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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.

Reflecting on the significant developments and challenges we have faced over the past year, the impacts and fears of COVID-19 seem to have diminished, as China successfully emerged from the COVID lockdown. With supply chains now open, ports are bustling with activity, allowing us to better navigate the current economic landscape.

Throughout the spring and especially during the summer months, we experienced robust travel demand, which in turn drove investor flows into the airline stocks. This positive price momentum has been a key driver of revenue for our JETS ETF and airline industry related revenues at large.

However, it is worth noting that this year has not been without challenges. We find ourselves still grappling with the highest inflation rates in four decades. This inflationary pressure is partly attributable to the Russian-Ukrainian war and increased consumer spending of disposable income. As always, we continue to closely monitor economic trends to navigate their potential impact on the Company's performance.

In the broader market, we observed interesting sectoral dynamics. The S&P 500 saw notable strength in nine of its 11 sectors, with Information Technology leading the charge, boasting an impressive 38.8% increase. Meanwhile, the Real Estate sector faced challenges, experiencing a decline of 7.5%. This illustrates the importance of diversification and thoughtful portfolio management in uncertain market conditions.

The performance of the S&P 500 was commendable, registering a growth of 17.6% for the trailing twelve months ended June 30, 2023. As we move forward, we will continue to focus on driving sustainable growth, prioritizing innovation, and maintaining a vigilant approach to risk management.

Mutual funds in general continued to see outflows compared to other investment alternatives, including ETFs. The Company has three 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, 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, and U.S. Global Sea to Sky Cargo ETF (ticker SEA), which concentrates on the global sea shipping and air freight industries. 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.

Assets in the Jets ETF were $1.9 billion and $2.5 billion at June 30, 2023, and 2022, respectively. The Jets ETF invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers.

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 macro-economic risk reemerge and 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.

To manage expenses, the Company maintains a flexible structure for one of its largest costs, compensation expenses, 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.

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Business Segments

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

Assets Under Management (“AUM”)

Investment Management Services

On June 30, 2023, total AUM as of period end was $2.4 billion compared to $2.9 billion on June 30, 2022, a decrease of $537.8 million, or 18.5 percent. During fiscal year 2023, average AUM was $2.5 billion compared to $3.9 billion in fiscal year 2022, a decrease of 35.6 percent. The decrease was primarily due to outflows from the Jets ETF. The Jets ETF invests in airline-related stocks, including global airline carriers, airport operators and aircraft manufacturers.

The following is a brief discussion of the Company’s two business segments.

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 $1.9 million and $3.8 million in fiscal 2023 and fiscal 2022, respectively. These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment have a direct impact on 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, 2023, and 2022, the Company adjusted its base advisory fees downward by $490,000 and upward by $20,000, respectively. USGIF advisory fees in total, including performance adjustments, decreased by approximately $1.8 million, or 50.4 percent, in fiscal year 2023 compared to fiscal year 2022, primarily as a result of a decrease in average assets under management driven by redemptions and a change to performance fees paid versus performance fees received.

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 reimbursed.

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The following tables summarize the changes in assets under management for USGIF for fiscal years 2023 and 2022.

(dollars in thousands) Equity Fixed Income Total

Average investment management fee 0.80 % 0.00 % 0.65 %

(dollars in thousands) Equity Fixed Income Total

Average investment management fee 0.93 % 0.00 % 0.78 %

The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 65 basis points in fiscal year 2023 and 78 basis points in fiscal year 2022. The average investment management fee for equity funds in fiscal years 2023 and 2022 was 80 basis points and 93 basis points, respectively. The average investment management fee for the fixed income funds was nil for both fiscal years 2023 and 2022 due to fee waivers on these funds as discussed in Note 5, Investment Management and Other Fees, to the Consolidated Financial Statements of this Annual Report on Form 10-K.

The Company serves as investment advisor to three U.S.-based exchange-traded funds (ETFs): U.S. Global Jets ETF (ticker JETS), U.S. Global GO GOLD and Precious Metal Miners ETF (ticker GOAU), and U.S. Global Sea to Sky Cargo ETF (ticker SEA). 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, except the U.S. Global Sea to Sky Cargo ETF. The Company has agreed to contractually limit the expenses of the U.S. Global Sea to Sky Cargo ETF through April 2024. 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 $13.2 million and $21.0 million in fiscal years 2023 and 2022, respectively. Average assets in the ETFs decreased in fiscal year 2023, 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, 2023, and 2022.

(dollars in thousands)

The investments shown above include investments at fair value of $12.4 million and $12.8 million, as of June 30, 2023, and 2022, respectively, invested in USGIF, funds the Company advised.

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

● realized gains and losses on sales of securities;

● realized gains on principal payment proceeds;

● unrealized gains and losses on fair valued securities;

● foreign currency gains and losses;

● dividend and interest income.

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 2023, the Company had net investment income of $316,000, compared to a $6.2 million net investment loss in fiscal year 2022. 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 Digital Technologies Ltd., formerly HIVE Blockchain Technologies Ltd., (“HIVE”), which were warrants and convertible debentures valued at $7.3 million and $11.1 million at June 30, 2023, and 2022, respectively. 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 in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada. Frank Holmes, CEO, is the executive chairman of HIVE.

