# U S Global Investors Inc: Form 10-Q for the period ended Mar 31, 2024

- Company: [U S Global Investors Inc](/companies/grow.md) (CIK 754811)
- Form: 10-Q
- Filed: 2024-05-09
- Accepted by EDGAR: May 9, 2024, 16:21 ET
- Period: 2024-03-31
- Accession: 0001437749-24-015690
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/754811/000143774924015690/usglobal20240331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/754811/000143774924015690/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $2.6m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-07-01 to 2024-03-31 | $8.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$488.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-07-01 to 2024-03-31 | −$82.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $1.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-07-01 to 2024-03-31 | $2.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $75.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-07-01 to 2024-03-31 | $446.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$35.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-07-01 to 2024-03-31 | $1.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-07-01 to 2024-03-31 | $0.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.00 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-07-01 to 2024-03-31 | $0.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 14,077,042 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-07-01 to 2024-03-31 | 14,278,777 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-07-01 to 2024-03-31 | $853.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-07-01 to 2024-03-31 | $179.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-07-01 to 2024-03-31 | $965.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-07-01 to 2024-03-31 | $1.7m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $27.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $40.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $52.8m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $2.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $2.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $49.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,241 characters.

*U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has made forward-looking statements concerning the Company’s performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company’s control, including: (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, including significant economic disruptions from COVID-19 or other epidemics, pandemics or outbreaks and the actions taken in connection therewith, (iii) the effect of government regulation on the Company’s business, and (iv) market, credit, and liquidity risks associated with the Company’s investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.*

### FACTORS AFFECTING OUR BUSINESS

The rapid spread of COVID-19 and actions taken in response had a significant detrimental effect on 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. If this macro-economic risk persists, it could have an adverse material financial impact on the Company’s business and investments, including a material reduction in its results of operations.

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

Market volatility in the prices of digital assets has been elevated due to a variety of factors, including, but not limited to, the macroeconomic environment (high inflation and rising interest rates) as well as the ‘crypto credit crisis of 2022’ brought on by the collapse and bankruptcy of a number of key players in the sector (cryptocurrency Luna collapse, hedge fund Three Arrows Capital default on loans and filing for bankruptcy, crypto-lending platform Celsius freezing all withdraws, cryptocurrency lender Voyager Digital filing for bankruptcy, crypto platform FTX filing for bankruptcy, crypto platform BlockFi filing for bankruptcy among others). The Company did not have direct exposure to any of the foregoing firms affected by the crypto credit crisis of 2022. Although the Company has no current intention of directly investing in cryptocurrencies, the Company has indirect exposure to cryptocurrencies by investing in securities of issuers with exposure to the cryptocurrency industry. There has been significant volatility in the market price of the securities, which has had a material impact, and may continue to have a material impact, on the investment values included on the Consolidated Balance Sheets and unrealized gain (loss) recognized in net investment income.

### BUSINESS SEGMENTS

The Company, with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position.

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

### Investment Management Services

The Company provides advisory services for three U.S.-based exchange-traded fund (“ETF”) clients and receives monthly advisory fees based on the net asset values of the funds. Information on the U.S.-based ETFs can be found at www.usglobaletfs.com, including the prospectus, performance and holdings. The Company also serves as investment advisor to one European-based ETF and receives a monthly advisory fee based on the net asset value of the fund. The European-based ETF is not available to U.S. investors. 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 Company also generates operating revenues from managing and servicing U.S. Global Investors Funds (“USGIF” or the “Funds”). These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the asset levels of the Funds, thereby affecting income and results of operations. Detailed information regarding the Funds managed by the Company within USGIF can be found on the Company’s website, www.usfunds.com, including the prospectus and performance information for each Fund. The mutual fund shareholders in USGIF are not required to give advance notice prior to redemption of shares in the Funds.

At March 31, 2024, total assets under management, including ETF and USGIF clients, were approximately $1.7 billion versus $2.3 billion at March 31, 2023, a decrease of $0.5 billion. During the nine months ended March 31, 2024, average assets under management, including ETF and USGIF clients, were $1.9 billion, versus $2.6 billion during the nine months ended March 31, 2023. At June 30, 2023, the Company’s prior fiscal year end, total assets under management, including ETF and USGIF clients, were approximately $2.4 billion, and decreased $0.6 billion during the nine months ended March 31, 2024.

The following tables summarize the changes in assets under management for USGIF for the three and nine months ended March 31, 2024, and 2023.

