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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 fee adjustments on certain equity fund products may also impact revenues. 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 most countries emerged from the COVID lockdown. The airline industry saw a significant rebound in demand over the past year ending June 30, 2024. However, the recovery has been uneven across different regions and travel segments. While the industry faces challenges like rising costs and operational disruptions, the overall outlook remains positive, with demand continuing to approach or exceed pre-pandemic levels.

It is worth noting that this year has not been without challenges. We find ourselves still grappling with some of 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 realized strength in all eleven sectors, with Communication Services leading the charge with an impressive 43.6 percent increase. The laggard was the Real Estate sector experiencing a 1.9 percent total return. 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 22.7 percent for the trailing twelve months ended June 30, 2024. 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 exchange-traded funds (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 certain exchanges in Europe, The Travel UCITS ETF (ticker TRIP), which concentrates on the travel industry.

Assets in the Jets ETF were $1.2 billion and $1.9 billion at June 30, 2024, and 2023, 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 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. 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.

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, 2024, total AUM as of period end was $1.6 billion compared to $2.4 billion on June 30, 2023, a decrease of $807.7 million, or 34.1 percent. During fiscal year 2024, average AUM was $1.9 billion compared to $2.5 billion in fiscal year 2023, a decrease of 26.9 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 $1.6 million and $1.9 million in fiscal 2024 and fiscal 2023, 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 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 1.00 percent, and are paid monthly. The base advisory fee on the equity funds within USGIF is adjusted upward or downward based on performance. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward. For the years ended June 30, 2024, and 2023, the Company adjusted its base advisory fees downward by $429,000 and $490,000, respectively. USGIF advisory fees in total, including performance adjustments, decreased by approximately $313,000, or 17.7 percent, in fiscal year 2024 compared to fiscal year 2023. This was primarily a result of a decrease in average net assets under management driven by net shareholder redemptions, somewhat offset by a decrease in performance fees paid.

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 2024 and 2023.

(dollars in thousands) Equity Fixed Income Total

Average investment management fee 0.81 % 0.00 % 0.65 %

(dollars in thousands) Equity Fixed Income Total

Average investment management fee 0.80 % 0.00 % 0.65 %

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 2024 and 2023. The average investment management fee for equity funds in fiscal year 2024 and 2023 was 81 basis points and 80 basis points, respectively. The average investment management fee for the fixed income funds was nil for both fiscal years 2024 and 2023 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 ETF clients: 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 U.S.-based 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 2025. The Company also serves as investment advisor to one European-based ETF, The Travel UCITS ETF (ticker TRIP). The Company receives a unitary management fee of 0.69 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 $9.4 million and $13.2 million in fiscal years 2024 and 2023, respectively. Average assets in the ETFs decreased in fiscal year 2024, 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 Travel 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, 2024, and 2023.

(dollars in thousands)

The investments shown above include investments at fair value of $10.5 million and $12.4 million, as of June 30, 2024, and 2023, 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 2024, the Company had net investment income of $2.1 million, compared to $316,000 for fiscal year 2023. 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. (“HIVE”), which were convertible debentures valued at $4.4 million at June 30, 2024, and warrants and convertible debentures valued at $7.3 million at June 30, 2023. 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, 2024, and 2023, the Company owned other investments of approximately $1.7 million and $2.4 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, 2024, Compared with Year Ended June 30, 2023

The Company posted net income, as shown in the Consolidated Statements of Operations, of $1.3 million ($ 0.09 per share) for the year ended June 30, 2024, compared with net income of $3.1 million ($ 0.22 per share) for the year ended June 30, 2023, a decrease of approximately $1.8 million. The change is primarily due to lower operating revenues, partially offset by higher net investment income and lower tax expenses, as discussed further below.

Operating Revenues

Year ended June 30,

$ %

(dollars in thousands) 2024 2023 Change Change

ETF advisory fees:

USGIF advisory fees:

Emerging markets funds - 16 (16 ) (100.0 )%

Bond funds - - - n/a

USGIF administrative services fees 115 134 (19 ) (14.2 )%

Total consolidated operating revenues for the year ended June 30, 2024, decreased $4.1 million, or 27.1 percent, compared with the year ended June 30, 2023. 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: ETF advisory fees and USGIF advisory fees. In fiscal year 2024, these sources accounted for 85.7 percent and 13.2 percent, respectively, of the Company’s operating revenues.