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 Consolidated Balance Sheets, unrealized gain (loss) recognized in net investment income (loss), and unrealized gain (loss) recognized in other comprehensive income (loss).

In addition to the investments above, as of June 30, 2023, and 2022, the Company owned other investments of approximately $2.4 million and $4.0 million, respectively, classified as securities without readily determinable fair values.

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, 2023, Compared with Year Ended June 30, 2022

The Company posted net income, as shown in the Consolidated Statements of Operations, of $3.1 million ($ 0.22 per share) for the year ended June 30, 2023, compared with net income of $3.4 million ($ 0.23 per share) for the year ended June 30, 2022, a decrease of approximately $291,000. The change is primarily due to lower operating revenues, offset by net investment income in the current year compared to net investment losses in the prior year, and lower operating expenses, as discussed further below.

Operating Revenues

Year ended June 30,

$ %

(dollars in thousands) 2023 2022 Change Change

ETF advisory fees:

Investment advisory fees - USGIF:

Bond funds - - - n/a

USGIF administrative services fees 134 189 (55 ) (29.1 )%

Total consolidated operating revenues for the year ended June 30, 2023, decreased $9.6 million, or 39.0 percent, compared with the year ended June 30, 2022. This decrease was primarily attributable to the following:

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Advisory Fees. Advisory fees, the largest component of the Company’s operating revenues, are derived from two sources: exchange-traded fund advisory fees and USGIF advisory fees. In fiscal year 2023, these sources accounted for 87.4 percent and 11.7 percent, respectively, of the Company’s operating revenues.

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, 2023, and 2022, the Company adjusted its base advisory fees downward by $490,000 and upward by $20,000, respectively. USGIF advisory fees in total, including performance adjustments, decreased by approximately $1.8 million, or 50.4 percent, in fiscal year 2023 compared to fiscal year 2022, primarily as a result of a decrease in average assets under management driven by shareholder redemptions and a change from performance fees received to performance fees paid.

Operating Expenses

Year ended June 30,

$ %

(dollars in thousands) 2023 2022 Change Change

Interest 4 - 4 n/a

Total operating expenses decreased $2.1 million, or 15.1 percent, compared with the previous fiscal year. This decrease was primarily attributable to decreases in employee compensation and general and administrative expenses, as described below.

Employee Compensation and Benefits. Employee compensation and benefits decreased $1.3 million, or 20.8 percent, in fiscal year 2023, primarily as a result of lower bonuses related to lower operating income and lower realized investment gains than in the previous fiscal year, and amortization expense of employee stock options in the prior fiscal year.

General and Administrative. General and administrative expenses decreased $789,000, or 11.4 percent, in fiscal year 2023, primarily due to a decrease in director fees and expenses, fund expenses, and consulting and professional fees. The decrease in director fees and expenses is primarily due to the amortization expense of stock options in the prior fiscal year.

Other Income (Loss)

Year ended June 30, $ %

(dollars in thousands) 2023 2022 Change Change

Loss from equity method investments - (206 ) 206 (100.0 )%

Total consolidated other income for the year ended June 30, 2023, was $558,000, compared to $6.1 million in losses for the year ended June 30, 2022, a change of $6.7 million. The change was primarily due to the following components and factors:

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Provision for Income Taxes

A tax expense of $934,000 was recorded for the year ended June 30, 2023, compared to $1.5 million for the year ended June 30, 2022, a decrease of $594,000, or 38.9 percent. The decrease was due primarily to lower operating income and lower realized gains on sales of securities, offset by lower unrealized losses on investments. See Note 13 to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional disclosures on income taxes.

Liquidity and Capital Resources

At June 30, 2023, the Company had net working capital (current assets minus current liabilities) of approximately $37.4 million and a current ratio (current assets divided by current liabilities) of 13.7 to 1. With approximately $25.4 million in cash and cash equivalents and $12.9 million in securities carried at fair value, excluding convertible securities, which together comprise approximately 68.8 percent of total assets, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $52.2 million.

The increase in cash and cash equivalents of $3.1 million, and accordingly, net working capital, was primarily due to net cash provided by operating activities of $2.9 million and proceeds from principal paydowns of $3.0 million, offset by $1.2 million for repurchases of common stock and $1.3 million for dividends paid. Consolidated shareholders’ equity at June 30, 2023, was $52.2 million, a decrease of $1.6 million, or 3.0 percent since June 30, 2022. The decrease was primarily due to other comprehensive loss of $2.3 million, dividends declared of $1.3 million, and repurchases of common stock of $1.2 million; offset by net income of $3.1 million for the year ended June 30, 2023.

The Company also has access to a $1.0 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, 2024, and the Company intends to renew it annually. The credit facility is collateralized by approximately $1.0 million, included in restricted cash on the Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of June 30, 2023, this credit facility remained unutilized by the Company.

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 2024. The advisory agreement for the U.S. Global Jets ETF and the U.S. Global GO GOLD and Precious Metal Miners ETF has been renewed through July 2024.

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. The stock repurchase plan is approved through December 31, 2023, but may be suspended or discontinued. Cash and securities recorded at fair value, excluding convertible securities, of approximately $38.3 million are available to fund current activities.

