still have a strong balance sheet, which includes approximately $17.3 million in cash and unrestricted securities that, combined, make up 73% of our total assets.

And as you can see on Slide 49, we still have no long-term debt. The company has a net working capital of $11.6 million and a current ratio of 9.2:1.

With that, I'll turn it over to Holly.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [6]

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Thank you, Lisa. So as you can see, a majority of our mutual fund assets are in emerging markets and natural resources while 33% are in domestic equities and fixed income. As for distribution, more than ¾ of assets come from retail investors with 18% coming from institutional investors. Our sales and marketing efforts have continued to focus on our mutual funds, including those concentrated on gold, natural resources and emerging markets as well as our exchange traded funds.

The company and our funds continue to receive an invaluable amount of viral publicity gained through media interview. Frank Holmes often shares his insights with financial outlets like Fox Business, Bloomberg Radio and Kitco News, just to name a few. We also continue to receive recommendations by influential financial newsletter writers as well along with sharing and syndication of our award-winning original content by third-party publishers. The newsletters have loyal followings and receive millions of visitors each month. Frank Holmes' CEO blog, Frank Talk, continues to grow in popularity as well. His commentary is often featured by prominent publications including Forbes, Seeking Alpha, Kitco and equities.com, all with millions of monthly visitors.

One of our core values at U.S. Global is curiosity to learn and improve. We believe that providing educational materials to investors is one of many ways to achieve this. And some of our widely read pieces include the What's Driving Energy? handout pictured here along with our Fear Trade and Love Trade white paper. Both of which are available for download on our website usfunds.com. Kitco News, the biggest gold website in the world with an audience of over 30 million monthly visitors in partnership with thestreet.com continues to feature the Gold Game Film show with Frank Holmes' gold market analysis. Since the show's beginning, 168 episodes have aired.

At quarter-end, we like to look at the most visited Frank Talk blog posts over the last year, no matter what year they were actually written in. So on this slide, you will see that the most visited articles for the 1-year period were: number one, the Top 10 Countries with the Largest Gold Reserves of; number two, the Top 10 Gold Producing Countries; and number three, what does it take to be in the Top 1%? And you can sign up to receive the blog for free on our homepage.

And all of this coverage helps us leverage of our brand by reaching millions of readers, viewers and potential investors. Our website, usfunds.com, was visited 537,000 times from June 2018 through June 2019 by curious investors from all over the world. U.S. Global is well known for timely, balanced and positive market insights and our thought leadership. The company has been awarded numerous STAR awards by the Investment Management Education Alliance over the years for excellence in investor education. And at the end of 2018, we added 3 more awards, bringing the total to 85. And actually later this month, a member of our marketing team will be attending the STAR awards for 2019, again, and we hope to come back with additional recognition.

Our subscriber base continues to grow organically, and we currently have over 50,000 curious investors subscribed to our investment newsletters and our Frank Talk blog. We also continue to see a large following across all of our social media platforms. Investors can sign up at usfunds.com and join the subscribers who receive the award-winning Investor Alert e-newsletter as well as Frank Talk.

And as we wrap up today's presentation, we would like to open it up to questions. As a reminder, you can enter your questions in the control panel on your screen, and we already have a few come through. Frank, I'd like to direct this first one to you which says, if the U.S. recession and a bear market is imminent, how might this impact GROW.

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Questions and Answers

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [1]

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Well, the most important part for us is how well does our products grow, and bad news is good news. And that is the central banks around the world have all gone to pushing for negative real interest rates. And this is very good for gold, and we have a product, GO GOLD, which has tremendous global reach. And the reason why I say that is because the -- all the regulations in the past 20 years, you've seen that foreigners cannot buy mutual funds in the U.S. They used to be able to. And -- but they can go and buy a gold equity ETFs on the New York Stock Exchange. So if they're in Germany or they're in Hong Kong or Singapore, so that global reach means that we have the best quant approach to picking gold stocks with stellar performance. I think that, that has the capacity to be a big lower asset class. So the worry of a slowdown globally just means more money printing and lower interest rates, which is a big factor for propelling gold substantially higher. We have now -- I think it's $17 trillion of government bonds around the world with negative rates. We have -- the U.S. looks like it's going to be dropping out rates by 100 basis points over the next 9 months.