Operating Expenses

Total operating expenses decreased $85,000, or 0.7 percent, compared with the previous fiscal year, as shown below.

Year ended June 30, $ %

(dollars in thousands) 2024 2023 Change Change

Employee compensation and benefits $ 4,802 $ 4,798 $ 4 0.1 %

Other Income (Loss)

Year ended June 30, $ %

(dollars in thousands) 2024 2023 Change Change

Total consolidated other income for the year ended June 30, 2024, was $2.4 million, compared to $558,000 for the year ended June 30, 2023, an increase of $1.8 million, or 329.2 percent. The change was primarily due to the following components and factors:

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Provision for Income Taxes

A tax expense of $582,000 was recorded for the year ended June 30, 2024, compared to $934,000 for the year ended June 30, 2023, a decrease of $352,000, or 37.7 percent. The decrease can be mainly attributed to this year’s operating loss, in contrast to last year’s operating income. This was partially mitigated by an increase in net investment income compared to the previous year. 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, 2024, the Company had net working capital (current assets minus current liabilities) of approximately $38.2 million and a current ratio (current assets divided by current liabilities) of 18.6 to 1. With approximately $27.4 million in cash and cash equivalents and $11.1 million in securities carried at fair value, excluding convertible securities, which together comprise approximately 74.1 percent of total assets, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $49.0 million.

The increase in cash and cash equivalents of $2.0 million, and accordingly, net working capital, was primarily due to proceeds from principal paydowns of $3.0 million, sales of corporate investments of $2.2 million, and net cash provided by operating activities of $1.0 million, offset by $2.2 million for repurchases of common stock, $1.3 million for dividends paid, and purchases of corporate investments of $807,000. Consolidated shareholders’ equity at June 30, 2024, was $49.0 million, a decrease of $3.0 million, or 5.8 percent since June 30, 2023. The decrease was primarily due to repurchases of common stock of $2.2 million, dividends declared of $1.3 million, other comprehensive loss of $764,000, and the impact of ASU 2016-13 adoption of $183,000; offset by net income of $1.3 million for the year ended June 30, 2024.

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, 2026, and the Company intends to renew it biennially. 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, 2024, 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 2025.

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, 2024, but may be suspended or discontinued. Cash and securities recorded at fair value, excluding convertible securities, of approximately $38.5 million are available to fund current activities.

As of June 30, 2024, the Board of Directors has authorized a monthly dividend of $0.0075 per share from July 2024 through September 2024. The total amount of cash dividends to be paid to class A and class C shareholders from July 2024 to September 2024 will be approximately $313,000, which is included as dividends payable in the Consolidated Balance Sheets at June 30, 2024. 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, 2024, the Company had contractual obligations of $665,000 for the fiscal years ending June 30, 2025, 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 the Russia-Ukraine and Israel-Palestine conflicts; adverse market conditions, including cryptocurrency market disruptions; 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. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward.

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 fiscal years ended June 30, 2024, and 2023, the Company realized a decrease in its USGIF base advisory fee of $429,000, and $490,000, respectively, due to these performance adjustments.

Corporate Investments

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

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

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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, 2024, 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, 2024 Change Price Change Net Income (Loss) 1

Embedded derivatives at fair value 2 $ 12 25% increase $ 15 $ 2

25% decrease $ 9 $ (2 )

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

The embedded derivatives shown in the above table, which were valued at $12,000 at June 30, 2024, are related to HIVE Digital Technologies Ltd. HIVE (“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 (loss).

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 sheets of U.S. Global Investors, Inc. and subsidiaries (the “Company”) as of June 30, 2024 and 2023, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended June 30, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, 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 audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Our audits included performing procedures to assess the risks of material misstatement of the 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 audits 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 audits provide 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 4 to the financial statements, the Company’s investment in available-for-sale debt securities at fair value is $4,414 thousand as of June 30, 2024 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 consideration for our determination that the investments in available-for-sale debt securities at fair value is a critical audit matter 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, 2024. 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.

o 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

September 10, 2024

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

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U.S. GLOBAL INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

