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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion reviews and analyzes the consolidated results of operations of U.S. Global Investors, Inc. and its subsidiaries (collectively, “U.S. Global” or the “Company”) for the past two fiscal years and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Recent Trends in Financial Markets

The Company’s operating revenues are highly correlated to the level of assets under management (“AUM”) and fees associated with various investment products. While AUM is directly impacted by changes in the financial markets, it is also impacted by cash inflows or outflows due to shareholder activity. Performance fees on certain equity fund products may also impact revenues, either positively or negatively. Various products may have different fees, so changes in our product mix may also affect revenues. For example, international equity products will generally have a higher fee than fixed income products, so changes in assets in those products will have a larger impact on revenues.

While products are offered for a wide variety of markets, the Company has traditionally focused on gold mining and exploration, natural resources, and emerging markets. More recently the airline industry has become more significant to our revenue. All these markets are volatile and subject to capital cycles.

With a widespread roll out of the various COVID-19 vaccines in the United States, the economy began to open back up with travel and office work returning to a new normal. Energy demand picked up significantly with crude oil prices approaching an 80 percent gain for the trailing year. Travel and luxury goods rebounded with airlines rising nearly 45 percent and luxury goods companies up 56 percent. There was broad strength across the industrial metals, and copper rose 55 percent for the trailing year. For precious metals, silver was the leader, up 44 percent, followed closely by palladium at 43 percent. Platinum gained 30 percent, after a slightly negative return in the prior year. Spot gold finished the fiscal year ended June 30, 2021, at $1,770.11, down less than 1 percent from June 30, 2020. Rising interest rates across the longer end of the yield curve were a headwind to gold with the yield on the 10-year U.S. government note rising to 1.47 percent from a low of 0.66 percent a year earlier. The pick-up in yield, however, was not accompanied by any changes in the Federal Funds Target Rate with the upper bound remaining set at 0.25 percent.

The Company’s emerging markets products had positive gains but only about half the gains that U.S. equity markets experienced, which was largely a function of how well various regions contained the virus through vaccinations. Eastern European markets gained about 22 percent compared to the S&P 500’s gain of 41 percent. Trade tensions still exist between the U.S. and China despite the change in presidential power, and President Biden has been slow to relax many of the trade barriers erected against China. Many regions in the world, including the U.S., have pockets of unvaccinated people, which is allowing the Delta variant of COVID-19 to potentially mutate again.

Coming out of the virus lockdown, GDP growth in the U.S. has been robust, averaging high signal digits the last 3 quarters. This has triggered some renewed inflation concerns with some materials like lumber, the reduced availability of which has led to skyrocketing prices for this commodity amid strong demand for housing. The current thinking by the Fed on inflation is that it will be transitory. Civil and political unrest peaked with the storming of the nation’s capital as the Senate was voting to confirm Joe Biden as the next President of the United States of America. Expanded social services are a priority of the new administration that will be funded through taxes at a time when there is great political stress. Modern Monetary Theory continues to reverberate in the news. We would expect the U.S. dollar to decline in value with more deficit spending, perhaps prompting investor to seek inflation protection through precious metals and other commodities.

In addition to its gold, natural resources and emerging markets funds, the Company has global equity and domestic fixed income funds. While these products do not drive the Company’s profitability as much as the more specialized products, they provide an opportunity to offer shareholders diversification and less volatility than the niche markets.

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Mutual funds in general continued to see outflows compared to other investment alternatives, including ETFs. The Company has two ETF products listed on the New York Stock Exchange: the U.S. Global Jets ETF (ticker JETS), which concentrates on the U.S. and international airline industry, and the U.S. Global GO GOLD and Precious Metal Miners ETF (ticker GOAU), which invests in companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means. The Company has one European-based ETF product listed on various exchanges in Europe, the U.S. Global Jets UCITS ETF (ticker JETS), which concentrates on the U.S. and international airline industry.

The spread of the global COVID-19 outbreak and actions taken in response have affected the global and domestic economies and financial markets. Market declines affect the Company’s assets under management, and thus its revenues and also the valuation of the Company’s corporate investments. The Company cannot determine the long-term impact of COVID-19 on the Company’s business. Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the Company’s business and investments, including a material reduction in its results of operations.

COVID-19-related circumstances (e.g., remote work arrangements) have not adversely affected the Company’s ability to maintain operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.

Assets in the U.S. Global Jets ETF (“Jets ETF”) (ticker JETS) started to accelerate in the latter part of March 2020 and continued through fiscal year 2021. Assets in the Jets ETF were $3.6 billion and $1.2 billion at June 30, 2021, and 2020, respectively. The Jets ETF invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers. While global financial markets have experienced volatility, including stocks in which the Jets ETF invests, this ETF has attracted inflows.

To manage expenses, the Company maintains a flexible structure for one of its largest costs, compensation expense, by setting relatively low base salaries with bonuses that are tied to fund and Company performance. Thus, the Company’s expense model somewhat expands and contracts with asset swings and performance.

Business Segments

The Company, with principal operations located in San Antonio, Texas, manages two business segments on a continuing operations basis:

Assets Under Management (“AUM”)

Investment Management Services

On June 30, 2021, total AUM as of period end was $4.2 billion compared to $1.7 billion on June 30, 2020, an increase of $2.5 billion, or 146.8 percent. The increase was primarily due to inflows into ETF clients, primarily the U.S. Global Jets ETF (“Jets ETF”).

During fiscal year 2021, average AUM was $3.4 billion compared to $699.5 million in fiscal year 2020, an increase of 379.3 percent. The increase was primarily due to inflows into the Jets ETF, resulting in an increase in assets which accelerated starting in the latter part of March 2020 and continued through fiscal year 2021. The Jets ETF invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers. While global financial markets have experienced volatility, including stocks in which the Jets ETF invests, this ETF has attracted inflows.

The following is a brief discussion of the Company’s two business segments on a continuing operations basis.

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Investment Management Services

The Company generates operating revenues from managing and servicing the Funds. The Company recorded advisory and administrative services fees from USGIF totaling approximately $4.5 million and $2.7 million in fiscal 2021 and fiscal 2020, respectively. These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the Funds’ asset levels, thereby affecting income and results of operations. Detailed information regarding the Funds managed by the Company within USGIF can be found on the Company’s website, www.usfunds.com, including the prospectus and performance information for each fund. The mutual fund shareholders in USGIF are not required to give advance notice prior to redemption of shares in the Funds, and the USGIF funds do not currently charge a redemption fee.

Investment base advisory fees from USGIF are calculated as a percentage of average net assets, ranging from 0.375 percent to 1.25 percent, and are paid monthly. The base advisory fee on the equity funds within USGIF is adjusted upward or downward based on performance. For the years ended June 30, 2021 and 2020, the Company adjusted its base advisory fees upward (downward) by $482,000 and ($525,000), respectively. USGIF advisory fees in total, including performance adjustments, increased by approximately $1.8 million, or 68.1 percent, in fiscal year 2021 compared to fiscal year 2020, primarily as a result of an increase in average assets under management driven by market appreciation in the equity funds and an increase in received performance fees.

Mutual fund investment advisory fees are also affected by changes in assets under management, which include:

● market appreciation or depreciation;

● the addition of new fund shareholder accounts;

● fund shareholder contributions of additional assets to existing accounts;

● withdrawals of assets from and termination of fund shareholder accounts;

● the amount of fees voluntarily reimbursed.

The following tables summarize the changes in assets under management for USGIF for fiscal years 2021 and 2020.

(dollars in thousands) Equity Fixed Income Total

Net shareholder purchases (redemptions) 4,834 (6,669 ) (1,835 )

Average investment management fee 0.93 % 0.00 % 0.77 %

(dollars in thousands) Equity Fixed Income Total

Average investment management fee 0.96 % 0.01 % 0.76 %

As shown above, average assets under management for USGIF increased in fiscal year 2021 compared to fiscal year 2020. The increase in average assets under management in fiscal year 2021 was primarily due to market appreciation in the equity funds. A significant portion of the dividends and distributions shown above are reinvested and included in net shareholder purchases (redemptions).

Period-end assets in USGIF increased in total. The equity funds increased in net assets since the prior year-end, primarily due to market appreciation, while the fixed income funds declined mainly due to net shareholder redemptions.

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The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 77 basis points in fiscal year 2021 and 76 basis points in fiscal year 2020. The average investment management fee for equity funds in fiscal year 2021 and 2020 was 93 and 96 basis points, respectively. The average investment management fee for the fixed income funds was nil and 1 basis point for fiscal year 2021 and 2020, respectively. The low fee rate for the fixed income funds is due to voluntary fee waivers on these funds as discussed in Note 5, Investment Management and Other Fees, in the Consolidated Financial Statements of this Annual Report on Form 10-K.