*(dollars in thousands)*

|  | Changes in Assets Under Management Three Months Ended March 31, 2024 Equity | Fixed Income | Total | 2023 Equity | Fixed Income | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning Balance | $233,187 | $56,722 | $289,909 | $278,037 | $64,995 | $343,032 |
| Market appreciation (depreciation) | 6,985 | 242 | 7,227 | 18,763 | 542 | 19,305 |
| Dividends and distributions | - | (480) | (480) | - | (394) | (394) |
| Net shareholder purchases (redemptions) | (10,728) | 334 | (10,394) | (5,889) | (3,042) | (8,931) |
| Ending Balance | $229,444 | $56,818 | $286,262 | $290,911 | $62,101 | $353,012 |
| Average investment management fee | 0.81% | 0.00% | 0.64% | 0.79% | 0.00% | 0.65% |
| Average net assets | $219,813 | $57,103 | $276,916 | $289,682 | $63,337 | $353,019 |

*(dollars in thousands)*

|  | Changes in Assets Under Management Nine Months Ended March 31, 2024 Equity | Fixed Income | Total | 2023 Equity | Fixed Income | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Beginning Balance | $265,329 | $63,110 | $328,439 | $286,367 | $71,161 | $357,528 |
| Market appreciation (depreciation) | 3,781 | 1,618 | 5,399 | 22,292 | 323 | 22,615 |
| Dividends and distributions | (2,235) | (1,517) | (3,752) | (11,329) | (931) | (12,260) |
| Net shareholder purchases (redemptions) | (37,431) | (6,393) | (43,824) | (6,419) | (8,452) | (14,871) |
| Ending Balance | $229,444 | $56,818 | $286,262 | $290,911 | $62,101 | $353,012 |
| Average investment management fee | 0.81% | 0.00% | 0.64% | 0.81% | 0.00% | 0.65% |
| Average net assets | $231,059 | $58,926 | $289,985 | $281,745 | $65,978 | $347,723 |

As shown above, USGIF period-end assets under management were lower at March 31, 2024, compared to March 31, 2023. Average net assets for the three and nine months in the current fiscal year were lower than the same periods in the previous fiscal year.

USGIF period-end assets under management decreased during the nine months ended March 31, 2024, and 2023, decreased during the three months ended March 31, 2024, and increased during the three months ended March 31, 2023. During the nine months ended March 31, 2024, the decrease was primarily due to redemptions, primarily driven by equity fund liquidations. The increase during the three months ended March 31, 2023, was primarily due to market appreciation.

The average annualized investment management fee rate (total advisory fees, excluding performance fees, as a percentage of average assets under management) was 64 basis points for the three and nine months ended March 31, 2024, and 65 basis points for the three and nine months ended March 31, 2023. The average investment management fee for the equity funds was 81 basis points for the three and nine months ended March 31, 2024, and 79 basis points and 81 basis points for the three and nine months ended March 31, 2023, respectively. The Company has agreed to contractually or voluntarily limit the expenses of the Funds. Therefore, the Company waived or reduced its fees and/or agreed to pay expenses of the Funds. Due to fee waivers, the average investment management fee for the fixed income funds was minimal. Additionally, due to fee waivers, the equity fund liquidations did not have a significant impact of decreasing the average investment management fee rate for the equity funds.

### Investment Activities

Management believes it can more effectively manage the Company’s cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. 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. This source of revenue does not remain consistent and is dependent on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions.

As of March 31, 2024, the Company held investments carried at fair value of $16.7 million and a cost basis of $18.9 million. The fair value of these investments is approximately 31.6 percent of the Company’s total assets at March 31, 2024. In addition, the Company held other investments of approximately $1.1 million and held-to-maturity debt investments, net of allowance for credit losses, of $843,000.

Investments recorded at fair value on a recurring basis were approximately $16.7 million at March 31, 2024, compared to approximately $20.2 million at June 30, 2023, the Company’s prior fiscal year end, which is a decrease of approximately $3.5 million. See Note 3, Investments, in the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q, for further information regarding investment activities.

**RESULTS OF OPERATIONS – Three months ended March 31, 2024, and 2023**

The Company recorded a net loss of $35,000 ($(0) per share) for the three months ended March 31, 2024, compared to net income of $1.6 million ($0.11 per share) for the three months ended March 31, 2023, a change of approximately $1.7 million. The change is primarily due to a decrease in operating revenues and net investment income compared to the same period in the prior year, as discussed further below.

### Operating Revenues

Total consolidated operating revenues for the three months ended March 31, 2024, decreased $1.0 million, or 28.4 percent, compared with the three months ended March 31, 2023. This decrease was primarily attributable to the following:

- Advisory fees decreased by $1.0 million, or 28.5 percent, primarily as a result of lower average assets under management in the ETFs and a decrease in base management fees received. Advisory fees are comprised of two components: base management fees and performance fees.
- Base management fees decreased $1.0 million. The majority of this decrease was from ETF unitary management fees, which decreased $918,000 as the result of a decrease in ETF average assets under management, primarily for the Jets ETF.
- Performance fees for USGIF paid in the current period were $101,000 compared to $109,000 in the corresponding period in the prior year. The performance fee, which applies to the USGIF equity funds only, 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.