Assets

Current Assets

Investments in trading securities at fair value, current 9,644 11,642

Other Assets

Investments in trading securities at fair value, non-current 1,449 1,563

Investments in held-to-maturity debt securities at amortized cost 1,000 1,000

Less: Allowance for credit losses (132 ) -

Financing lease, right of use assets 38 65

Other assets, non-current 203 217

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable $ 14 $ 143

Accrued compensation and related costs 609 1,165

Financing lease liability, short-term 31 28

Long-Term Liabilities

Deferred tax liability - 4

Reserve for uncertain tax positions 785 671

Financing lease liability, long-term 8 38

Total Long-Term Liabilities 793 713

Commitments and Contingencies (Note 18)

Shareholders’ Equity

Accumulated other comprehensive income, net of tax 584 1,348

Total Liabilities and Shareholders’ Equity $ 51,963 $ 55,673

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) 2024 2023

Operating Revenues

Administrative services fees 115 134

Operating Expenses

Employee compensation and benefits 4,802 4,798

Interest 3 4

Operating Income (Loss) (480 ) 3,525

Other Income (Loss)

Net investment income (loss) 2,144 316

Income (Loss) Before Income Taxes 1,915 4,083

Provision for Income Taxes

Earnings (Loss) Per Share

Basic Net Income (Loss) per Share $ 0.09 $ 0.22

Diluted Net Income (Loss) per Share $ 0.09 $ 0.22

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 Income (Loss):

Net change from available-for-sale securities (764 ) (2,276 )

Other Comprehensive Income (Loss) (764 ) (2,276 )

Comprehensive Income (Loss) $ 569 $ 873

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

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

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

Net income (loss) - - - - - - - - 3,149 3,149

Dividends declared - - - - - - - - (1,262 ) (1,262 )

Other comprehensive income (loss), net of tax - - - - - - - (764 ) - (764 )

Net income (loss) - - - - - - - - 1,333 1,333

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 (139 ) (246 )

Net recognized (gain) loss on disposal of fixed assets - 3

Net realized (gains) losses on securities 5,705 (1,211 )

Unrealized (gains) losses on securities (5,560 ) 2,452

Investment basis adjustment - (5 )

Reserve for uncertain tax positions 114 117

Provision for deferred taxes 335 (440 )

Allowance for credit losses (100 ) -

Changes in operating assets and liabilities:

Accounts and other receivables 45 359

Prepaid expenses and other assets 53 (82 )

Accounts payable and accrued expenses (796 ) (1,186 )

Total adjustments (343 ) (239 )

Net cash provided by (used in) operating activities 990 2,910

Cash Flows from Investing Activities:

Purchase of property and equipment (213 ) (14 )

Purchase of trading securities at fair value, non-current (234 ) -

Purchase of other investments (573 ) (663 )

Proceeds on sale of trading securities at fair value, current 2,000 350

Proceeds on sale of trading securities at fair value, non-current 180 -

Return of capital on other investments 259 -

Net cash provided by (used in) investing activities 4,419 2,673

Cash Flows from Financing Activities:

Principal payments on financing lease (30 ) (27 )

Issuance of common stock 69 59

Repurchases of common stock (2,172 ) (1,195 )

Net cash provided by (used in) financing activities (3,411 ) (2,496 )

Beginning cash, cash equivalents, and restricted cash 26,401 23,314

Ending cash, cash equivalents, and restricted cash $ 28,399 $ 26,401

Supplemental Disclosures of Non-Cash Investing and Financing Activities

Dividends declared but not paid $ 313 $ 329

Excise tax liability accrued on stock repurchases $ 22 $ -

Unsettled class A common stock repurchases $ 14 $ -

Supplemental Disclosures of Cash Flow Information

Cash paid for income taxes $ 252 $ 1,492

Cash paid for interest $ 3 $ 4

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

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Notes to Consolidated Financial Statements

NOTE 1. IMMATERIAL ADJUSTMENT TO PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

In connection with the preparation of its Consolidated Financial Statements for the fiscal year ended June 30, 2024, the Company determined that its previously issued Consolidated Financial Statements as of and for the fiscal year ended June 30, 2023, 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, 2023.

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”) as of June 30, 2022. The error was corrected in the Company’s Consolidated Financial Statements as of and for the year ended June 30, 2023, through retained earnings as of July 1, 2022. The impact of the correction on the Company’s previously issued Consolidated Financial Statements, as of and for the year ended June 30, 2023, is as follows:

In addition, the 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”) and a European-based ETF.

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.

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 $10.5 million and $12.5 million at June 30, 2024, and 2023, respectively.