The Company serves as investment advisor to two U.S.-based exchange-traded funds (ETFs): U.S. Global Jets ETF (ticker JETS) and U.S. Global GO GOLD and Precious Metal Miners ETF (ticker GOAU). The Company receives a unitary management fee of 0.60 percent of average net assets and has agreed to bear all expenses of the ETFs. The Company also serves as investment advisor to one European-based ETF, the U.S. Global Jets UCITS ETF. The Company receives a unitary management fee of 0.65 percent of average net assets and has agreed to bear all expenses of the ETF. The Company recorded advisory fees from the ETF clients totaling $17.1 million and $1.7 million in fiscal year 2021 and fiscal year 2020, respectively. As noted above, assets in both U.S.-based ETFs increased in fiscal year 2021, primarily in the Jets ETF. Information on the U.S.-based ETFs can be found at www.usglobaletfs.com, including the prospectus, performance and holdings. The ETFs’ authorized participants are not required to give advance notice prior to redemption of shares in the ETFs, and the ETFs do not charge a redemption fee. The U.S. Global Jets UCITS ETF is not available to U.S. investors.

Corporate Investments

Management believes it can more effectively manage the Company’s cash position by maintaining certain types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company.

The following summarizes the cost, unrealized gain or loss, and fair value of investments carried at fair value as of June 30, 2021, and June 30, 2020.

(dollars in thousands)

Available-for-sale debt securities at fair value 2 8,741 - 8,308 17,049

The investments shown above include investments at fair value of $7.3 million and $7.0 million, as of June 30, 2021, and 2020, respectively, invested in USGIF funds the Company advised.

Investment income (loss) from the Company’s investments includes:

● realized gains and losses on sales of securities;

● realized gains and losses on principal payment proceeds;

● unrealized gains and losses on fair valued securities;

● realized foreign currency gains and losses;

● realized gains and losses on sale of subsidiary;

● dividend and interest income.

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Investment income can be volatile and may vary depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal year 2021, the Company had total investment income of $28.3 million, compared to a $2.2 million investment loss in fiscal year 2020. Due to market volatility, the Company expects that gains or losses will continue to fluctuate in the future.

A significant portion of the securities recorded at fair value in the above table is in investments in HIVE Blockchain Technologies Ltd. (“HIVE”), which were warrants and convertible debentures valued at $25.1 million at June 30, 2021, and common shares valued at $2.4 million at June 30, 2020. The investments in HIVE are discussed in more detail in Note 4, Investments, to the Consolidated Financial Statements of this Annual Report on Form 10-K. HIVE is a company that is headquartered and traded in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada. Frank Holmes, CEO, is the non-executive chairman of HIVE. Effective August 31, 2018, Mr. Holmes was named Interim Executive Chairman of HIVE while a search for a new CEO is undertaken. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile, and may be influenced by a wide variety of factors, including speculative activity. Cryptocurrency mining companies face a variety of risks, including, but not limited to, environmental concerns, regulatory factors, and heightened risks of cybersecurity attacks for which there may be no source of recovery. There has been significant volatility in the market price of HIVE, which has materially impacted the investment’s value included on the balance sheet, unrealized gain (loss) recognized in investment income (loss), and unrealized gain recognized in other comprehensive income.

In addition to the investments above, as of June 30, 2021, and 2020, the Company owned other investments of approximately $3.5 million and $1.3 million, respectively, classified as securities without readily determinable fair values.

The Company also held an investment of approximately $532,000 and $158,000 as of June 30, 2021, and 2020, respectively, accounted for under the equity method of accounting. This investment was in the Galileo New Economy Fund LP (previously known as Galileo Technology and Blockchain LP), a Canadian limited partnership managed by Galileo Global Equity Advisors Inc. (“Galileo”). 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. Income (loss) from equity method investments was $347,000 and ($142,000) for fiscal years 2021 and 2020, respectively. See further discussion on equity method investments in Note 4, Investments, to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Company and a detailed discussion of the Company’s revenues and expenses.

Year Ended June 30,

(dollars in thousands, except per share data) 2021 2020

Income (Loss) from Continuing Operations $ 31,961 $ (4,464 )

Loss from Discontinued Operations - (338 )

Weighted average number of outstanding shares

Effect of dilutive securities:

Employee stock options 909 -

Earnings Per Share Attributable to U.S. Global Investors, Inc.

Basic Net Income (Loss) per Share

Income (loss) from continuing operations $ 2.12 $ (0.30 )

Loss from discontinued operations $ - $ (0.01 )

Net income (loss) $ 2.12 $ (0.31 )

Diluted Net Income (Loss) per Share

Income (loss) from continuing operations $ 2.12 $ (0.30 )

Loss from discontinued operations $ - $ (0.01 )

Net income (loss) $ 2.12 $ (0.31 )

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Year Ended June 30, 2021, Compared with Year Ended June 30, 2020

The Company posted net income attributable to U.S. Global Investors, Inc., as shown in the Consolidated Statements of Operations, of $32.0 million ($2.12 per share) for the year ended June 30, 2021, compared with a net loss attributable to U.S. Global Investors, Inc. of $4.7 million ($0.31 per share loss) for the year ended June 30, 2020, a positive change of approximately $36.6 million. The change is primarily due to operating income and realized and unrealized investment gains in the current year compared to operating loss and unrealized investment losses in the prior year, as discussed further below.

Operating Revenues

Year ended June 30,

(dollars in thousands) 2021 2020 $ Change % Change

Investment advisory fees - USGIF:

Total consolidated operating revenues for the year ended June 30, 2021, increased $17.2 million, or 383.8 percent, compared with the year ended June 30, 2020. This increase was primarily attributable to the following:

Advisory Fees. Advisory fees, the largest component of the Company’s operating revenues, are derived from two sources: USGIF advisory fees and exchange-traded fund advisory fees. In fiscal year 2021, these sources accounted for 19.9 percent and 79.1 percent, respectively, of the Company’s operating revenues.

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Mutual fund investment advisory fees are also affected by changes in assets under management, which include:

● market appreciation or depreciation;

● the addition of new fund shareholder accounts;

● fund shareholder contributions of additional assets to existing accounts;

● withdrawals of assets from and termination of fund shareholder accounts;

● the amount of fees voluntarily reimbursed.

Operating Expenses

Year ended June 30,

(dollars in thousands) 2021 2020 $ Change % Change

Depreciation and amortization 196 202 (6 ) (3.0 %)

Total operating expenses increased $6.6 million, or 96.1 percent, compared with the previous fiscal year. This increase was primarily attributable to increases in employee compensation and benefits and general and administrative expenses, as described below.

Employee Compensation and Benefits. Employee compensation and benefits increased $4.5 million, or 159.5 percent, in fiscal year 2021, primarily as a result of increased bonuses related to realized investment gains and positive company and fund performance.

General and Administrative. General and administrative expenses increased $2.0 million, or 55.7 percent, in fiscal year 2021, primarily due to higher ETF expenses and business development costs related to the increase in ETF assets.

Other Income (Loss)

Year ended June 30,

(dollars in thousands) 2021 2020 $ Change % Change

Income (loss) from equity method investments 347 (142 ) 489 344.4 %

Gain on forgiveness of PPP loan 444 - 444 n/a

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Total consolidated other income (loss) for the year ended June 30, 2021, had a positive change of $31.5 million, or 1,409.2 percent, compared with the year ended June 30, 2020. The positive change was primarily due to the following components and factors:

Provision for Income Taxes

A tax expense from continuing operations of $5.5 million was recorded for the year ended June 30, 2021, compared to a tax benefit of $175,000 for the year ended June 30, 2020. The tax expense in the current period was primarily the result of operating income, realized gain on sale of securities, and unrealized gains on securities. The tax benefit in the prior year was primarily the result of a decrease in valuation of certain investments, which decreased the related deferred tax liability.

The Company and its non-Canadian subsidiaries file a consolidated U.S. federal income tax return. USCAN files a separate tax return in Canada. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes resulting from the use of the liability method of accounting for income taxes.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. A valuation allowance to fully reserve for the net operating loss carryforward, other carryovers and certain book/tax differences in the balance sheet is included in the net deferred tax balances in the amount of $2.8 million at June 30, 2020. There was no valuation allowance included at June 30, 2021. In assessing the valuation allowance, the Company considered, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, and the duration of statutory carry back and carry forward periods.

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Loss from Discontinued Operations

Loss from discontinued operations represents results of the Company’s subsidiary Galileo, which was sold on March 2, 2020. Loss from discontinued operations, net of tax, was $338,000 for the year ended June 30, 2020. See Note 3, Discontinued Operations, to the Consolidated Financial Statements of this Annual Report on Form 10-K, for further information on this transaction and the results from Galileo operations.

Off Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements.

