U.S. Global Investors, Inc.

Good morning and thank you for joining us today for our webcast announcing U.S. Global Investors results for the third quarter of fiscal year 2019. I'm Holly Schoenfeldt. If you have any questions during the webcast, you can enter them into the questions area of the control panel sidebar, which is normally to the right of your screen. Also, you can 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-Q 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 Investors accepts no obligation to update them in the future. And on slide four, very briefly about U.S. Global Investors. is an innovative investment manager with vast experience in global markets and specialized sectors. It was founded as an investment club, and the company became a registered investment advisor in 1968 and has a longstanding 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 with that, I'm going to move to slide five and go to Frank Holmes, CEO and CIO, for an overview of the period. Frank.

Thank you, Holly. You know, it's interesting because we did start as an investment club with the military and the founder, Colonel Clark Aylsworth, who was an Air Force pilot, started this idea and he was the first to go into no-load gold investing. when the yields were like 14% in the 70s. It started in 68, but it really grew into a mutual fund. It was prior to even USAA setting up their mutual funds. Interesting history, and USAA is just up the street from our head office at Callahan and I-10 in San Antonio. But what are our strengths? We're the go-to stock for exposure to emerging markets. Resources, gold, and now it's become digital currencies. And I think it'll also pivot into artificial intelligence with our significant investment in Gold Spot. We're debt-free. We have a strong balance sheet with a very flexible cost structure. And we'll talk more about that and then the monthly dividend return on equity discipline. Next, please. We want to thank all of our institutional investors. that have stayed with us, that have come in and gone. It's interesting to see, but some of them have been very, very astute in how they've used U.S. Global as a proxy for gold and a proxy for other unique investments. I'd like to thank the Roy Spines Parrott Financial Investment Management Group in Michigan and BlackRock and Choroso for their commitment and support of our vision. Next, please. So consistently paid more dividend for more than 10 years. We have a yield of about 2.5%, which is higher than the S&P small cap ETFs indexing. Next, please. So we do have a share repurchase program in motion. The board has approved the purchase of the 2.75 million. We run an algorithm, and so it picks up when we have down days. It picks up X percent when it falls X percent and Y dollars. So you can see that we did repurchase about 8,075 Class A shares using 9,000. So it's much more driven by a share repurchase on volatility, and we may suspend or discontinue at any time. Next, please. Balance sheet strength, no debt. So that's the important part. And going on to the next one. The earnings. Lisa Callicotte, our CFO, will articulate more about some of the events we did on the last presentation on the volatility because of our investments in companies, particularly Hive and Hive Blockchain. It was the first blockchain crypto mining company that we built public. and it basically now attracts the volatility of the crypto prices which will come into as far greater than the gold market or the gold equities. But also important is accounting changes that significantly impact the volatility of earnings that even Berkshire Hathaway had their worst quarter at the end of December because of this volatility. Next please. So our assets under management is still, you know, it's a very, very tough, tough bear market. I've never seen such a small bear market in the financial sector. Mutual funds as a whole continue to see repositioning. Regulatory costs, new rules coming in for private placements. It just seems to grow as more and more people have gone away from active management and have gone into ETFs because they're cheaper at the beginning, but I think it does impact them. It impacts the creation of new microcap stocks. Next, please. So there's a disconnect between expected expectations and reality. More small caps are unprofitable, historically signaling a slowdown. The inverted yield curve is of great concern to the markets. But I also think there's other factors that impact a lot of the Russell 2000. And for ourselves, we have to really be conscientious of being as lean as possible in how do we streamline our cost structure in a very regulated world. Next, please. Gold, gold, gold. And growth has always been a go-to stock for gold. Gold assets take off, then we get a tremendous leverage, probably more leverage than a gold mine. So that's one reason why we've experienced this trend following with the price of gold. But it's so important for people to understand what drives gold. The media is dominated with fear, fear, fear. The dollar is the biggest reason, but really what's important for investors is love. Love is the biggest driver for gold. Love for your country, for love for your family, preservation of money from governments that make missteps on their monetary and fiscal policy, or there are just horrible regimes like in Venezuela. and Syria. People that got out of Syria, people that got out of Vietnam, people back in the history books, you'll see that their families had gold. That was always a significant factor. And so it's something you can wear and something that's very malleable and it never rusts. So gold has many attributes that drives that thought process that's love. And the love trade is dominated with cultural celebrations, the popping of the purchase of gold. Right now we're in... Thank you for joining us. with legislation coming out of Congress and Senate approving. So it's so important to see that what drives monetary is real interest rates and money supply, and what drives fiscal policy is tax and regulation and spending. So lower taxes and lower regulation means a stronger fiscal spending. It usually shows up in the economy. However, trade wars can have a big impact, and trade wars are a form of regulation. So that spooks the market like it's done for the past week. We had a big sell-off in the last quarter of last year. and then a rally and then all of a sudden now train wars are on again. Those are positive and negative and I'm trying to highlight for you what is positive, what is negative so you can understand the fear trade of gold is real interest rates. and Managing Expectations. We've written about this extensively. If you've not read them, I highly recommend it, that each asset class has its own DNA of volatility. You can use it to your favor. So it's a non-event for the S&P or gold to rise or fall 1% on a daily basis on a rolling one year. Those numbers change, but what's really volatile is the price of oil. And the next visual to highlight that is, oh, sorry, we skipped it there, but cryptocurrencies, they have, A 6% to 7% daily volatility. So