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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 $ 9,644 $ 11,642

Investments in equity securities at fair value, non-current 806 785

Other receivables 28 45

Total VIE assets, maximum exposure to loss $ 10,478 $ 12,472

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.

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

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

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

Investments. 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).

Investments in Debt Securities. The Company classifies debt investments based on the Company’s intent to sell the security or its intent and ability to hold the debt security 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. Held-to-maturity debt securities are purchased with the intent and ability to hold until maturity and are measured at amortized cost. All other debt securities are classified as available-for-sale and 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 a result of credit loss, 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). Both available-for-sale and held-to-maturity debt securities are subject to an allowance for credit losses.

Allowance for Credit Losses (Held-to-Maturity Debt Securities). For held-to-maturity debt securities, the Company is required to utilize the CECL methodology to estimate expected credit losses. Securities are evaluated on an individual basis. The individual assessment and determination of expected credit losses is generally based on the discounted cash flow method. Under the discounted cash flow method, the allowance for credit losses reflects the difference between the amortized cost basis and the present value of the expected cash flows. The Company adjusts the discount rate utilized to determine the present value of the expected cash flows quarterly for subsequent fluctuations in market interest rates. Changes in the present value attributable to the passage of time are those solely due to changes in the present value of the expected cash flows as the instrument approaches maturity rather than expectations of cash flow timing or amounts and are included in interest income within net investment income (loss) on the Consolidated Statements of Operations. Changes in the allowance attributable to expectations of cash flow timing or amounts are recorded as a provision (or release) for credit losses and are included within other income (loss) on the Consolidated Statements of Operations. Held-to-maturity debt securities, or portions thereof, are charged against the allowance when management believes the uncollectible status of a held-to-maturity security is confirmed. Accrued interest receivable, if any, is included within accounts and other receivables on the Consolidated Balance Sheets. Accrued interest receivable is excluded from the allowance for credit losses. For more information about held-to-maturity debt securities, see Note 4, Investments.

Allowance for Credit Losses (Available-for-Sale Debt Securities). The impairment model for available-for-sale debt securities differs from the CECL methodology applied for held-to-maturity debt securities because available-for-sale debt securities are measured at fair value rather than amortized cost. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through earnings. For available-for-sale debt securities where neither of the criteria is met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses and are included within other income (loss) on the Consolidated Statements of Operations. Losses are charged against the allowance when management believes the uncollectible status of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable, if any, is included within accounts and other receivables on the Consolidated Balance Sheets. Accrued interest receivable is excluded from the allowance for credit losses. See Note 4, Investments, for more information about available-for-sale debt securities.

Credit Quality Indicators. The Company monitors the credit quality of debt securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying organization.

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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, and changes in the fair value are recorded through earnings within net investment income (loss) on the Consolidated Statements of Operations and included as an adjustment to reconcile net income (loss) to net cash provided by operating activities on the Consolidated Statements of Cash Flows. 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 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.

Receivables and Allowance for Credit Losses. Receivables consist primarily of advisory and other fees owed to the Company by clients. The Company records an expense based on a forward-looking current expected credit loss model to maintain an allowance for credit losses. When determining the allowance for receivables, the probability of recoverability of the receivable based on past experience, taking into account current collection trends and general economic factors, including bankruptcy rates, is considered. The Company also considers future economic trends to estimate expected credit losses over the lifetime of the asset. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcies. Due to the short-term nature, the Company had no allowance for credit losses related to receivables as of as of June 30, 2024, or 2023.

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.

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.

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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. Debt investments are placed on a non-accrual status when they are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a debt investment is placed on a non-accrual status, any interest accrued but not received is reversed against interest income. Any discount between the cost and the principal amount of debt investments is amortized to interest income using the effective interest method. When the discounted cash flow method is utilized to estimate expected credit losses for held-to-maturity debt securities, any changes in the allowance for credit losses that are attributable to the passage of time are recognized in interest income. Both dividends and interest income are included within net investment income (loss) on the Consolidated Statements of Operations.

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.