Contractual Obligations

A summary of contractual obligations of the Company as of June 30, 2021, is as follows:

Payments due by period

(dollars in thousands)

Operating lease obligations $ 44 $ 44 $ - $ - $ -

Operating leases consist of office equipment. Contractual obligations primarily consist of agreements for services used in daily operations and for marketing and distribution. Other contractual obligations not included in this table consist of agreements to waive or reduce fees and/or pay expenses on certain funds. Future obligations under these agreements are dependent upon future levels of fund assets.

The Board of Directors has authorized a monthly dividend of $0.0050 per share from July 2021 through September 2021. The total amount of cash dividends to be paid to class A and class C shareholders from July 2021 to September 2021 will be approximately $226,000, which is included as dividends payable in the Consolidated Balance Sheets at June 30, 2021. In September 2021, the Board authorized an increase in the monthly dividend to $0.0075 per share from October through December 2021, and in December 2021, the Board authorized the continuance of the monthly dividend of $0.0075 per share from January through March 2022, at which time it will be considered for continuation by the Board. Payment of cash dividends is within the discretion of the Company’s Board of Directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. The total amount of cash dividends expected to be paid to class A and class C shareholders from October 2021 through March 2022 is $676,000.

Liquidity and Capital Resources

At June 30, 2021, the Company had net working capital (current assets minus current liabilities) of approximately $21.6 million and a current ratio (current assets divided by current liabilities) of 5.2 to 1. With approximately $14.4 million in cash and cash equivalents and $10.2 million in securities carried at fair value, excluding convertible securities, which together comprise approximately 39.6 percent of total assets, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $54.3 million.

Effective April 12, 2020, the Company was approved for a loan of approximately $442,000 under the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The Company has under 25 employees and is considered a small business. The Company has been granted forgiveness of the entire PPP loan and any accrued interest.

The Company also has access to a $1 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement will expire on May 31, 2022, and the Company intends to renew annually. The credit facility is collateralized by approximately $1 million, included in restricted cash on the balance sheet, held in deposit in a money market account at the financial institution that provided the credit facility. As of June 30, 2021, this credit facility remained unutilized by the Company.

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Investment advisory contracts pursuant to the Investment Company Act of 1940 and related affiliated contracts in the U.S., by law, may not exceed one year in length and, therefore, must be renewed at least annually after an initial two-year term. The investment advisory and related contracts between the Company and USGIF have been renewed through September 2022. The advisory agreement for the U.S.-based ETFs has been renewed through September 2022.

The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary and management or the Board may discontinue as deemed necessary. The stock repurchase plan is approved through December 31, 2021 but may be suspended or discontinued at any time. Cash and securities recorded at fair value, excluding convertible securities, of approximately $24.7 million are available to fund current activities.

Management believes current cash reserves, investments, and financing available will be sufficient to meet foreseeable cash needs for operating activities.

Critical Accounting Estimates

The discussion and analysis of financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. Management reviews these estimates on an ongoing basis. Estimates are based on experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While significant accounting policies are described in more detail in Note 2 to the consolidated financial statements, the Company believes the accounting policies that require management to make assumptions and estimates involving significant judgment are those relating to valuation of investments, income taxes, and valuation of stock-based compensation.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: U.S. Global Investors (Bermuda) Limited (“USBERM”), U.S. Global Investors (Canada) Limited (“USCAN”) and U.S. Global Indices, LLC.

Until March 2, 2020, the Company, through USCAN, owned 65 percent of the issued and outstanding shares of Galileo and represented controlling interest of Galileo. Galileo was consolidated with USCAN and the non-controlling interest in this subsidiary is included in “non-controlling interest in subsidiary” in the equity section of the Consolidated Balance Sheets.

There are two primary consolidation models in U.S. GAAP, the variable interest entity (“VIE”) and voting interest entity models. The Company’s evaluation for consolidation includes whether entities in which it has an interest or from which it receives fees are VIEs and whether the Company is the primary beneficiary of any VIEs identified in its analysis. A VIE is an entity in which either (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b) the group of holders of the equity investment at risk lack certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns and consolidates the VIE on the basis of having a controlling financial interest.

The Company holds variable interests in but is not deemed to be the primary beneficiary of certain funds it advises, specifically, certain funds in USGIF. The Company’s interests in these VIEs consist of the Company’s direct ownership therein and any fees earned but uncollected. In the ordinary course of business, the Company may choose to waive certain fees or assume operating expenses of the funds it advises for competitive, regulatory or contractual reasons (see Note 5 Investment Management and Other Fees to the Consolidated Financial Statements of this Annual Report on Form 10-K for information regarding fee waivers). The Company has not provided financial support to any of these entities outside the ordinary course of business. The Company’s risk of loss with respect to these VIEs is limited to the carrying value of its investments in, and fees receivable from, the entities. The Company does not consolidate these VIEs because it is not the primary beneficiary.

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Since the Company is not the primary beneficiary of the above funds it advises, the Company evaluated if it should consolidate under the voting interest entity model. Under the voting interest model, for legal entities other than partnerships, the usual condition for control is ownership, directly or indirectly, of more than 50 percent of the outstanding voting shares over an entity. The Company does not have control of any of the above funds it advises; therefore, the Company does not consolidate any of these funds.

The Company currently holds a variable interest in a fund organized as a limited partnership advised by Galileo, but this entity does not qualify as a VIE. Since it is not a VIE, the Company evaluated if it should consolidate it under the voting interest entity model. Under the voting interest model, for legal entities other than partnerships, the usual condition for control is ownership, directly or indirectly, of more than 50 percent of the outstanding voting shares over an entity. The Company does not have control of the entity and, therefore, does not consolidate it. However, the Company was considered to have the ability to exercise significant influence. Thus, the investment has been accounted for under the equity method of accounting.

Investments. The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

Investments in Equity Securities. Equity securities are generally carried at fair value on the Consolidated Balance Sheets with changes in the fair value recorded through earnings within investment income (loss).

Investments in Debt Securities. The Company classifies debt investments as available-for-sale or held-to-maturity based on the Company’s intent to sell the security or, its intent and ability to hold the debt security to maturity. Available-for-sale debt securities are carried at fair value, and changes in unrealized gains and losses are reported net of tax in accumulated other comprehensive income, except for declines in fair value determined to be other than temporary, which are reported in earnings. Upon the disposition of an available-for-sale security, the Company reclassifies the unrealized gain or loss on the security from accumulated other comprehensive income (loss) to investment income (loss). Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are carried at amortized cost.

Embedded derivatives. The Company does not use derivatives for trading, speculation, or hedging exposures. Certain financial instruments the Company invests in contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative, with the non-derivative component representing the host contract. If the economic characteristics and risks of embedded derivative are not closely related to those of the host contract, and the changes in the fair value of the host contact itself is not recorded through earnings within investment income (loss), the embedded derivative is bifurcated and carried at fair value, with changes in the fair value recorded through earnings within investment income (loss) on the Consolidated Statements of Operations. The host contract will continue to be accounted for in accordance with the appropriate accounting standard. The embedded derivative and the related host contract represent one legal contract and are combined on the Consolidated Balance Sheets, the Consolidated Statements of Cash Flows, and tables within Note 4 Investments, unless otherwise indicated.

Other Investments. 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 will be 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).

Equity Method Investments.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” 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.

Fair Value of Financial Instruments. The financial instruments of the Company are reported on the Consolidated Balance Sheets at market or fair values or at carrying amounts that approximate fair values.

Non-Controlling Interests. The Company reports “non-controlling interest in subsidiary” as equity, separate from parent’s equity, on the Consolidated Balance Sheets. In addition, the Company’s Consolidated Statements of Operations includes “net income (loss) attributable to non-controlling interest.”

Stock-Based Compensation. Stock-based compensation expense is measured at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the award’s vesting period. Forfeitures are recognized as they occur.

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The Company believes that the estimates related to stock-based compensation expense are critical accounting estimates because the assumptions used could significantly impact the timing and amount of stock-based compensation expense recorded in the Company’s Consolidated Financial Statements.

Income Taxes. The Company’s annual effective income tax rate is based on the mix of income and losses in its U.S. and non-U.S. entities which are part of the Company’s Consolidated Financial Statements, statutory tax rates, and tax-planning opportunities available to the Company in the various jurisdictions in which it operates. Significant judgment is required in evaluating the Company’s tax positions.

Tax law requires certain items to be included in the tax return at different times from when these items are reflected in the Company’s Consolidated Statements of Operations. As a result, the effective tax rate reflected in the Consolidated Financial Statements is different from the tax rate reported on the Company’s consolidated tax return. Some of these differences are permanent, such as expenses that are not deductible in the tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax basis of assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment dates.