As of June 30, 2023, the Board of Directors has authorized a monthly dividend of $0.0075 per share from July 2023 through September 2023. The total amount of cash dividends to be paid to class A and class C shareholders from July 2023 to September 2023 will be approximately $329,000, which is included as dividends payable in the Consolidated Balance Sheets at June 30, 2023. 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.

Contractual obligations primarily consist of agreements for services used in daily operations and for marketing and distribution. As of June 30, 2023, the Company had contractual obligations of $1.1 million for the fiscal years ending June 30, 2024, through 2026. Other contractual obligations 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.

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

The spread of the global COVID-19 had an adverse effect on global and domestic economies and financial markets, which may reoccur and continue for an undetermined period. Market declines affect the Company’s assets under management, and thus its revenues and also the valuation of the Company’s corporate investments. This may adversely affect the Company’s Consolidated Balance Sheets and results of operations.

Critical Accounting Estimates

The discussion and analysis of financial condition and results of operations are based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). The preparation of these Consolidated 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 3 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 share-based compensation.

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. The Company believes that the estimates related to fair values of financial instruments are critical accounting estimates because the assumptions used could significantly impact the unrealized gains or losses recorded in the Company’s Consolidated Financial Statements.

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Share-Based Compensation. Share-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.

The Company believes that the estimates related to share-based compensation expense are critical accounting estimates because the assumptions used could significantly impact the timing and amount of share-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 and maintains a reserve. 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. The Company believes that income taxes include critical accounting estimates because variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations or cash flows.

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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.

COVID-19 had an adverse effect on global and domestic financial markets, which may reoccur and 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 Consolidated Balance Sheets and results of operations.

Macroeconomic declines, including inflation; negative political developments, including volatile market conditions due to investor concerns regarding inflation and potential hostilities between Russia and Ukraine; adverse market conditions; and catastrophic events may cause a decline in the Company’s revenue, an increase in the Company’s costs, negatively affect the Company’s operating results, adversely affect the Company’s cash flow, and could result in a decline in the Company’s stock price.

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 year ended June 30, 2023, the Company realized a decrease in its USGIF base advisory fee of $490,000, and for fiscal year ended June 30, 2022, an increase of $20,000 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.

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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.

The following table summarizes the Company’s equity price risks in securities carried at fair value as of June 30, 2023, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.

Hypothetical Estimated Fair Value Estimated Increase

Fair Value at Percentage After Hypothetical (Decrease) in

(dollars in thousands) June 30, 2023 Change Price Change Net Income (Loss) 1

Embedded derivatives at fair value 2 $ 114 25% increase $ 143 $ 23

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.

COVID-19 had an effect on volatility in global and domestic financial markets, which may reoccur and 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 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 Digital Technologies Ltd. formerly HIVE Blockchain Technologies Ltd., (“HIVE”), which were valued at $290,000 at June 30, 2023. Also, the embedded derivatives shown in the above table, which were valued at $114,000 at June 30, 2023, 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 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 Consolidated Balance Sheets and unrealized gain (loss) recognized in net investment income.

Interest Rate Risk

Due to the Company’s investments in debt securities carried at fair value, interest rate fluctuations represent a market risk factor affecting the Company’s consolidated financial position. Debt securities may fluctuate in value due to changes in interest rates. Typically, investments subject to interest rate risk will decrease in value when interest rates rise and increase in value when interest rates decline. Fluctuations in interest rates could have a material impact on the Company’s investments in debt securities carried at fair value included on the Consolidated Balance Sheets and gains (losses) recognized in net investment income.

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 have an impact on 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

Board of Directors and Shareholders

U.S. Global Investors, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of U.S. Global Investors, Inc. and subsidiaries (the “Company”) as of June 30, 2023, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit 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 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the 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 regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value of Investment in Available-for-Sale Debt Securities

As described further in Note 3 to the financial statements, the Company’s investment in available-for-sale debt securities at fair value is $7,008 thousand as of June 30, 2023 and is categorized as a Level 3 investment within the fair value hierarchy.

Management’s valuation techniques for this investment, for which there is no readily available market value, involve measurement using significant unobservable inputs and assumptions and use of a binomial lattice model. The significant unobservable inputs and assumptions disclosed by management include, among others, volatility, credit spread and risk-free rate. Changes in these inputs and assumptions could have a significant impact on the determination of fair value. As such, we identified the investments in available-for-sale debt securities at fair value as a critical audit matter.

The principal considerations for our determination that the investments in available-for-sale debt securities at fair value is a critical audit matter are that there are significant management judgements used in developing complex valuation techniques (the binomial lattice model) and inherent estimation uncertainty in the fair value determined using such techniques. Auditing these types of investments requires a high degree of subjective auditor judgment, including use of valuation professionals with specialized skills and knowledge, to evaluate the reasonableness of unobservable inputs and assumptions.

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Our audit procedures related to the critical audit matter included the following, among others:

• With the assistance of internal valuation specialists, we developed an independent expectation of the fair value and compared that expectation to management’s determined fair value for reasonableness.