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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Adoption of New Accounting Standard

In June 2016, the Financial Accounting Standards Board ("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, or "CECL") that is based on expected losses rather than incurred losses for most financial assets and certain other instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. It also modifies the impairment model for available-for-sale debt securities; the concept of "other-than-temporary" impairment was replaced by a determination of whether any impairment is a result of a credit loss or other factors. To adopt the standard, entities are required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. The Company adopted the standard using the modified-retrospective approach for all financial assets measured at amortized cost on July 1, 2023, and recognized an initial allowance for credit losses of $232,000 for one held-to-maturity debt security. The cumulative-effect adjustment to beginning retained earnings, net of the related tax effect, was a decrease of $183,000.

Recent Accounting Pronouncements and Developments

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.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances the disclosures required for reportable segments in annual and interim consolidated financial statements, including additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2023-07 on its Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures. ASU 2023-09 will be effective for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of the pending adoption of ASU 2023-09 on its Consolidated Financial Statements.

NOTE 4. INVESTMENTS

As of June 30, 2024, the Company held investments carried at fair value on a recurring basis of $15.5 million and a cost basis of $18.0 million. The fair value of these investments is approximately 29.8 percent of the Company’s total assets at June 30, 2024. In addition, the Company held other investments of approximately $1.7 million, and held-to-maturity debt investments, net of allowance for credit losses, of $868,000.

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 $10.5 million and $12.4 million as of June 30, 2024, and 2023, respectively, and investments in HIVE Digital Technologies Ltd., (“HIVE”), which included convertible debentures valued at $4.4 million as of June 30, 2024, and included convertible debentures and common share purchase warrants valued at $7.3 million as of June 30, 2023. 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.

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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.

Additionally, the reliance on third-party pricing services adds another layer of uncertainty, as these services use proprietary models and methodologies that incorporate both observable and unobservable inputs. While we review and validate the inputs used by these pricing services, there is no guarantee that the fair values provided fully reflect the prices at which the instruments could be sold in an orderly transaction between market participants at the measurement date.

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.

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, 2024, and 2023, 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 trading securities:

Equity securities:

Equities - International $ 435 $ - $ - $ 435

Mutual funds - Fixed income 9,644 - - 9,644

Mutual funds - Global equity 806 - - 806

Debt securities:

Corporate debt securities 208 - - 208

Total investments in trading securities: 11,093 - - 11,093

Investments in available-for-sale debt securities:

Corporate debt securities - Convertible debentures - - 4,414 4,414

Investments carried at fair value on a nonrecurring basis:

Other investments (1) $ - $ - $ 600 $ 600

1. Fair value information is not as of June 30, 2024. Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative during the year ended June 30, 2024. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares.

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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 trading securities:

Equity securities:

Equities - International $ 488 $ - $ 290 $ 778

Mutual funds - Global equity 785 - - 785

Debt securities:

Corporate debt securities - - - -

Investments in available-for-sale debt securities:

Corporate debt securities - Convertible debentures - - 7,008 7,008

Investments carried at fair value on a nonrecurring basis:

1. Fair value information is not as of June 30, 2023. Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative during the year ended June 30, 2023. 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, a company that is headquartered in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada. The Company purchased convertible securities of HIVE for $15.0 million in January 2021. The convertible securities were 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, and each whole warrant, which expired in January 2024, entitled the Company to acquire one common share. 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 $4.6 million as of June 30, 2024. 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, 2024. 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, 2024. From August 31, 2018, through January 2023, Mr. Holmes was Interim CEO of HIVE.

The Company recorded the debentures 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 debentures was $4.4 million and $7.0 million at June 30, 2024, and June 30, 2023, respectively. The warrants were recorded at the estimated fair value of $5.9 million on the purchase date, and the fair value was $290,000 at June 30, 2023. Upon expiration in January 2024, a realized loss of $5.9 million was recognized in net investment income (loss).

The Company utilizes an independent third-party to estimate the fair values of the HIVE convertible investments and currently considers the fair value measurements to contain Level 3 inputs. 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, 2024:

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 - (172 )

Accretion of bifurcation discount - 507

Total gains or losses included in:

Net Investment Income (Loss) (290 ) 1,038

Other Comprehensive Income (Loss) - (967 )

Ending Balance $ - $ 4,414

The total gains or losses shown in the table above include $102,000 in unrealized losses recognized in net investment income (loss) and $172,000 in unrealized gains recognized in other comprehensive income (loss) for investments still held as of June 30, 2024.