The Company assesses uncertain tax positions in accordance with ASC 740, Income Taxes. Judgment is used to identify, recognize, and measure the amounts to be recorded in the financial statements related to tax positions taken or expected to be taken in a tax return. A liability is recognized to represent the potential future obligation to the taxing authority for the benefit taken in the tax return. These liabilities are adjusted, including any impact of the related interest and penalties, in light of changing facts and circumstances such as the progress of a tax audit. A number of years may elapse before a particular matter for which a reserve has been established is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction.

The Company assesses whether a valuation allowance should be established against its deferred income tax assets based on consideration of available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of statutory carry back and carry forward periods, the Company’s experience with tax attributes expiring unused, and tax planning alternatives.

Assessing the future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns requires judgment. Variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations or cash flows.

Foreign Exchange. The balance sheets of certain foreign subsidiaries of the Company and certain foreign-denominated investment products are translated at the current exchange rate as of the end of the accounting period and the related income or loss is translated at the average exchange rate in effect during the period. Net exchange gains and losses resulting from balance sheet translations of foreign subsidiaries are excluded from income and are recorded in “accumulated other comprehensive income (loss)” on the Consolidated Balance Sheets. Net exchange gains and losses resulting from income or loss translations are included in income and are recorded in “investment income (loss)” on the Consolidated Statements of Operations. Investment transactions denominated in foreign currencies are converted to U.S. dollars using the exchange rate on the date of the transaction and any related gain or loss is included in “investment income (loss)” on the Consolidated Statements of Operations.

Recent Accounting Pronouncements. See information regarding accounting pronouncements that have been issued but not yet adopted by the Company in Note 2, Significant Accounting Policies, to the Consolidated Financial Statements of this Annual Report on Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures

The following information, together with information included in other parts of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, describes the key aspects of certain financial instruments that have market risk to the Company.

The effects of the global COVID-19 pandemic are still evolving. There has been an effect on volatility in global and domestic financial markets, which may continue for an undetermined period. This may adversely affect assets under management and thus the Company’s revenues and operating results. Market declines also affect the valuation of the Company’s corporate investments, which also adversely affects the Company’s balance sheet and results of operations.

Investment Management and Administrative Services Fees

Revenues are generally based upon a percentage of assets under management in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on the Company’s operating results. A significant portion of assets under management in equity funds have exposure to international markets and/or natural resource sectors, which may experience volatility. In addition, fluctuations in interest rates may affect the value of assets under management in fixed income funds.

Performance Fees

USGIF advisory fees are comprised of two components: a base management fee and a performance fee. The performance fee is a fulcrum fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months.

As a result, the Company’s revenues are subject to volatility beyond market-based fluctuations discussed in the investment management and administrative fees section above. For the years ended June 30, 2021 and 2020, the Company realized an increase (decrease) in its USGIF base advisory fee of $482,000 and ($525,000), respectively, due to these performance adjustments.

Corporate Investments

The Company’s Consolidated Balance Sheets include substantial amounts of assets whose fair values are subject to market risk. The market risks are primarily associated with equity prices and foreign currency exchange rates. The fair values of corporate investments with exposure to the cryptocurrency industry are subject to considerable volatility.

The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices.

Equity price risk

Due to the Company’s investments in securities carried at fair value, equity price fluctuations represent a market risk factor affecting the Company’s consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported fair value.

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The following table summarizes the Company’s equity price risks in securities carried at fair value as of June 30, 2021, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.

Embedded derivatives at fair value 2 $ 2,542 25% increase $ 3,178 $ 502

The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be significantly different due to both the nature of markets and the concentration of the Company’s investment portfolio.

The effects of the global COVID-19 pandemic are still evolving. There has been an effect on volatility in global and domestic financial markets, which may continue for an undetermined period. This may not only adversely affect the Company’s assets under management but also the valuation of the Company’s corporate investments.

A significant portion of the equity securities recorded at fair value in the above table subject to equity price risk are investments in common share purchase warrants of HIVE Blockchain Technologies Ltd. (“HIVE”), which were valued at $8.0 million at June 30, 2021. Also, the embedded derivatives shown in the above table, which were valued at $2.5 million at June 30, 2021, are related to HIVE convertible debentures. HIVE is discussed in more detail in Note 4, Investments, to the Consolidated Financial Statements of this Annual Report on Form 10-K. HIVE is a company that is headquartered and traded in Canada with cryptocurrency mining facilities in Iceland, Sweden and Canada. Cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile. There is potential for significant volatility in the market price of HIVE, which could materially impact the investment’s value included on the balance sheet and unrealized gain (loss) recognized in investment income.

The Company also has an equity method investment in Galileo New Economy Fund LP in the amount of $532,000 at June 30, 2021, which has investments in the technology and cryptocurrency mining industries. As noted above, exposure to cryptocurrency industry may result in volatility in the valuation of this fund. 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. The potential significant volatility in the valuation of the fund’s investments could cause the fund’s net income or loss to vary significantly from period to period, which in turn would be reflected in the Company’s earnings.

Foreign currency risk

A portion of cash and certain corporate investments are held in foreign currencies. Adverse changes in foreign currency exchange rates would lower the value of those cash accounts and corporate investments. Certain assets under management also have exposure to foreign currency fluctuations in various markets, which could impact their valuation and thus the revenue received by the Company.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

U.S. Global Investors, Inc.

San Antonio, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying Consolidated Balance Sheets of U.S. Global Investors, Inc. (the “Company”) and subsidiaries as of June 30, 2021 and 2020, the related Consolidated Statements of Operations, Comprehensive Income (Loss), Shareholders’ Equity, and Cash Flows for each of the two years in the period ended June 30, 2021, and the related notes (collectively referred to as the “Consolidated Financial Statements”). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company and subsidiaries at June 30, 2021 and 2020, and the results of their operations and their cash flows for each of the two years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s Consolidated Financial Statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2004.

Dallas, Texas

December 8, 2021

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

Current Assets

Investments in securities at fair value 6,322 6,322

Accounts and other receivables 2,534 974

Tax receivable 2,147 -

Other Assets

Investments in equity securities at fair value, non-current 11,936 5,142

Investments in available-for-sale debt securities at fair value 17,049 -

Investments in held-to-maturity debt securities 1,000 -

Equity method investments 532 158

Right of use assets 43 93

Other assets, non-current 99 92

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable $ 102 $ 29

Accrued compensation and related costs 1,561 360

Lease liability, short-term 43 50

Taxes payable 1,877 -

Note payable, current - 442

Long-Term Liabilities

Deferred tax liability 2,799 -

Lease liability, long-term - 43

Total Long-Term Liabilities 2,799 43

Commitments and Contingencies (Note 18)

Shareholders’ Equity

Accumulated other comprehensive income (loss), net of tax 6,587 (4 )

Total Liabilities and Shareholders’ Equity $ 62,277 $ 18,816

The accompanying notes are an integral part of these consolidated financial statements.

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended June 30,

(dollars in thousands, except per share data) 2021 2020

Operating Revenues

Administrative services fees 209 165

Operating Expenses

Employee compensation and benefits 7,369 2,840

Depreciation and amortization 196 202

Other Income (Loss)

Income (loss) from equity method investments 347 (142 )

Gain on forgiveness of PPP loan 444 -

Income (Loss) from Continuing Operations Before Income Taxes 37,438 (4,639 )

Provision for Income Taxes

Income (Loss) from Continuing Operations 31,961 (4,464 )

Discontinued Operations

Tax benefit - -

Loss from Discontinued Operations - (338 )

Earnings Per Share Attributable to U.S. Global Investors, Inc.

Basic Net Income (Loss) per Share

Income (loss) from continuing operations $ 2.12 $ (0.30 )

Loss from discontinued operations $ - $ (0.01 )

Net income (loss) $ 2.12 $ (0.31 )

Diluted Net Income (Loss) per Share

Income (loss) from continuing operations $ 2.12 $ (0.30 )

Loss from discontinued operations $ - $ (0.01 )

Net income (loss) $ 2.12 $ (0.31 )

The accompanying notes are an integral part of these consolidated financial statements.

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended June 30,

Other Comprehensive Income (Loss), Net of Tax:

Unrealized gains on available-for-sale securities arising during period 7,496 -

Less: reclassification adjustment for gains included in net income (932 ) -

Net change from available-for-sale securities, net of tax 6,564 -

Foreign currency translation adjustment 27 88

Reclassification of foreign currency losses to net loss - 228

Other Comprehensive Income 6,591 316

Less: Comprehensive Income Attributable to Non-Controlling Interest - 114

The accompanying notes are an integral part of these consolidated financial statements.

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Dividends declared - - - - - - - - (452 ) - (452 )

Stock-based compensation expense - - - - (6 ) - - - - - (6 )

Deconsolidation of non-controlling interest - - - - - - - - - (463 ) (463 )

Other comprehensive income, net of tax - - - - - - - 202 - 114 316

Dividends declared - - - - - - - - (753 ) - (753 )

Share-based compensation, net of tax - - - - 43 - - - - - 43

Other comprehensive income, net of tax - - - - - - - 6,591 - - 6,591

The accompanying notes are an integral part of these consolidated financial statements.