• With the assistance of internal valuation specialists, we performed substantive audit procedures to determine the mathematical accuracy of the model used by management as well as the reasonableness of the data used to determine the investment fair value as of June 30, 2023. Our tests of significant inputs and assumptions included the following, among others:

o We inspected the available-for-sale debt security purchase agreement and validated that the inputs such as issuance date, maturity date, principal at issuance and interest rate were consistent with the inputs utilized in management’s valuation model.

o We reviewed the volatility analysis prepared by management’s external specialist and performed an independent calculation to ensure the selected volatility was appropriate and within a reasonable range.

o We performed an independent synthetic credit analysis to determine the reasonableness of the credit spread prepared by management’s external specialist.

We reviewed the risk-free rate utilized by management’s external specialist for appropriateness, taking into consideration the note was issued in Canada and factoring into our evaluation any potential foreign currency translation adjustments.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2022.

Dallas, Texas

November 16, 2023

Grant Thornton LLP; Dallas, Texas; PCAOB ID# 248

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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 Sheet of U.S. Global Investors, Inc. and subsidiaries (the “Company”) as of June 30, 2022, and the related Consolidated Statement of Operations, Comprehensive Income, Shareholders’ Equity, and Cash Flows for year ended June 30, 2022, 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, 2022, and the results of their operations and their cash flows for the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Restatement of Financial Statements

As discussed in Note 3 to the Consolidated Financial Statements, the 2022 financial statements were restated to correct misstatements.

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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor from 2004 to 2022.

Dallas, Texas

September 1, 2022, except for the impact of the restatement discussed in Note 3, as to which the date is May 19, 2023.

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

Assets

Current Assets

Investments in equity securities at fair value, current 11,642 12,138

Accounts and other receivables 1,245 1,796

Other Assets

Investments in equity securities at fair value, non-current 1,563 2,162

Investments in available-for-sale debt securities at fair value 7,008 10,625

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

Financing lease, right of use assets 65 93

Other assets, non-current 217 216

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable $ 143 $ 73

Accrued compensation and related costs 1,165 1,864

Financing lease liability, short-term 28 27

Long-Term Liabilities

Deferred tax liability 4 -

Reserve for uncertain tax positions 496 379

Financing lease liability, long-term 38 66

Total Long-Term Liabilities 538 445

Commitments and Contingencies (Note 18)

Shareholders’ Equity

Accumulated other comprehensive income, net of tax 1,348 3,624

Total Liabilities and Shareholders’ Equity $ 55,673 $ 58,362

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) 2023 2022

Operating Revenues

Administrative services fees 134 189

Operating Expenses

Employee compensation and benefits 4,798 6,059

Interest 4 -

Other Income (Loss)

Net investment income (loss) 316 (6,174 )

Loss from equity method investments - (206 )

Provision for Income Taxes

Earnings Per Share

Basic Net Income per Share $ 0.22 $ 0.23

Diluted Net Income per Share $ 0.22 $ 0.23

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

Year Ended June 30,

Other Comprehensive Loss:

Net change from available-for-sale securities (2,276 ) (2,940 )

Foreign currency translation adjustment - (13 )

Net change from foreign currency translations - (23 )

Other Comprehensive Loss (2,276 ) (2,963 )

Comprehensive Income $ 873 $ 477

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

Common Stock Convertible Common Stock Treasury Stock Accumulated

(class A) (class C) Additional Other

Paid-in Comprehensive Retained

Share-based compensation, net of tax - - - - 733 - - - - 733

Dividends declared - - - - - - - - (1,350 ) (1,350 )

Other comprehensive loss, net of tax - - - - - - - (2,963 ) - (2,963 )

Dividends declared - - - - - - - - (1,325 ) (1,325 )

Other comprehensive loss, net of tax - - - - - - - (2,276 ) - (2,276 )

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, amortization and accretion (246 ) (419 )

Net realized loss on disposal of fixed assets 3 -

Net realized gains on securities (1,211 ) (4,039 )

Investment basis adjustment (5 ) 5

Net loss from equity method investment - 206

Foreign currency transaction gain - (10 )

Provision for deferred taxes (440 ) (2,891 )

Share-based compensation expense - 733

Changes in operating assets and liabilities:

Accounts and other receivables 359 2,501

Prepaid expenses and other assets (82 ) (217 )

Accounts payable and accrued expenses (1,069 ) (688 )

Net cash provided by operating activities 2,910 10,535

Cash Flows from Investing Activities:

Purchase of property and equipment (14 ) (220 )

Purchase of equity securities at fair value, current - (6,000 )

Purchase of equity securities at fair value, non-current - (123 )

Purchase of other investments (663 ) (620 )

Proceeds from sale of equity method investment - 85

Proceeds on sale of equity securities at fair value, current 350 -

Proceeds on sale of equity securities at fair value, non-current - 2,850

Return of capital on other investments - 9

Net cash provided by (used in) investing activities 2,673 (1,019 )

Cash Flows from Financing Activities:

Principal payments on financing lease (27 ) -

Issuance of common stock 59 53

Repurchases of common stock (1,195 ) (452 )

Net cash used in financing activities (2,496 ) (1,638 )