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The fair value measurements of certain financial instruments categorized within Level 3 involve significant unobservable inputs, which inherently introduce a degree of uncertainty. These inputs may include assumptions about future market conditions, liquidity, and credit risk, which are not directly observable in the market. Given these factors, the fair value measurements of Level 3 financial instruments are subject to a higher degree of estimation uncertainty, and actual results could differ significantly from the estimates provided. Additionally, the reliance on third-party pricing services adds another layer of uncertainty, as these services use proprietary models and methodologies that incorporate both observable and unobservable inputs. While we review the methodologies and inputs used by these pricing services, there is no guarantee that the fair values provided fully reflect the prices at which the instruments could be sold in an orderly transaction between market participants at the measurement date.

The following is quantitative information as of June 30, 2024, 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 available-for-sale debt securities:

Credit Spread 8.2 %

Risk-Free Rate 4.1 %

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 available-for-sale debt securities:

Credit Spread 11.5 %

Risk-Free Rate 4.2 %

Investments in Trading Securities at Fair Value

Investments in trading 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 trading securities carried at fair value as of June 30, 2024, and 2023.

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

Trading securities at fair value

Equity securities:

Equities - Domestic 45 (45 ) -

Debt securities:

Corporate debt securities 215 (7 ) 208

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

Trading securities at fair value

Equity securities:

Equities - Domestic 45 (45 ) -

Debt securities:

Corporate debt securities - - -

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Debt Investments

Investments in debt securities are classified on the acquisition dates and at each balance sheet date. Securities classified as held-to-maturity are carried at amortized cost, net of allowance for credit losses, 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 (loss).

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 below. The Company held one financial instrument containing an embedded derivative, which represents an investment in HIVE, at June 30, 2024, and 2023. The security has been in a continuous unrealized loss position for longer than 12 months. We evaluated the unrealized loss position in the available-for-sale security as of June 30, 2024, and determined the unrealized loss was related to changes in the fair value of the embedded derivatives and not the result of credit losses; therefore, an allowance for credit losses was not recorded.

The following details the components of the Company’s available-for-sale debt investments at June 30, 2024, and 2023.

Available-for-sale debt securities:

1. Represents changes in unrealized gains and losses related to embedded derivatives included in net investment income (loss) in the Consolidated Statements of Operations.

The following table summarizes the fair values of embedded derivatives on the Consolidated Balance Sheets, categorized by risk exposure, at June 30, 2024, and 2023.

Other Assets Other Assets

Embedded Derivatives:

Equity price risk exposure $ 12 $ 114

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, 2024, and 2023.

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 $ (102 ) $ 111

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At June 30, 2024, and 2023, the Company held one security classified as held-to-maturity. The following details the components of the Company’s held-to-maturity debt investment at June 30, 2024, and 2023.

Held-to-maturity debt securities (1):

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

On July 1, 2023, the Company adopted ASU 2016-13, which replaced the incurred loss methodology for determining our allowance for credit losses and related provision for credit losses with an expected loss methodology that is referred to as the Current Expected Credit Losses ("CECL") model. CECL is a significant accounting estimate used in the preparation of the Company's Consolidated Financial Statements. Upon adoption of ASU 2016-13, the Company replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. CECL is a valuation account that is deducted from the amortized cost basis of held-to-maturity debt securities to present the net amount expected to be collected on the securities. Held-to-maturity debt securities, or portions thereof, are charged against the allowance when they are deemed uncollectible. Arriving at an appropriate level of credit losses involves a high degree of judgment. While management uses available information to recognize losses, changing economic conditions and the economic prospects of the issuers may necessitate future additions or reductions to the allowance.

The Company monitors the credit quality of debt securities through credit ratings from various rating agencies. Credit ratings express opinions about the credit quality of a security and are utilized by the Company to make informed decisions. Investment grade securities are rated BBB-/Baa3 or higher and generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade are considered to have distinctively higher credit risk than investment grade securities. For securities without credit ratings, the Company utilizes other financial information indicating the financial health of the underlying organization. As of June 30, 2024, and 2023, the held-to-maturity debt investment held by the Company did not have a credit rating.

Since the held-to-maturity debt security does not have a credit rating, management has determined that the discounted cash flow method provides the best basis for its assessment and determination of expected credit losses. The Company has elected to reflect the change in the allowance solely attributable to the passage of time in interest income. Changes attributable to the passage of time are those solely due to changes in the present value of the expected cash flows as the instrument approaches maturity rather than expectations of cash flow timing or amounts. Since the adoption of ASU 2016-13 on July 1, 2023, and through June 30, 2024, the change in allowance for credit losses attributable to the passage of time was $100,000 and included as an increase in interest income within net investment income (loss) on the Consolidated Statements of Operations.