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended June 30,

Cash Flows from Operating Activities:

Depreciation and amortization 196 202

Net recognized loss on disposal of fixed assets 7 -

Net recognized gain on securities (16,566 ) -

Amortization of premium on debt securities 178 -

Accretion of discount on debt securities (1,180 ) -

Unrealized (gains) losses on securities (9,909 ) 2,296

Investment basis adjustment 27 (49 )

Gain on disposal of Galileo - (151 )

Net (income) loss from equity method investment (347 ) 142

Net loss from discontinued operations, net of tax - 338

Foreign currency transaction loss - 228

Provision for deferred taxes 1,055 (139 )

Stock-based compensation expense 43 -

PPP loan forgiveness (444 ) -

Changes in operating assets and liabilities:

Accounts and other receivables (3,685 ) (665 )

Prepaid expenses and other assets (22 ) (113 )

Accounts payable and accrued expenses 3,433 659

Net cash provided by (used in) operating activities 4,766 (1,952 )

Cash Flows from Investing Activities:

Purchase of property and equipment (73 ) -

Purchase of equity securities at fair value, non-current (5,988 ) -

Purchase of other investments (863 ) (125 )

Purchase of held-to-maturity debt securities (1,000 ) -

Purchase of available-for-sale debt securities at fair value (9,147 ) -

Proceeds from sale of Galileo - 746

Proceeds on sale of securities at fair value - 1,712

Proceeds on sale of equity securities at fair value, non-current 24,313 -

Proceeds from note receivable - 199

Return of capital on other investments - 10

Net cash provided by investing activities 8,650 2,542

Cash Flows from Financing Activities:

Proceeds from loan - 442

Issuance of common stock 13 3

Repurchases of common stock (314 ) (113 )

Net cash used in financing activities (941 ) (120 )

Net increase in cash, cash equivalents, and restricted cash 12,475 470

Beginning cash, cash equivalents, and restricted cash 2,961 2,491

Ending cash, cash equivalents, and restricted cash $ 15,436 $ 2,961

Supplemental Disclosures of Non-Cash Investing Activities

Dividends declared but not paid $ 226 $ 113

Unsettled sales of non-current investments $ 22 $ -

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes $ 4,696 $ 3

The accompanying notes are an integral part of these consolidated financial statements.

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Notes to Consolidated Financial Statements

NOTE 1. ORGANIZATION

U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) serves as investment adviser to U.S. Global Investors Funds (“USGIF” or the “Fund(s)”), a Delaware statutory trust that is a no-load, open-end investment company offering shares in numerous mutual funds to the investing public. The Company also provides administrative services to USGIF. For these services, the Company receives fees from USGIF. The Company also provides advisory services to SEC registered exchange traded funds (“ETFs”). Until March 2020, the Company held a controlling interest in Galileo Global Equity Advisors Inc. (“Galileo”), a privately held Toronto-based asset management firm.

The Company has the following subsidiaries utilized primarily for corporate investment purposes: U.S. Global Investors (Bermuda) Limited (“USBERM”), incorporated in Bermuda, and U.S. Global Investors (Canada) Limited (“USCAN”). The Company created U.S. Global Indices, LLC, a Texas limited liability company, of which the Company is the sole member, to provide indexing services to exchange-traded funds managed by the Company.

Effective March 2, 2020, the Company sold its shares in Galileo back to Galileo. Through the date of sale, Galileo was consolidated with the operations of the Company. The non-controlling interest in this subsidiary was included in “Non-Controlling Interest in Subsidiary” in the equity section of the Consolidated Balance Sheets. Frank Holmes, CEO, and Lisa Callicotte, CFO, served as directors of Galileo through March 2, 2020, and Lisa Callicotte served as CFO of Galileo from June 2019 through March 2, 2020. See Note 3 below for further information. Results of operations of Galileo through the date of sale are presented in the consolidated financial statements as discontinued operations.

Should the global financial markets be negatively affected by COVID-19, there could be an adverse material financial impact on the Company’s results of operations, cash flows and financial position. At this time, the Company cannot reasonably estimate the future impact, given the uncertainty over the duration and severity of the economic impact.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: USBERM, USCAN and U.S. Global Indices, LLC.

Until March 2, 2020, the Company, through USCAN, owned 65 percent of the issued and outstanding shares of Galileo, which represents controlling interest of Galileo. Galileo was consolidated with USCAN and the non-controlling interest in this subsidiary is included in “non-controlling interest in subsidiary” in the equity section of the Consolidated Balance Sheets.

There are two primary consolidation models in U.S. GAAP, the variable interest entity (“VIE”) and voting interest entity models. The Company’s evaluation for consolidation includes whether entities in which it has an interest or from which it receives fees are VIEs and whether the Company is the primary beneficiary of any VIEs identified in its analysis. A VIE is an entity in which either (a) the equity investment at risk is not sufficient to permit the entity to finance its own activities without additional financial support or (b) the group of holders of the equity investment at risk lacks certain characteristics of a controlling financial interest. The primary beneficiary is the entity that has the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns and consolidates the VIE on the basis of having a controlling financial interest.

The Company holds variable interests in, but is not deemed to be the primary beneficiary of, certain funds it advises, specifically, certain funds in USGIF. The Company’s interests in these VIEs consist of the Company’s direct ownership therein and any fees earned but uncollected. In the ordinary course of business, the Company may choose to waive certain fees or assume operating expenses of the funds it advises for competitive, regulatory or contractual reasons (see Note 5 for information regarding fee waivers). The Company has not provided financial support to any of these entities outside the ordinary course of business. The Company’s risk of loss with respect to these VIEs is limited to the carrying value of its investments in, and fees receivable from, the entities. The Company does not consolidate these VIEs because it is not the primary beneficiary. The Company’s total exposure to unconsolidated VIEs, consisting of the carrying value of investment securities and receivables for fees, was $7.3 million at June 30, 2021, and $7.0 million at June 30, 2020.

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All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.

Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Restricted Cash. Restricted cash represents cash invested in a money market account as collateral for credit facilities that is not available for general corporate use.

Investments in Debt Securities. The Company classifies debt investments as available-for-sale or held-to-maturity based on the Company’s intent to sell the security or, its intent and ability to hold the debt security to maturity. Available-for-sale debt securities are carried at fair value, and changes in unrealized gains and losses are reported net of tax in accumulated other comprehensive income (loss), except for declines in fair value determined to be other than temporary, which are reported in earnings. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income (loss) to investment income (loss). Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are carried at amortized cost.

Other Investments. 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. The Company has elected to value these investments using the measurement alternative, under which such securities are measured at cost, less impairment, if any. If the Company identifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value as of the date the observable transaction occurred, with such changes recorded in investment income (loss).

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Receivables. Receivables other than notes receivable consist primarily of advisory and other fees owed to the Company by clients. The Company also may invest in notes receivable. Notes receivable are recorded in accordance with the terms of the agreement, and accrued interest is recorded when earned. Unearned fees are shown as a deduction from the related notes receivable and are amortized to interest income using the effective interest method. The Company reviews the need for an allowance for credit losses for notes and other receivables based on various factors including payment history, historical bad debt experience, existing economic conditions, aging and specific accounts identified as high risk. Uncollectible receivables, if any, are charged against the allowance when all reasonable efforts to collect the amounts due have been exhausted. The Company had no allowance for credit losses as of June 30, 2021, or 2020.

Property and Equipment. Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 14 to 40 years.

Leases. The Company leases equipment under various leasing arrangements. Leases may be classified as either financing leases or operating leases, as appropriate. The Company determines if a contract is a lease or contains a lease at inception. The Company accounts for its office facility leases as operating leases, which may include escalation clauses. The Company accounts for lease and nonlease components as a single component for its leases, except for real estate leases. The Company elected the short-term lease exception for leases with an initial term of 12 months or less. Consequently, such leases are not recorded on the Consolidated Balance Sheets. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain they will be exercised or not, respectively.

Fixed lease payments are included in right of use (“ROU”) assets and lease liabilities within other assets and liabilities, respectively, on the Consolidated Balance Sheets. ROU assets and lease liabilities are recognized based on the present value of the future lease payments over the lease term at the commencement date using the Company’s incremental borrowing rate as the discount rate. Fixed lease payments made over the lease term are recorded as lease expense on a straight-line basis. Variable lease payments based on usage, changes in an index or market rate are expensed as incurred.

Upon adoption of ASU 2016-02, for existing leases, the Company elected to determine the discount rate based on the remaining lease term as of July 1, 2019. For new leases, the discount rates are based on the entire noncancelable lease term.

The Company is the lessor of certain areas of its owned office building under operating leases. The Company determines if a contract is a lease or contains a lease at inception. The Company elected not to separate lease and related non-lease components and account for the combined component as an operating lease.