Net increase in cash, cash equivalents, and restricted cash 3,087 7,878

Beginning cash, cash equivalents, and restricted cash 23,314 15,436

Ending cash, cash equivalents, and restricted cash $ 26,401 $ 23,314

Supplemental Disclosures of Non-Cash Investing and Financing Activities

Dividends declared but not paid $ 329 $ 337

Fair value of assets acquired $ - $ 228

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes $ 1,492 $ 4,142

Cash paid for interest $ 4 $ -

The accompanying notes are an integral part of these Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

NOTE 1. REVISION OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the preparation of its Consolidated Financial Statements for the fiscal year ended June 30, 2023, the Company determined that its previously issued Consolidated Financial Statements as of and for the fiscal year ended June 30, 2022, contained an error as summarized below. Based on management’s evaluation of the accounting error under the SEC Staff’s Accounting Bulletins Nos. 99 (“SAB 99”) and 108 (“SAB 108”) and interpretations thereof, the Company concluded the error is not material, on an individual or aggregate basis, to the Company’s previously reported financial statements. The Company has corrected this accounting error in the accompanying Consolidated Financial Statements as of and for the fiscal year ended June 30, 2022, as a revision to those financial statements.

The Company did not record certain liabilities as required by FASB Interpretation No.48 “Accounting for Uncertainty in Income Taxes” (codified under ASC 740-10) (“FIN 48”) for fiscal years 2022 and 2021. The error for both fiscal year 2021 and 2022 were corrected in the Company’s Consolidated Financial Statements as of and for the year ended June 30, 2022.

The following tables set forth the impact of correcting this error in the Company’s previously issued Consolidated Financial Statements, as of and for the year ended June 30, 2022.

CONSOLIDATED BALANCE SHEET

Previously Immaterial As

(dollars in thousands) Reported Revisions Revised

Long-Term Liabilities

Reserve for uncertain tax positions $ - $ 379 $ 379

Total Long-Term Liabilities $ 66 $ 379 $ 445

Shareholders’ Equity

CONSOLIDATED STATEMENT OF OPERATIONS

Previously Immaterial As

(dollars in thousands, except per share data) Reported Revisions Revised

Provision for Income Taxes

Earnings Per Share

Basic Net Income per Share $ 0.25 $ (0.02 ) $ 0.23

Diluted Net Income per Share $ 0.25 $ (0.02 ) $ 0.23

In addition to the changes listed above, the Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, and impacted footnote disclosures have also been revised to reflect the error correction.

NOTE 2. 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”).

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.

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NOTE 3. 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.

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 is not deemed to be the primary beneficiary because it does not have the obligation to absorb a majority of the expected losses or the right to receive the majority of the residual returns. 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 $12.5 million and $12.8 million at June 30, 2023, and 2022, respectively.

The carrying amount of assets and liabilities recognized in the Consolidated Balance Sheets related to the Company's interests in these non-consolidated VIEs were as follows:

Carrying Value and Maximum Exposure to Loss

Investments in equity securities at fair value, current $ 11,642 $ 12,138

Investments in equity securities at fair value, non-current 785 623

Other receivables 45 21

Total VIE assets, maximum exposure to loss 12,472 12,782

Other accrued expenses - 110

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.

During the year ended June 30, 2022, the Company held a variable interest in a fund organized as a limited partnership, but this entity did not qualify as a VIE. Since it was 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 did not have control of the entity and, therefore, did not consolidate it. However, the Company was considered to have the ability to exercise significant influence. Thus, the investment was accounted for under the equity method of accounting. During the year ended June 30, 2022, this entity was dissolved. See further information about this investment in Note 4.

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

Restatement of Previously Issued Financial Statements. The Consolidated Financial Statements as of and for the year ended June 30, 2022, were previously restated for the correction of material errors.

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. The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on a 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 net investment income (loss).

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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 net 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 net investment income (loss), the embedded derivative is bifurcated and carried at fair value, with changes in the fair value recorded through earnings within net 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. 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 net investment income (loss). The Company reassesses at each reporting period whether the equity investment's fair value becomes readily determinable, and if so, the Company subsequently elects to measure the equity investment at fair value.

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. No impairment was recognized for the Company’s equity method investment during the years presented.

Receivables. Receivables other than notes receivable consist primarily of advisory and other fees owed to the Company by clients. The Company may also 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, 2023, or 2022.

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 lease and non-lease components as a single component for its 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.

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 the 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.

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. 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. 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.

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The Company also maintains a reserve for uncertain tax positions. The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in the Consolidated Financial Statements. Prior to recording the related tax benefit in the Consolidated Financial Statements, the Company must conclude that tax positions will be more-likely-than-not to be sustained, assuming those positions will be examined by taxing authorities with full knowledge of all relevant information. The benefit recognized in the Consolidated Financial Statements is the amount the Company expects to realize after examination by taxing authorities. If a tax position drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the more-likely-than-not standard has been met when developing the provision for income taxes and in determining the expected benefit. A change in the assessment of the more-likely-than-not standard could materially impact the Company’s results of operations or financial position. See Note 13 for further discussion of the Company’s reserve for uncertain tax positions.

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 waive or reduce 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.

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 net 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 net investment income (loss) on the Consolidated Statements of Operations.

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.

COVID-19 adversely affected the global financial markets, and in the future it or other epidemics, pandemics or outbreaks may adversely affect the Company’s results of operations, cash flows and financial position. The Company cannot reasonably estimate the future impact, given the uncertainty over the duration and severity of the economic impact.