The following table presents the activity in the allowance for credit losses for the held-to-maturity debt investment. There was no allowance at June 30, 2023.

Year Ended

(dollars in thousands) June 30, 2024

Beginning Balance, prior to adoption of ASU 2016-13 $ -

Provision for credit losses - reversal (1) (100 )

Ending Balance $ 132

1. Represents the change in present value attributable to the passage of time included in interest income.

The following summarizes the net carrying amount and estimated fair value of debt securities at June 30, 2024, 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.

As of June 30, 2024, none of the Company's investments in debt securities were delinquent or in a non-accrual status, and accrued interest receivable of $13,000 is included in accounts and other receivables on the Consolidated Balance Sheets as of June 30, 2024, and 2023.

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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, 2024, and 2023, 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

Downward carrying value changes/impairments $ (1,274 ) $ (2,280 )

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, 2024. 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 $5.0 million since their respective acquisitions through June 30, 2024.

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, 2024, and 2023. 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, 2024.

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 $ (6,845 ) $ (453 )

Realized gains (losses) on debt securities 1,140 1,664

Unrealized gains (losses) on equity securities 5,669 (2,563 )

Unrealized gains (losses) on debt securities (7 ) -

Unrealized gains (losses) on embedded derivatives (102 ) 111

Unrealized gains (losses) on cash equivalents (1 ) (5 )

Realized foreign currency gains (losses) (121 ) (236 )

Total Net Investment Income (Loss) $ 2,144 $ 316

During the years ended June 30, 2024, and 2023, realized gains on debt securities in the amount of $1.1 million and $1.7 million, respectively, were reclassified from other comprehensive income (loss) related to the Company's investment in HIVE debentures. A significant amount of the realized loss on equity securities shown above was related to the Company’s investment in warrants of HIVE. The warrants were recorded at the estimated fair value of $5.9 million on the purchase date, and upon expiration in January 2024, a realized loss of $5.9 million was recognized, resulting in an increase to unrealized gains (losses) on equity securities of the same amount.

The following table presents unrealized gains and losses recognized during the years ended June 30, 2024, and 2023, on equity investments still held at each respective date.

Year Ended June 30,

Unrealized gains and losses for securities held at the reporting date:

Equity securities:

Net gains and losses recognized during the period $ (1,176 ) (3,016 )

Debt securities classified as trading:

Net gains and losses recognized during the period $ (7 ) -

1. Includes net unrealized and realized losses as a result of the measurement alternative of $1.0 million and $2.3 million for the fiscal years ended June 30, 2024, and 2023, respectively.

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

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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) (429 ) (490 )

USGIF administrative services fees 115 134

The Company serves as investment advisor to three U.S.-based ETF clients: 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 of the ETFs and has agreed to bear all expenses of the U.S.-based ETFs, except the U.S. Global Sea to Sky Cargo ETF ("SEA"). The Company has agreed to contractually limit the expenses of SEA through April 2025. The aggregate fees waived, and expenses borne by the Company for SEA were $147,000 and $105,000 for the years ended June 30, 2024, and 2023, respectively. The Company also serves as investment advisor to one European-based ETF, The Travel UCITS ETF (ticker TRIP). The U.S. Global Jets UCITS ETF merged into The Travel UCITS ETF in April 2024. The Company receives a unitary management fee of 0.69 percent of average net assets and has agreed to bear all expenses of the ETF.

The Company serves as investment adviser to USGIF and receives advisory fees comprised of two components: a base management fee and a performance fee. The management fee is based on a specified percentage of net assets under management. 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. This performance adjustment began to be phased out during the fourth quarter of fiscal 2024 and will cease during the fourth quarter of fiscal 2025. During the phase-out period, the adjustment for the performance fee can only be adjusted downward.

The Company has agreed to contractually limit the expenses of the Near-Term Tax Free Fund and the Global Luxury Goods Fund through April 2025. The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on the remaining 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 $840,000 and $1.1 million for the years ended June 30, 2024, and 2023, 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, 2024, the Company had $772,000 in receivables from fund clients, of which $647,000 was from the ETFs and $125,000 was from USGIF. As of June 30, 2023, the Company had $1.1 million in receivables from fund clients, of which $1.0 million was from the ETFs and $126,000 was from USGIF. There was no allowance for credit losses related to receivables as of June 30, 2024, or June 30, 2023.