Impairment of Long-Lived Assets. The Company reviews property and equipment and other long-lived assets for impairment whenever events or changes in business circumstances indicate the net book values of the assets may not be recoverable. Impairment is indicated when the assets’ net book value is less than fair value of the asset. If this occurs, an impairment loss is recognized for the difference between the fair value and net book value. Factors that indicate potential impairment include: a significant decrease in the market value of the asset or a significant change in the asset’s physical condition or use. No impairments of long-lived assets were recorded during the years included in these financial statements.

Non-Controlling Interests. The Company reports “non-controlling interest in subsidiary” as a component of equity, separate from parent’s equity, on the Consolidated Balance Sheets. In addition, the Company’s Consolidated Statements of Operations includes “net income (loss) attributable to non-controlling interest.”

Treasury Stock. Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.

Income Taxes. The Company and its non-Canadian subsidiaries file a consolidated federal income tax return. USCAN and Galileo file separate tax returns in Canada. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.

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The Company accounts for income taxes in accordance with ASC 740, Income Taxes. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2021, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years from 2017 through 2020 remain open to examination by the U.S. Federal tax jurisdictions to which the Company is subject. The tax years from 2014 through 2020 remain open to examination by the non-U.S. Federal tax jurisdictions to which the Company is subject.

The Company has elected to treat the global intangible low-taxed income (GILTI) tax as a period expense. The Company also elected to use the tax law ordering approach when assessing the realization of net operating losses related to GILTI.

Revenue Recognition. The Company’s operating revenue is earned from investment advisory and administrative services provided to clients. Each distinct service promised in the agreements is considered a performance obligation and is the basis for determining when revenue is recognized. The fees are allocated to each distinct performance obligation and revenue is recognized when, or as, promises are satisfied. The consideration for services is generally variable and included in net revenues when it is improbable that a significant reversal could occur in the future. The timing of when clients are billed and related payment received varies in accordance with agreed-upon contractual terms. For current agreements, billing occurs after the Company has recognized revenue which results in accounts receivable and revenue.

Investment Advisory Fees. The investment advisory agreements have a single performance obligation, since the promised services are not separately identifiable from other promises in the agreements and, therefore, are not distinct. Investment advisory fees are comprised of two components, a base fee and a performance fee, if applicable. Base investment advisory fees are recognized as the services are performed over time and are based upon agreed-upon percentages of average assets under management (“AAUM”), depending on contractual terms. These fees are received in cash after the end of each monthly period within 30 days. Investment advisory fees are affected by changes in assets under management, including market appreciation or depreciation, foreign exchange translation, and net inflows or outflows. Investment advisory fees are reported net of fee waivers.

Performance Fees. USGI receives investment advisory performance fees from certain funds. Performance fees for the equity funds within USGIF are a fulcrum fee that is a 0.25 percent adjustment upwards or downwards of the base investment advisory fees when there is a 5 percent difference between a fund’s performance and that of its benchmark index over the prior rolling 12 months. Performance fees are recorded when it is determined that they are no longer probable of significant reversal. These fees are received in cash or paid in cash after the end of each monthly period within 30 days. Performance fees are affected by changes in fund performance, benchmark index performance, and assets under management.

Administrative Services Fees. The administrative services agreement has a single performance obligation, since the promised services are not separately identifiable from other promises in the agreement and, therefore, are not distinct. Administrative services fees are recognized as the services are performed over time and are based upon agreed-upon percentages of AAUM. These fees are received in cash after the end of each monthly period within 30 days. Administrative services fees are affected by changes in assets under management, including market appreciation or depreciation, foreign exchange translation, and net inflows or outflows. Administrative services fees are reported net of fee waivers.

Fee Waivers. For certain clients, the Company has agreed to contractually limit the expenses or voluntarily waived or reduced its fees and/or agreed to pay expenses for funds. These fee waivers are deemed to be a reduction of the transaction price and are reported as a reduction of investment advisory fees and/or administrative services fees. These fees are paid in cash after the end of each monthly period within 30 days.

Dividends and Interest. Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Any discount between the cost and the principal amount of debt investments is amortized to interest income using the effective interest method. Both dividends and interest income are included in investment income.

Advertising Costs. The Company expenses advertising costs as they are incurred. The Company is reimbursed for certain advertising expenses related to USGIF from the distributor for USGIF.

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Use of Estimates. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Earnings Per Share. The Company computes and presents earnings per share attributable to U.S. Global Investors, Inc. in accordance with ASC 260, Earnings Per Share. Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) attributable to U.S. Global Investors, Inc. by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised. The Company has two classes of common stock with outstanding shares. Both classes share equally in dividend and liquidation preferences.

Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive income (loss), net of tax, is reported in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity and includes any unrealized gains and losses on debt securities classified as available-for-sale, and foreign currency translation adjustments.

Recent Accounting Pronouncements and Developments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, and has subsequently issued several amendments (collectively, “ASU 2016-13”). ASU 2016-13 adds to U.S. GAAP an impairment model (known as the current expected credit loss model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU 2016-13 will be effective for smaller reporting companies, including U.S. Global, for fiscal years beginning after December 15, 2022. Earlier application is permitted only for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, (“ASU 2019-04”). ASU 2019-04 clarifies areas of guidance related to the recently issued standards on credit losses (Topic 326). The standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. The new guidance in ASU 2019-04 on recognizing and measuring financial instruments will be effective for smaller reporting companies, including U.S. Global, for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. If an entity has adopted all of the amendments to ASU 2016-01, it is permitted to early adopt the new guidance. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 enhances and simplifies various aspects of the income tax accounting guidance. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted. The Company does not believe the adoption of this new amendment will have a material impact on its consolidated financial statements.

NOTE 3. DISCONTINUED OPERATIONS

USCAN entered into a binding letter of intent dated December 30, 2019, with Galileo whereby Galileo, pursuant to a capital restructuring, agreed to repurchase all of its common shares owned by USCAN for $1.0 million (Canadian). The transaction was subject to the approval of Canadian securities regulatory authorities and to the satisfaction of other closing conditions. The transaction closed effective March 2, 2020. Proceeds of approximately $746,000 were received (the equivalent of $1.0 million Canadian), and a realized gain of approximately $151,000 was recorded. In addition, approximately $228,000 in foreign currency loss was released from accumulated other comprehensive income (loss) into fiscal year 2020 realized foreign currency loss upon closing the sale.

After the transaction, the Company has not and will not have continuing involvement with the operations of Galileo, except for an equity method investment in a fund managed by Galileo. See further information on this equity method investment in Note 4, Investments.

The results of Galileo through the March 2, 2020, closing date are reflected as “discontinued operations” in the Consolidated Statements of Operations and are therefore, excluded from continuing operations results. Operations of Galileo had previously been presented as the separate business segment of Investment Management Services – Canada.

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There were no assets or liabilities classified as discontinued operations at June 30, 2021, or June 30, 2020.

Receivables of Galileo included advisory fees owed to Galileo by the funds and clients it manages. Galileo fixed assets, consisting of furniture, equipment and leasehold improvements, were depreciated over 2 to 5 years. Galileo had leases for office equipment and facilities. See further information on these leases in Note 8, Leases.

The components of income (loss) from discontinued operations were as follows. Note that amounts in fiscal year 2020 are through the March 2, 2020, closing date of sale.

Year Ended June 30,

Revenues

Advisory fees $ - $ 235

Expenses

Employee compensation and benefits - 77

General and administrative - 508

Depreciation and amortization - 6

Other Income (Loss)

Investment income - 24

Other loss - (6 )

Tax expense (benefit) - -

Galileo provides advisory services for clients in Canada and receives advisory fees based on the agreed-upon percentages of AAUM or assets under management, depending on contractual terms. Galileo investment advisory agreements have a single performance obligation, since the promised services are not separately identifiable from other promises in the agreements and, therefore, are not distinct. Galileo may also receive performance fees from certain clients when market appreciation or realized net gains exceeds established benchmarks on an annual or quarterly basis. Performance fees, which were included in advisory fees in the table above, were recognized when it was determined that they were no longer probable of significant reversal. Galileo recorded no performance fees for the year ended June 30, 2020. Galileo may, at its discretion, waive and absorb some of its clients’ operating expenses. The amount of fund expenses waived and absorbed was $39,000 for the year ended June 30, 2020.

NOTE 4. INVESTMENTS

As of June 30, 2021, the Company held investments carried at fair value of $35.3 million and a cost basis of $23.1 million. The fair value of these investments is approximately 56.7 percent of the Company’s total assets at June 30, 2021. In addition, the Company held other investments of approximately $3.5 million, held-to-maturity debt investments of $1.0 million and investments of $532,000 accounted for under the equity method of accounting.