Earnings Per Share. The Company computes and presents earnings per share in accordance with ASC 260,Earnings Per Share. Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) 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.

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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. The standard became effective for the Company on July 1, 2023. The Company has evaluated the guidance and does not believe the adoption of this standard will have a material impact on the Company's 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 standard became effective for the Company on July 1, 2021. The adoption of the standard did not have a material impact on the Company’s financial statements or disclosures.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 will be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company does not expect this standard to have a material impact on its financial statements.

NOTE 4. INVESTMENTS

As of June 30, 2023, the Company held investments carried at fair value on a recurring basis of $20.2 million and a cost basis of $27.3 million. The fair value of these investments is approximately 36.3 percent of the Company’s total assets at June 30, 2023. In addition, the Company held other investments of approximately $2.4 million, and held-to-maturity debt investments of $1.0 million.

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

Concentrations of Credit Risk

A significant portion of the Company’s investments carried at fair value on a recurring basis is investments in USGIF, which were $12.4 million and $12.8 million as of June 30, 2023, and 2022, respectively, and investments in HIVE Digital Technologies Ltd., formerly HIVE Blockchain Technologies Ltd., (“HIVE”), which were warrants and convertible debentures valued at $7.3 million and $11.1 million as of June 30, 2023, and 2022, respectively. For these investments, the maximum amount of loss due to credit risk the Company could incur is the fair value of the financial instruments.

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 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 greater than one year 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.

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Certain convertible debt securities not traded on an exchange are valued by an independent third party 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.

The following summarizes the major categories of investments with fair values adjusted on a recurring basis as of June 30, 2023, and 2022, and other investments with fair values adjusted on a nonrecurring basis, with fair values shown according to the fair value hierarchy.

Significant Significant

Other Unobservable

Quoted Prices Inputs 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 - International $ 488 $ - $ 290 $ 778

Mutual funds - Global equity 785 - - 785

Total investments in equity securities: $ 12,915 $ - $ 290 $ 13,205

Investments in debt securities:

Available-for-sale - Convertible debentures - - 7,008 7,008

Investments carried at fair value on a nonrecurring basis:

Significant Significant

Other Unobservable

Quoted Prices Inputs Inputs

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

Investments carried at fair value on a recurring basis:

Investments in equity securities:

Mutual funds - Global equity 623 - - 623

Total investments in equity securities: $ 13,785 $ - $ 515 $ 14,300

Investments in debt securities:

Available-for-sale - Convertible debentures - - 10,625 10,625

Investments carried at fair value on a nonrecurring basis:

Other investments1 $ - $ - $ 781 $ 781

1. Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates other than June 30, 2023, and 2022. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares.

The securities classified as Level 3 and carried at fair value on a recurring basis in the preceding tables are investments in HIVE, which were warrants and convertible debentures valued at $7.3 million and $11.1 million at June 30, 2023, and 2022, respectively. The Company utilizes an independent third-party to estimate the fair values of the investments in HIVE.

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, 2023:

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

Investments in Investments in

(dollars in thousands) equity securities debt securities

Principal repayments - (3,000 )

Amortization of day one premium - (251 )

Accretion of bifurcation discount - 740

Total unrealized gains (losses) included in:

Net Investment Income (Loss) (225 ) 1,775

Other Comprehensive Loss - (2,881 )

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In January 2021, the Company purchased convertible securities of HIVE, a company that is headquartered 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. Under the original terms, the principal amount of each debenture was convertible into common shares in the capital of HIVE at a conversion rate of $2.34. Each whole warrant, expiring in January 2024, entitled the Company to acquire one common share at a price of $3.00 (Canadian). Under the current terms, which reflect a reverse stock split, the principal amount of each debenture is convertible into common shares in the capital of HIVE at a conversion rate of $11.70. The remaining principal amount is $7.6 million as of June 30, 2023. Each five whole warrants, expiring in January 2024, entitles the Company to acquire one common share at a price of $15.00 (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 Consolidated Balance Sheets, unrealized gain recognized in net investment income (loss), and unrealized gain recognized in other comprehensive income (loss). The investments did not represent ownership in HIVE as of June 30, 2023. The securities are subject to Canadian securities regulations. Frank Holmes serves on the board as executive chairman of HIVE and held shares and options at June 30, 2023. From August 31, 2018, through January 2023, Mr. Holmes was Interim CEO of HIVE.

The Company recorded the warrants at the estimated fair value of $5.9 million on the 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 net investment income (loss) ratably using the effective interest method until maturity, conversion, or other disposition. The fair value of the warrants and debentures was $290,000 and $7.0 million, respectively, at June 30, 2023, and $515,000 and $10.6 million, respectively, at June 30, 2022.

The Company currently considers the related fair value measurements to contain Level 3 inputs. The following is quantitative information as of June 30, 2023, 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 $ 290 Option pricing model Volatility 100.0 %

Risk-Free Rate 5.0 %

Investments in debt securities:

Credit Spread 11.5 %

Risk-Free Rate 4.2 %

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 the current period earnings.

The following details the components of the Company’s equity investments carried at fair value as of June 30, 2023, and 2022.