that's impacted our major investment in Hive, which has become significant because that investment in Hive has become a proxy for Bitcoin and Ethereum. Many investors use that rather than trying to go to Biff and X, where there's always a problem with these exchanges, or they're afraid of opening an account at Coinbase, their wallet's being stolen. There's so much negative news around it. So what's happened is that Hive has become this proxy. Gold is the second best performing asset class since 1999. It always amazes me that most of the New Yorkers in particular think that gold is a bad asset class. If you take a look at the largest hedge fund in the world, He's a big believer in Gold as a part of your asset classes and so Gold is an important part and we've always advocated the 10% Gold rule. That is 10% portfolio is in Gold related assets and you rebalance and share. Next please. So the other big part that we've done in this past quarter is made a significant investment in an AI company. The first to go in particular to go public is Goldspot. Goldspot's listed in Canada. They have nine PhDs, like young, young people. Montreal has become a sort of a epicenter for AI, artificial intelligence that Microsoft is is hiring 5,000 people to create a huge center there. A lot of the French-Canadian intellectuals there that have these incredible mathematical degrees in AI and sciences do not want to leave Montreal. They don't want to go to New York. They don't want to go to Seattle. So basically, Microsoft and the world are going to Montreal. and that's very positive for us. So we've been taking the data for the next visual. It's basically Denny has done a phenomenal job, Lavalette, Denny Lavalette, in building this company along with another sort of serial entrepreneur, Sheldon Inglatash, that backed Denny, like we're backing Denny in his vision. Next visual, please. So what do they do? They take the data from exploration results and from existing drilling results and they can create a three-dimensional model that is actually far superior because the human mind can only process it from four different types of data, sets of data overlapping each other, whereas AI can let you have 50 sets of data overlapping. and I'm always just thrilled to meet these young scientists, 29 years old, a PhD in tectonic plates or another one in other sort of geophysicists. So it's a huge advantage for our company, this investment in Goldspot, because they're the leader and they have major support. Elliott Management, through their royalty company in Toronto, bought 10% of the company. and Eric Sprott has bought 10% through his personal account, and their companies have been using this analysis. And Hochschild, which is the most significant producer in Peru, not only have they been a significant investor, they themselves have been using this technology, which is a lot less expensive than IBM, and IBM has their own, so Watson, IBM does not have all the geoscientists. When you look at the data, they have over 20 key people with unique skill sets. In addition to, when you look at over 20, nine of them have PhDs in geosciences. So they can take big data, they can unlock, and they basically They minimalize, you know, they optimize drilling. That is, get rid of the starvation. Don't waste your money drilling in these areas, et cetera, which is very important. And when it comes to these junior mining companies who are starving for cash, they will make an investment in those companies. They'll get shares, and then they'll use their services. And then Goldspot gets a royalty on it. So that was a really interesting part, the fact that they get a royalty on those junior exploration results. Next, please. So we continue to tell our story in the financial media and continue to try to explain why gold is an important part of your asset class and from all around the world speaking at events. Next, please. So this is the important part I was trying to show earlier than I was commenting on it. And it's just good to see how it's changed. But as you can see, the S&P daily volatility was plus or minus 1%. Bitcoin and Ethereum was 4% and 5%. But what's interesting is a year ago, Bitcoin and Ethereum were 6% and 7%. So the bear market has really basically squeezed a lot of that daily volatility, but you can see the 10-day volatility is four times greater. It's just really for investors to recognize that does impact world stock because of the significance of a high investment. Next, please. So major events that are suppressing the price of gold. And I think it's been great. The regulatory world has gone after so many people in this industry that are, I just think they lack corporate governance to the degree that's necessary to be taking the investors' money, be it even to a private company or a public company. And it's really amazing to see what's taken place. And that's helped with this sort of and many more. and that was the real bottom in Bitcoin and we've had a rally from there and it's had a positive impact on most of the crypto stocks and in particular the investment in Hive it was the best performing until we got into a proxy dispute with the larger shareholder Genesis Mining which I hope gets resolved here shortly. Next please. So this is another way of looking at Bitcoin for its first bullish golden cross since October 2015. You can see where it went below last year and now it's come above. So it's very positive for for that industry. And so I remain constructively optimistic. I don't think it's going to rip right up to $100,000 crazy, but I think it's slowly going to climb because during this whole bear market, the adoption, the number of people using wallets, the commitment by the fidelities of the world of building their own exchange and platform. I can go on with a list of companies and even Facebook now. Next slide, please. Facebook is looking to come up with their own coin. and that could almost be, if it's backed by the dollar, that's very, very significant because they have two billion users and so all of a sudden Facebook could become a currency on its own that it would be able to use to buy products. So they're exploring this very aggressively and all this really is all positive and constructive for this industry. Next please. So looking ahead, the growth in point inventory for ongoing mining existing facilities, access to opportunities, looking at M&A opportunities. So Hive is busy, always looking for growth as it deals on defense of managing the company's affairs. Next, please. Another visual, Hive trades closely with Ethereum, as you can see. It also trades very closely with Bitcoin now. Next, please. I'm going to turn it over to the brains of the organization, of our organization that keeps all the numbers organized, the trends, and Lisa can articulate more about the income statement. And I think also was going to highlight again to readdress these accounting standards and how the impact high of this investment, material investment flows through. If it's up for the quarter, then our results will be up. If it's down for the quarter, it can impact our results. Lisa?