The cost basis of investments are adjusted for amortization of premium or accretion of discount on debt securities held or the recharacterization of distributions from investments in partnerships, if applicable.

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Fair Value Hierarchy

Fair value is defined 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. The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value.

The inputs used for measuring financial instruments at fair value are summarized in the three broad levels listed below:

Level 1 – Inputs represent unadjusted quoted prices for identical assets exchanged in active markets.

Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets exchanged in active or inactive markets; quoted prices for identical assets exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets, such as interest rates and yield curves; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Inputs include unobservable inputs used in the measurement of assets. The Company is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets.

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.

The Company has established a Proprietary Valuation Committee (the “Committee”) to administer and oversee the Company’s valuation policies and procedures, which are approved by the Board of Directors, and to perform a periodic review of valuations provided by independent pricing services.

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.

For common share purchase warrants not traded on an exchange, the estimated fair value is determined using the Black-Scholes option-pricing model. This sophisticated model utilizes a number of assumptions in arriving at its results, including the estimated life, the risk-free interest rate, and historical volatility of the underlying common stock. The Company may change the assumption of the risk-free interest rate and utilize the yield curve for instruments with similar characteristics, such as credit ratings and jurisdiction, or change the expected volatility. The effects of changing any of the assumptions or factors employed by the Black-Scholes model may result in a significantly different valuation.

Certain convertible debt securities not traded on an exchange are valued by an independent pricing service using a binomial lattice model based on factors such as yield, quality, maturity, coupon rate, type of issuance, individual trading characteristics of the underlying common shares and other market data. The model utilizes a number of assumptions in arriving at its results. The effects of changing any of the assumptions or factors utilized in the binomial lattice model, including expected volatility, credit adjusted discount rates, and discounts for lack of marketability, may result in a significantly different valuation for the securities.

For other securities included in the fair value hierarchy with unobservable inputs, the Committee 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 Committee 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 Committee.

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The following summarizes the major categories of investments with fair values adjusted on a recurring basis as of June 30, 2021, and June 30, 2020, with fair values shown according to the fair value hierarchy.

Significant Significant

Quoted Prices Other Inputs Unobservable Inputs

(dollars in thousands) (Level 1) (Level 2) (Level 3) Total

Investments carried at fair value on a recurring basis:

Investments in equity securities:

Equities - Domestic - - - -

Mutual funds - Fixed income 6,322 - - 6,322

Mutual funds - Global equity 938 - - 938

Mutual funds - Domestic equity - - - -

Investments in debt securities:

Available-for-sale - Convertible debentures - - 17,049 17,049

Significant Significant

Quoted Prices Other Inputs Unobservable Inputs

(dollars in thousands) (Level 1) (Level 2) (Level 3) Total

Investments carried at fair value on a recurring basis:

Investments in equity securities:

Equities - Domestic - - - -

Mutual funds - Fixed income 6,322 - - 6,322

Mutual funds - Global equity - - - -

Mutual funds - Domestic equity 663 - - 663

Total investments in equity securities: $ 11,432 $ 32 $ - $ 11,464

Investments in debt securities:

Available-for-sale - Convertible debentures - - - -

A significant portion of the securities recorded at fair value in the above table is investments in HIVE Blockchain Technologies Ltd. (“HIVE”), which were warrants and convertible debentures valued at $25.1 million and classified as Level 3 at June 30, 2021, and common shares valued at $2.4 million and classified as Level 1 at June 30, 2020.

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The following table is a reconciliation of investments recorded at fair value for which unobservable inputs (Level 3) were used in determining fair value during the year ended June 30, 2021:

Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis

Beginning Balance $ - $ -

Sales - -

Principal repayments - (1,408 )

Amortization of Premium (investment income) - (178 )

Total gains or losses (realized/unrealized)

Included in earnings (investment income) 2,173 1,180

Included in Accumulated Other Comprehensive Income (other) - 8,308

Transfers into Level 3 - -

Transfers out of Level 3 - -

During the fiscal year ended June 30, 2021, the Company purchased convertible securities of HIVE, a company that is headquartered and traded in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada, for $15.0 million. The convertible securities are comprised of 8.0% interest-bearing unsecured convertible debentures, payable in quarterly installments with a final maturity in January 2026, and 5 million common share purchase warrants in the capital of HIVE. The principal amount of each debenture is convertible into common shares in the capital of HIVE at a conversion rate of $2.34, and the remaining principal amount is $14.3 million as of June 30, 2021. Each whole warrant, expiring in January 2024, entitles the Company to acquire one common share at a price of $3.00 (Canadian). Cryptocurrency markets and related securities have been, and are expected to continue to be, volatile. There has been significant volatility in the market price of HIVE, which has materially impacted the value of the investments included on the balance sheet, unrealized gain recognized in investment income (loss), and unrealized gain recognized in other comprehensive income (loss). The investments did not represent ownership in HIVE as of June 30, 2021. The securities are subject to Canadian securities regulations. Frank Holmes serves on the board as non-executive chairman of HIVE and held shares and options at June 30, 2021. Effective August 31, 2018, Mr. Holmes was named Interim Executive Chairman of HIVE while a search for a new CEO is undertaken.

The Company recorded the warrants at the estimated fair value of $5.9 million on purchase date. The debentures were recorded at the estimated fair value of $16.0 million on purchase date, and an unrealized gain of $6.9 million was recognized in other comprehensive income (loss), which will be realized in investment income (loss) ratably using the effective interest method until maturity, conversion, or other disposition. During the fiscal year ended June 30, 2021, $1.2 million was realized in investment income (loss). The fair value of the warrants and debentures was $8.0 million and $17.0 million, respectively, at June 30, 2021.

The Company currently considers the related fair value measurements to contain Level 3 inputs. The following is quantitative information as of June 30, 2021, with respect to the securities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3):

Investments in equity securities:

Common share purchase warrants $ 8,026 Option pricing model

Volatility 88.1 %

Investments in debt securities:

Available-for-sale - Convertible debentures $ 17,049 Binomial lattice model

Volatility 60.1 %

Credit Adjusted Discount Rate 1.9 %

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During the fiscal year ended June 30, 2021, the Company sold its investment of 10 million common shares in HIVE. The cost of the 10 million shares was $2.4 million. In fiscal year 2019, the Company adopted ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) and its amendments. On July 1, 2018, the Company reclassified $3.2 million of unrealized gains related to its investment in HIVE from Accumulated Other Comprehensive Income (Loss) into Retained Earnings. Therefore, when the HIVE investment in common shares was sold, the amount included in realized gains on sales of fair valued securities was the proceeds of $20.6 million, less the cost of $2.4 million and the ASU 2016-01 reclassified unrealized gains of $3.2 million, or $15.0 million.

The Company has an investment in Thunderbird Entertainment Group Inc. (“Thunderbird”), a company headquartered and traded in Canada, which was valued at approximately $2.7 million at June 30, 2021, and classified as Level 1 in the fair value hierarchy. This investment was valued at approximately $1.2 million at June 30, 2020 and classified as Level 1 in the fair value hierarchy. Realized gains on sales totaled $936,000 during the fiscal year ended June 30, 2021. The Company’s ownership of Thunderbird was approximately 1.6 percent as of June 30, 2021. Frank Holmes served on the board of this company as a director from June 2014 to March 2021.

During the year ended June 30, 2021, the Company sold its investment in GoldSpot Discoveries Corp. (“GoldSpot”), a technology company headquartered and traded in Canada which leverages machine learning in natural resource exploration, and recorded realized gains on sales of fair valued securities of $600,000. The investment was valued at approximately $806,000 at June 30, 2020, of which $774,000 was classified as Level 1 and $32,000 was classified as Level 2 in the fair value hierarchy. The portion of the investment classified in Level 2 was restricted for resale due to escrow and regulatory provisions; its valuation was based on the quoted market price adjusted for the restriction on resale. The remaining shares in escrow were released in August 2020. Frank Holmes served on the board of this company as director from February 2019 to June 2020 and as independent chairman from February 2019 to May 2020 and held common stock and options at June 30, 2020.

Equity Investments at Fair Value

Investments in equity securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported in current period earnings.

The following details the components of the Company’s equity investments carried at fair value as of June 30, 2021, and 2020.

(dollars in thousands) Cost Unrealized Gains (Losses) Fair Value

Equity securities at fair value

Equities - Domestic 45 (45 ) -

Mutual funds - Global equity 929 9 938

Mutual funds - Domestic equity - - -

(dollars in thousands) Cost Unrealized Gains (Losses) Fair Value

Equity securities at fair value

Equities - Domestic 45 (45 ) -

Mutual funds - Global equity - - -

Included in the preceding table was $7.3 million and $7.0 million as of June 30, 2021, and June 30, 2020, respectively, at fair value invested in USGIF.