It's unprecedented that you have a president, it's a question I also asked yesterday at the conference, that looks at the stock exchange as a barometer of future global -- for future economic growth and job creation to is he doing well or not. And no ever -- no other president has ever done that was the responses I received yesterday. From people that worked in the administrations going back to President Clinton and Obama administration and another one who worked in the Reagan administration and the Bush administration, none of them said that they saw that Reagan or anyone really talked about the stock market as a future part. So I think that you're going to see President Trump's going to do everything he can to make sure the stock market's doing well, which means the economy is doing well.

And we have -- Holly, what really shocked me yesterday, usually, when we have such big debt loads in America and deficit spending, it's attributed to either being in a recession or being at war. Those 2 factors usually drive massive deficit spending and printing of money. We're in neither, and we have record deficit spending and record debt levels. So if we do get that recession, then the debasement of currencies, just like the Black Box CIO talked today, we're going to see gold propel higher, and I think we're positioned with products like GOAU to really perform well.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [2]

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Great. Thank you, Frank. I have another question here that may be Lisa can address. It says that previously you've mentioned owning your own building along with plans to rent out the space to more tenants. Is that still the plan?

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [3]

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Yes. We've got a couple of -- sorry. Go ahead, Lisa.

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [4]

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Fine, go ahead, Frank.

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [5]

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No. Lisa, go ahead.

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [6]

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Okay. We do have a couple of tenants right now. And then in October, we're expecting another one. So even though these are kind of small spaces that we are renting out, we are able to offset some of our occupancy costs by renting that out. So we are keeping our options open and kind of considering additional tenants.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [7]

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Great. I think that answers it. Frank, we have time for one more question. So I'm going to direct this at you. It says, in the presentation this morning, you discussed the struggle faced by mutual funds along with the great success of your GOAU ETF. And with that in mind, do you have plans to shift your focus at all from mutual funds, focusing more on that current ETF, your current ETF lineup or even new ETF products?

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [8]

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Well, I think the growth in mutual fund industry is coming through acquisitions. The ability to get organic growth is that you basically have to give away your funds. And the regulatory burden and cost when I moved to Texas 30 years ago and bought U.S. Global, the cost of waiving all your fees, because we had a money fund we did that with successfully, it's just too expensive. It's just an outrageously expensive exercise.

And so we're going to focus on specialty products. We're going to keep continuously taking a look for acquisitions as I've done in New York is gone to see bankers that specialize boutiques in acquisitions and look for these types of products. In talking to people yesterday, when they go to launch a product, I thought it was interesting that they usually get a family officer, a hedge fund, that puts up at least $100 million. Because you can't get on these platforms unless you have like $50 million and you're trading $1 million a day of stock. So you're seeing more and more barriers to entry within the industry itself, and that's making the bigger challenge just coming with ETFs. So you have to have -- if we go out with a new product, then we have to go get some real sponsors that believe in that vision, like luxury goods, which we're looking at the launch. But it's such a cost to -- and it's very expensive and difficult. It's difficult doing marketing of these products.

So mutual funds, it is hard to grow organically. So your best thing is to go and acquire and roll them into your assets, and so we're pursuing that, and, b, is the focus on GOAU. It should be a $1 billion product. We had lots of creates yesterday, again, as I mentioned earlier. So we're going on other platforms. And as we go through $50 million, then all of a sudden, we'll be on other major platforms across the nation. And that should propel this particular product to $0.5 billion. Now just to give you an idea, the $0.5 billion, that would throw off about $3 million in revenue, and that would give us a much more robust cash flow and revenue model that we have compared to today with the mutual funds.

So that's where the focus is. That's where our reputation is, and I think that we'll maintain that focus. We got a rebound in the cryptos and HIVE. I think that'll also be a big benefit for our investments. And hopefully, GoldSpot is able to announce some successful investment that changes their financials and make sure stock appreciate. So I think we're positioned for this next leg.

But right now, most important for the shareholders and what I'm focused on is driving down costs. We've driven them down in Canada. We have to drive them down again. They have to just not lose money, period. And so on in the U.S. in particular, it's to grow the assets. And I think it's ETFs growth or mutual funds acquisitions.

Thank you, ladies and gentlemen.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [9]

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Wonderful. Thank you, Frank. And that concludes U.S. Global investors webcast for fiscal year 2019. This presentation will be available on our website at usfunds.com. Thank you all for your participation today.