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 $ 28,399 $ 26,401

NOTE 7. PROPERTY AND EQUIPMENT

Property and equipment are composed of the following:

Furniture, equipment, and other 1,130 981

Accumulated depreciation (4,645 ) (4,459 )

Net property and equipment $ 1,154 $ 1,138

Depreciation expense totaled $196,000 and $243,000 in fiscal years 2024 and 2023, respectively.

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NOTE 8. LEASES

The Company has lease agreements for office equipment that expire in the fiscal year 2026. Lease expense included in general and administrative expense on the Consolidated Statements of Operations totaled $133,000 and $119,000 for the years ended June 30, 2024, and 2023, respectively.

The following table presents the components of lease cost.

Year Ended June 30,

Finance lease cost:

Amortization of right-of-use assets $ 30 $ 29

Interest on lease liabilities 3 4

Total finance lease cost 33 33

Operating lease cost - -

Short-term lease cost 103 90

Supplemental information related to the Company's leases follows.

Year Ended June 30,

Operating cash flows from financing leases included in lease liabilities $ 3 $ 4

Additional qualitative information concerning the Company's leases follows.

Weighted-average remaining lease term - financing leases (years) 1.25 2.25

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

The following table presents the maturities of lease liabilities as of June 30, 2024.

(dollars in thousands)

Fiscal Year Finance Leases

Total lease payments 40

Less imputed interest (1 )

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 $101,000 and $125,000 for fiscal years 2024 and 2023, respectively. The cost of obtaining lessor contracts, which is included in other assets on the Consolidated Balance Sheets, was $2,000 and $4,000 at June 30, 2024, and 2023, respectively.

A summary analysis of annual undiscounted cash flows to be received on leases as of June 30, 2024, is as follows:

(dollars in thousands)

Fiscal Year Operating Leases

Total lease payments $ 36

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. As of June 30, 2024, the cost of the building is $1.7 million, and the accumulated depreciation is $1.6 million. As of June 30, 2023, the cost of the building is $1.6 million, and the accumulated depreciation is $1.6 million. The building is depreciated using the straight-line method over 40 years.

NOTE 9. OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following:

ETF operating and distribution expenses 365 344

Other taxes payable 79 76

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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, 2024, and 2023. The credit agreement will expire on May 31, 2026, and the Company intends to renew it biennially. The credit facility is collateralized by approximately $1.0 million at June 30, 2024, 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, 2024, 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 $121,000 and $109,000 for fiscal years 2024 and 2023, 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 $100,000 and $200,000 in fiscal years 2024 and 2023, respectively.

The Company offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company. Employees may contribute to an IRA, and the Company matches these contributions on a limited basis. A similar savings plan utilizing Uniform Gifts to Minors Act (“UGMA”) accounts is offered to employees to save for their minor relatives. The Company match, reflected in base salary expense, aggregated in all programs to $12,000 in fiscal years 2024 and 2023.

The Company has an Employee Stock Purchase Plan whereby eligible employees can purchase treasury shares at market price. During fiscal years 2024 and 2023, employees purchased 24,460 and 19,981, respectively, shares of treasury stock from the Company. The Company matches these contributions on a limited basis. The Company match, reflected in base salary expense, was $49,000 and $42,000 in fiscal years 2024, and 2023, respectively.

NOTE 12. SHAREHOLDERS’ EQUITY

The Company has three classes of common equity: class A, class B, and class C common stock. The Company’s class A common stock is traded over-the-counter and is quoted daily under NASDAQ’s Capital Markets under the symbol “GROW.” There is no established public trading market for the Company’s class B and class C common stock. There are no shares of class B stock issued as of June 30, 2024, or 2023.

The shareholders of class C common stock have voting rights, and the shareholders of class A and class B common stock have no voting rights. Shareholders of class C common stock are allowed to convert to class A common stock. During fiscal year 2024, and 2023, no shares were converted from class C to class A. Conversions are one class A share for one class C share and are recorded at par value. There are no restrictions or requirements to convert.

Dividends

U S Global Investors Inc GROW US Equity

GROW · 10-K · period ended 2024-06-30

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 2024-06-30

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