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Debt Investments

Investments in debt securities are classified on the acquisition dates and at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, reflecting the ability and intent to hold the securities to maturity. Debt securities classified as trading are acquired with the intent to sell in the near term and are carried at fair value with changes reported in earnings. All other debt securities are classified as available-for-sale and are carried at fair value.

Investment gains and losses on available-for-sale debt securities are recorded when the securities are sold, as determined on a specific identification basis, and recognized in current period earnings. Changes in unrealized gains are reported net of tax in accumulated other comprehensive income (loss). For securities in an unrealized loss position, a loss in earnings is recognized for the excess of amortized cost over fair value if the Company intends to sell before the price recovers. Otherwise, the Company evaluates as of the balance sheet date whether the unrealized losses are attributable to credit losses or other factors. The severity of the decline in value, creditworthiness of the issuer and other relevant factors are considered. The portion of unrealized loss the Company believes is related to a credit loss is recognized earnings, and the portion of unrealized loss the Company believes is not related to a credit loss is recognized in other comprehensive income.

The following details the components of the Company’s debt investments as of June 30, 2021. The Company did not have any debt investments at June 30, 2020.

Available-for-sale - Convertible debentures $ 8,741 $ 8,308 $ - $ 17,049

Held-to-maturity - Debentures $ 1,000 $ 3 $ - $ 1,003

Investments in debt securities classified as held-to-maturity are carried at amortized cost. The net carrying amount and estimated fair value of debt securities at June 30, 2021, are summarized below by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.

Available-for-sale debt securities Held-to-maturity debt securities

1. Principal payments are due quarterly with a final maturity in January 2026.

Certain derivatives embedded in other financial instruments, such as the conversion option in a convertible bond, are reported at fair value, and changes in fair value are recorded through earnings within investment income (loss). The host contract continues to be accounted for in accordance with the appropriate accounting standard. The embedded derivative and the related host contract represent one legal contract and are combined on the Consolidated Balance Sheets and the tables reflected above. The Company held one financial instrument containing an embedded derivative at June 30, 2021.

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The following table summarizes the fair values of embedded derivatives on the Consolidated Balance Sheet, categorized by risk exposure, at June 30, 2021.

Other Assets

(dollars in thousands) Investments in available-for-sale debt securities

Embedded Derivatives:

Equity price risk exposure $ 2,542

The embedded derivatives presented in the table above were bifurcated from the related host contract on June 30, 2021; as such, there was no effect on the Consolidated Statement of Operations for the year ended June 30, 2021. The Company did not have any embedded derivatives at June 30, 2020.

Other Investments

The carrying value of equity securities without readily determinable fair values was approximately $3.5 million and $1.3 million as of June 30, 2021, and June 30, 2020, respectively. The Company has elected to value these investments using the measurement alternative, under which such securities are measured at cost, less impairment, if any. If the Company identifies observable price changes for identical or similar securities of the same issuer, the equity security is measured at fair value as of the date the observable transaction occurred, with such changes recorded in investment income (loss).

The carrying value of equity securities without readily determinable fair values has been adjusted as follows:

Year Ended June 30,

Carrying amount, beginning of period $ 1,283 $ 1,404

Adjustments:

Reclassification to securities at fair value (187 ) -

Impairments (6 ) (285 )

Other downward adjustments (158 ) (124 )

Carrying amount, end of period $ 3,453 $ 1,283

One security purchased during the fiscal year ended June 30, 2021, started trading on a stock exchange, and was reclassified to securities at fair value. A total of four securities were remeasured at various dates during the fiscal year ended June 30, 2021, with carrying amounts totaling $2.1 million and $470,000, classified as Level 2 and Level 3, according to the fair value hierarchy, respectively. There were impairment adjustments to one security totaling $6,000 during the fiscal year ended June 30, 2021. Cumulative impairment adjustments to all equity securities without readily determinable fair values total $543,000 since their respective acquisitions through June 30, 2021. The cumulative amount of other downward adjustments, which include return of capital distributions and observable price changes, is $935,000, which includes $158,000 for the year ended June 30, 2021, and $124,000 for the year ended June 30, 2020. The cumulative amount of upward adjustments, which primarily consist of observable price changes, is $2.3 million, which includes $1.7 million for the year ended June 30, 2021, and $163,000 for the year ended June 30, 2020.

Investments Classified as Equity Method

The Company has an equity method investment in Galileo New Economy Fund LP (previously known as Galileo Technology and Blockchain LP), a Canadian limited partnership managed by Galileo. The Company owns approximately 22 percent of the LP as of June 30, 2021, 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 years ended June 30, 2021, and 2020, is $347,000 and ($142,000), respectively, of equity method income (loss) for this investment. The Company’s investment in the LP had a carrying value of approximately $532,000 and $158,000 at June 30, 2021, and June 30, 2020, respectively. Frank Holmes also directly held an investment in the LP as of June 30, 2021. This investment has a concentration in technology and blockchain companies, which may result in volatility in its valuation.

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Investment Income (Loss)

The following summarizes investment income (loss) reflected in earnings from continuing operations for the periods presented.

(dollars in thousands) Year Ended June 30,

Unrealized gains (losses) on fair valued securities $ 8,479 $ (2,011 )

Realized gains on sales of fair valued securities 16,572 -

Realized gains on principal payment proceeds 1,180 -

Realized gain on sale of subsidiary - 151

Realized foreign currency gains (losses) 219 (232 )

Dividend and interest income 464 166

Total Investment Income (Loss) $ 28,338 $ (2,211 )

For the year ended June 30, 2021, realized gains on principal payment proceeds in the amount of $1.2 million was released from other comprehensive income (loss). Realized gain on sale of subsidiary shown in the table above for the year ended June 30, 2020, is from the sale of Galileo. See Note 3 for further information on this transaction. Realized foreign currency gains (losses) for the year ended June 30, 2020, includes $228,000 in foreign currency losses released from other comprehensive income (loss) upon the sale of Galileo.

The year ended June 30, 2021, included approximately $9.9 million of net unrealized gains recognized on equity securities still held at June 30, 2021.

Investment income (loss) can be volatile and varies depending on market fluctuations. The Company expects that gains and losses will continue to fluctuate in the future.

NOTE 5. INVESTMENT MANAGEMENT AND OTHER FEES

The following table presents operating revenues disaggregated by performance obligation:

Year Ended June 30,

USGIF performance fees earned (paid) 482 (525 )

USGIF administrative services fees 209 165

The Company serves as investment adviser to USGIF and receives a fee based on a specified percentage of net assets under management. The advisory agreement for the equity funds within USGIF provides for a base advisory fee that is adjusted upwards or downwards by 0.25 percent if there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months.

The Company has agreed to contractually limit the expenses of the Near-Term Tax Free Fund and the Global Luxury Goods Fund through April 2022. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the remaining USGIF funds. These caps will continue on a voluntary basis at the Company’s discretion. The aggregate fees waived and expenses borne by the Company for USGIF were $701,000 and $584,000 for the years ended June 30, 2021, and 2020, respectively. USGIF revenue included on the Consolidated Statements of Operations is net of fee waivers. Management cannot predict the impact of future waivers due to the number of variables and the range of potential outcomes.

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The Company receives administrative service fees from USGIF based on an annual rate of 0.05 percent of average daily net assets of each fund.

As of June 30, 2021, the Company had $2.4 million in receivables from fund clients, of which $432,000 was from USGIF and $2.0 million from ETFs. As of June 30, 2020, the Company had $869,000 in receivables from fund clients, of which $187,000 was from USGIF and $682,000 from ETFs.

NOTE 6. RESTRICTED CASH

Restricted cash represents cash invested in a money market account as collateral for credit facilities that is not available for general corporate use. A reconciliation of cash, cash equivalents, and restricted cash reported from the Consolidated Balance Sheets to the Statements of Cash Flows is shown below:

Total cash, cash equivalents, and restricted cash $ 15,436 $ 2,961

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment are composed of the following:

Furniture, equipment, and other 871 847

Accumulated depreciation (4,101 ) (3,938 )

Net property and equipment $ 1,376 $ 1,506

Depreciation expense totaled $196,000 and $202,000 in fiscal years 2021 and 2020, respectively.

NOTE 8. LEASES

The Company has lease agreements on a continuing operations basis for office equipment that expire in fiscal year 2022. Lease expense included in continuing operations totaled $155,000 and $153,000 for the years ended June 30, 2021, and 2020, respectively.

The Company’s former subsidiary Galileo, which is classified as discontinued operations as described in Note 3, had lease agreements for office equipment and for office facilities. Lease expense included in discontinued operations totaled $74,000 for the year ended June 30, 2020.

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For continuing operations, the components of lease expense included in general and administrative expense on the Consolidated Statements of Operations for the years ended June 30, 2021, and June 30, 2020, and qualitative information concerning the Company’s operating leases were as follows:

Year Ended Year Ended

Operating lease cost $ 53 $ 53

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

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