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

Equity securities at fair value

Equities - Domestic 45 (45 ) -

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

Equity securities at fair value

Equities - Domestic 45 (45 ) -

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 debt 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 in earnings, and the portion of unrealized loss the Company believes is not related to a credit loss is recognized in other comprehensive income.

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The following details the components of the Company’s available-for-sale debt investments at June 30, 2023, and 2022.

1. Changes in unrealized gains and losses are included in the Consolidated Statements of Comprehensive Income, except for embedded derivatives. Changes in unrealized and realized gains and losses for embedded derivatives are included in net investment income (loss) in the Consolidated Statements of Operations.

The following details the components of the Company’s held-to-maturity debt investments at June 30, 2023, and 2022.

Held-to-maturity - Debentures 1 $ 1,000 $ - $ (232 ) $ 768

Held-to-maturity - Debentures 1 $ 1,000 $ - $ (133 ) $ 867

1. Held-to-maturity debt instruments are carried at amortized cost, and the fair value is classified as Level 2 according to the fair value hierarchy.

At June 30, 2023, and 2022, the Company held $1.0 million in one security classified as held-to-maturity. The security had an estimated fair value that was lower than the carrying value by $232,000 at June 30, 2023, and has been in continuous unrealized loss position for longer than 12 months. We have evaluated the unrealized loss on the security at June 30, 2023, and determined it to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuer to meet their obligations.

The following summarizes the net carrying amount and estimated fair value of debt securities at June 30, 2023, 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 Held-to-maturity

debt securities debt securities

Convertible Due after one year

(dollars in thousands) debentures 1 through five years

1. Principal payments of $750,000 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 net 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, which represents an investment in HIVE, at June 30, 2023, and 2022.

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The following table summarizes the fair values of embedded derivatives on the Consolidated Balance Sheets, categorized by risk exposure, at June 30, 2023, and 2022.

Other Assets Other Assets

Embedded Derivatives:

Equity price risk exposure $ 114 $ 3

The following table presents the effect of embedded derivatives on the Consolidated Statements of Operations, categorized by risk exposure, for the years ended June 30, 2023, and 2022.

Year Ended June 30,

Other Income (Loss) Other Income (Loss)

(dollars in thousands) Net Investment Income (Loss) Net Investment Income (Loss)

Embedded Derivatives:

Equity price risk exposure $ 111 $ (2,539 )

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 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 net investment income (loss).

The following table presents the carrying value of equity securities without readily determinable fair values held as of June 30, 2023, and 2022, that are measured under the measurement alternative, and the related adjustments recorded during the periods presented for those securities with observable price changes or impairments. These securities are included in the nonrecurring fair value hierarchy tables when applicable price changes are observable, or when impairments occur.

Year Ended June 30,

Other Investments

Upward carrying value changes $ 14 $ 187

Downward carrying value changes/impairments $ (2,280 ) $ (13 )

The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes. The cumulative amount of upward adjustments to all equity securities without readily determinable fair values total $2.5 million since their respective acquisitions through June 30, 2023. The cumulative amount of impairments and other downward adjustments, which include return of capital distributions and observable price changes, to all equity securities without readily determinable fair values total $3.8 million since their respective acquisitions through June 30, 2023.

The Company has an investment in The Sonar Company (“Sonar”), a company headquartered in the United States, at a cost of $175,000. The investment had a carrying value of approximately $362,000 at June 30, 2023, and 2022. During the year ended June 30, 2022, the Company purchased additional common shares, resulting in an observable price change and upward adjustment for the existing common shares held of approximately $187,000, using the measurement alternative. Roy D. Terracina, Director and Vice Chairman of the Board of Directors for U.S. Global, has served as the CEO of Sonar since July 2021, and the Company’s ownership of Sonar was approximately 2.8 percent as of June 30, 2023.

Investments Classified as Equity Method

The Company had an equity method investment in Galileo New Economy Fund LP (previously known as Galileo Technology and Blockchain LP), a Canadian limited partnership, through its dissolution date, which occurred during the third quarter of fiscal 2022. The Company owned approximately 22 percent of the LP prior to dissolution, and the Company was considered to have the ability to exercise significant influence. Thus, the investment was accounted for under the equity method of accounting. Included in other income (loss) for the year ended June 30, 2022, is $206,000 of equity method loss for this investment. Upon dissolution, the Company received a distribution, which included cash of $85,000, and common shares of an investment held in the LP, which had a fair value of approximately $228,000 when received. Frank Holmes also directly held an investment in the LP and received dissolution proceeds related to his direct investment.

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Net Investment Income (Loss)

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

Year Ended June 30,

Net Investment Income (Loss)

Realized gains (losses) on equity securities $ (453 ) $ 1,848

Realized gains on debt securities 1,664 2,191

Unrealized losses on equity securities (2,563 ) (9,375 )

Unrealized gains (losses) on embedded derivatives 111 (2,539 )

Unrealized losses on cash equivalents (5 ) -

Foreign currency losses, net (236 ) (248 )

Total Net Investment Income (Loss) $ 316 $ (6,174 )

During the years ended June 30, 2023, and 2022, realized gains on debt securities in the amount of $1.7 million and $2.2 million, respectively, were reclassified from other comprehensive income (loss) related to the Company's investment in HIVE debentures. Realized foreign currency gains (losses) for the year ended June 30, 2022, includes $10,000 in foreign currency gains reclassified from other comprehensive income (loss) upon the dissolution of the Galileo New Economy Fund LP, the Company's equity method investment.