Thank you, Frank. Good morning. Before I summarize the results of operations, like Frank said, I would like to discuss the investment accounting pronouncement that we adopted this year. Slide 29 notes changes in the accounting rules related to our investments that are causing our earnings to be more volatile. We adopted Accounting Standard Update ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective July 1, 2018. The amended guidance changed the classification and measurement of investments and equity securities and certain disclosures. Starting in 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 for readily determinable fair values. And as part of the adoption of the new standard, we made the required cumulative effective adjustment and reclassified 3.1 million in unrealized net gains and a million in related deferred tax expense out of accumulated comprehensive income and into retained earnings. Effective July 1, 2018, changes in fair value of these investments formally classified as available for sale are reported through earnings rather than other comprehensive income. This includes any changes in the market value of our investment in HIVE. The impact to earnings for this change for the quarter ending March 31, 2019 was an unrealized investment gain of $2.1 million. This gain is related to unrealized gains on securities formerly classified as available for sale and previously would have increased our other comprehensive income rather than investment income. The majority of this amount is related to the gain in the market value on our investment at high. As of March 31, 2019, the market value of the company's investment in HIVE was higher than the cost. And due to the accounting change, it doesn't matter if an investment is short-term in nature or long-term. The change in the market value will be recorded quarterly, causing our investment income to be more volatile. Slide 30 summarizes our investment in HIVE. At March 31, 2019, the investment in HIVE was included in investments and securities at fair value non-current on our balance sheet. We own 10 million shares of Hive, which is approximately 3% of the outstanding shares at quarter end. The cost of the investment was $2.4 million, and the market value of March 31, 2019 was $4 million. Now I'll discuss the results of operations for our quarter ending March 31, 2019. Beginning on page 31, we recorded total operating revenues of $971,000 for the quarter, which is a decrease of $446,000 or 31% from the $1.4 million in the same quarter last year. The decrease is primarily due to decreases in assets under management related to market depreciation and shareholder redemption and was somewhat offset by a decrease in the performance fees paid. Operating expenses for the quarter were $1.9 million, a decrease of $152,000 or 8%. primarily for the following reasons. Employee compensation and benefits decreased 209,000, or 21%, mainly due to decreases in bonuses and salaries, and a decrease was somewhat offset by an increase in general and administrative expenses of 60,000, or 7%, primarily due to increase in fund and consulting expenses. We see our operating loss for the quarter, ending March 31, 2019, is a loss of $884,000. On slide 32, we see other income loss for the quarter ending March 31, 2019 was $2.1 million, which was mainly related to unrealized gains on investments, including investments formally classified as available for sale. Other income and loss increased $2.8 million from the same quarter in the prior year. Investment income increased $1.8 million compared to the third quarter in the prior year, primarily due to unrealized gains of $2 million, realized gains of $16,000 and $28,000 of impairment losses compared to unrealized losses of $36,000 in the prior period. Also in the third quarter of our fiscal year 2019, we recorded income from equity investments of $3,000 versus a loss of $927,000 in the third quarter from fiscal year 2018. Net income attributable to USGI after taxes for the quarter is $779,000, or $0.05 per share, which is an increase of $1.8 million compared to the net loss of $1.1 million and a loss of $0.07 per share from the same quarter in the prior fiscal year. Moving to page 33, we see we still have a strong balance sheet, which includes high levels of cash and unrestricted securities that combine to make up 72% of our total assets. And as you can see on page 34, we still have no long-term debt. The company has a net working capital of $12.7 million and a current ratio of 11.6 to 1. With that, I'll turn it over to Holly.