The following table presents unrealized gains and losses recognized during the years ended June 30, 2023, and 2022, on equity investments still held at each respective date.

Year Ended June 30,

1. Included $2.3 million for the fiscal year ended June 30, 2023, of net losses as a result of the measurement alternative. There were net gains of $187,000 as a result of the measurement alternative for the year ended June 30, 2022.

Net investment income (loss) can be volatile and varies depending on market fluctuations.

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) (490 ) 20

USGIF administrative services fees 134 189

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 2024. 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 $1.1 million and $667,000 for the years ended June 30, 2023, and 2022, 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.

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, 2023, the Company had $1.1 million in receivables from fund clients, of which $126,000 was from USGIF and $1.0 million from ETFs. As of June 30, 2022, the Company had $1.6 million in receivables from fund clients, of which $188,000 was from USGIF and $1.4 million from ETFs.

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NOTE 6. RESTRICTED AND UNRESTRICTED CASH

The Company maintains its cash deposits with established commercial banks. At times, balances may exceed federally insured limits. We have not experienced any losses in such accounts and do not believe that we are exposed to any significant credit risk associated with our cash deposits. 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 $ 26,401 $ 23,314

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment are composed of the following:

Furniture, equipment, and other 981 987

Accumulated depreciation (4,459 ) (4,223 )

Net property and equipment $ 1,138 $ 1,370

Depreciation expense totaled $243,000 and $226,000 in fiscal years 2023 and 2022, respectively.

NOTE 8. LEASES

The Company has lease agreements for office equipment that expire in the fiscal year 2026. Lease expense included in operating expenses on the Consolidated Statements of Operations totaled $123,000 and $168,000 for the years ended June 30, 2023, and 2022, respectively.

The following table presents the components of lease cost.

Year Ended June 30,

Finance lease cost:

Amortization of right-of-use assets $ 29 $ -

Interest on lease liabilities 4 -

Total finance lease cost 33 -

Operating lease cost - 44

Short-term lease cost 90 124

Supplemental information related to the Company's leases follows.

Year Ended June 30,

Lease liabilities obtained from new ROU assets - operating $ - $ -

Operating cash flows from financing leases included in lease liabilities $ 4 $ -

Lease liabilities obtained from new ROU assets - financing $ - $ 93

Additional qualitative information concerning the Company's leases follows.

Weighted-average remaining lease term - operating leases (years) - -

Weighted-average discount rate - operating leases - -

Weighted-average remaining lease term - financing leases (years) 2.25 3.25

Weighted-average discount rate - financing leases 4.75 % 4.75 %

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The following table presents the maturities of lease liabilities as of June 30, 2023.

(dollars in thousands)

Fiscal Year Finance Leases

Total lease payments 70

Less imputed interest (4 )

The Company is the lessor of certain areas of its owned office building under operating leases expiring in various years through fiscal year 2025. At the commencement of an operation lease, no income is recognized; subsequently, lease payments received are recognized on a straight-line basis. Lease income included in other income on the Consolidated Statements of Operations was $125,000 and $115,000 for fiscal years 2023 and 2022, respectively. The cost of obtaining lessor contracts, which is included in other assets on the Consolidated Balance Sheets, was $4,000 and $9,000 at June 30, 2023, and 2022, respectively.

A summary analysis of annual undiscounted cash flows to be received on leases as of June 30, 2023, is as follows:

(dollars in thousands)

Fiscal Year Operating Leases

Total lease payments $ 78

The Company may terminate the building leases with one hundred eighty days written notice if it sells the property. If the Company terminates the lease, the Company will pay the tenant a termination fee of the lesser of six months of the base monthly rent or the base monthly rent times the number of months remaining in the initial term.

NOTE 9. OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following:

ETF operating and distribution expenses 344 385

Other taxes payable 76 97

NOTE 10. DEBT

The Company has access to a $1.0 million credit facility 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 fiscal years ended June 30, 2023, and 2022. The credit agreement will expire on May 31, 2024, and the Company intends to renew it annually. The credit facility is collateralized by approximately $1.0 million at June 30, 2023, included in restricted cash on the Consolidated Balance Sheets, held in deposit in a money market account at the financial institution that provided the credit facility. As of June 30, 2023, the credit facility remains unutilized by the Company.

NOTE 11. BENEFIT PLANS

The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with the 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 100 percent of participants’ contributions up to the first3 percent of compensation and 50 percent of the next 2 percent of compensation. The Company recorded expenses for contributions to the 401(k) plan of $109,000 and $111,000 for fiscal years 2023 and 2022, respectively.

The 401(k) plan allows for a discretionary profit-sharing contribution by the Company, as authorized by the Board of Directors. The Company made a profit-sharing contribution of $200,000 in fiscal years 2023 and 2022.

U S Global Investors Inc GROW US Equity

GROW · 10-K · period ended 2023-06-30

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

U S Global Investors Inc GROW US Equity☆

GROW · 10-K · period ended 2023-06-30

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

U S Global Investors Inc GROW US Equity