### Operating Expenses

Total consolidated operating expenses for the three months ended March 31, 2024, increased $187,000, or 6.5 percent, compared with the three months ended March 31, 2023. The increase in operating expenses was primarily attributable to an increase in general and administrative expenses of $256,000, or 17.3 percent, somewhat offset by a decrease in employee compensation of $55,000, or 4.4 percent. The increase in general and administrative expenses are primarily due to increases in USGIF expenses related to a performance fee elimination proxy; and increases in ETF expenses related to merging the European-based ETF, the U.S. Global Jets UCITS ETF, into the Travel UCITS ETF (TRIP).

### Other Income (Loss)

Total consolidated other income for the three months ended March 31, 2024, was $528,000, compared to $1.2 million for the three months ended March 31, 2023, a decrease of approximately $688,000. This decrease was primarily due to the following factors:

- Net investment income was $460,000 for the three months ended March 31, 2024, compared to $1.2 million for the prior period, a decrease of $695,000. This decrease in net investment income is comprised of net realized and unrealized losses on equity securities of $231,000 in the current period compared to net realized and unrealized gains on equity securities of $270,000 in the same quarter in the prior year, an unfavorable change of $501,000; and a decrease in realized gains on debt securities of $127,000 compared to the prior period.

### Provision for Income Taxes

A tax expense of $75,000 was recorded for the three months ended March 31, 2024, compared to $326,000 for the three months ended March 31, 2023, a decrease of $251,000. The decrease was primarily the result of an operating loss in the current period compared to operating income in the same period in the prior year, and lower net investment income (loss) in the current period compared to the same period in the prior year.

**RESULTS OF OPERATIONS – Nine months ended March 31, 2024, and 2023**

The Company recorded net income of $1.0 million ($0.07 per share) for the nine months ended March 31, 2024, compared to net income of $2.5 million ($0.17 per share) for the nine months ended March 31, 2023, a decrease of approximately $1.5 million. The decrease is primarily due to a decrease in operating revenues compared to the same period in the prior year, somewhat offset by net investment income in the current period compared to net investment losses in same period in the prior year, as discussed further below.

### Operating Revenues

Total consolidated operating revenues for the nine months ended March 31, 2024, decreased $3.2 million, or 27.4 percent, compared with the nine months ended March 31, 2023. This decrease was primarily attributable to the following:

- Advisory fees decreased by $3.2 million, or 27.5 percent, primarily as a result of lower average assets under management in the ETFs and a decrease in base management fees received. Advisory fees are comprised of two components: base management fees and performance fees.
- Base management fees decreased $3.3 million. The majority of this decrease was from ETF unitary management fees, which decreased $3.0 million as the result of a decrease in ETF average assets under management, primarily for the Jets ETF.
- Performance fees for USGIF paid in the current period were $344,000 compared to $390,000 in the corresponding period in the prior year. The performance fee, which applies to the USGIF equity funds only, 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.

### Operating Expenses

Total consolidated operating expenses for the nine months ended March 31, 2024, increased $85,000, or 1.0 percent, compared with the nine months ended March 31, 2023. The increase in operating expenses was primarily attributable to an increase in general and administrative expenses of $236,000, or 5.3 percent, partially offset by a decrease in employee compensation of $124,000, or 3.5 percent. The increase in general and administrative expenses are primarily due to increases in USGIF expenses related to a performance fee elimination proxy; and increases in ETF expenses related to merging the European-based ETF, the U.S. Global Jets UCITS ETF, into the Travel UCITS ETF (TRIP).

### Other Income (Loss)

Total consolidated other income for the nine months ended March 31, 2024, was $1.5 million, compared to a loss of $5,000 for the nine months ended March 31, 2023, a change of approximately $1.6 million. This change was primarily due to the following factors:

- Net investment income was $1.4 million for the nine months ended March 31, 2024, compared to a loss of $189,000 for the prior period, a change of $1.6 million. This change in net investment income is primarily attributable to net realized and unrealized losses on equity securities of $1.1 million in the current period, compared to $2.6 million in the comparable period, a favorable change of $1.5 million.

### Provision for Income Taxes

A tax expense of $446,000 was recorded for the nine months ended March 31, 2024, compared to $698,000 for the nine months ended March 31, 2023, a decrease of $252,000. The decrease was primarily the result of an operating loss in the current period compared to operating income in the same period in the prior year, partially offset by higher net investment income (loss) in the current period compared to the same period in the prior year.

### LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2024, the Company had net working capital (current assets minus current liabilities) of approximately $38.6 million, an increase of $1.2 million, or 3.1 percent, since June 30, 2023, and a current ratio (current assets divided by current liabilities) of 17.5 to 1. With approximately $27.5 million in cash and cash equivalents, an increase of $2.1 million, or 8.1 percent since June 30, 2023, and $11.5 million in securities carried at fair value on a recurring basis, excluding convertible securities, which together comprise approximately 73.8 percent of total assets, the Company has adequate liquidity to meet its current obligations.

The increase in cash, and accordingly, net working capital, was primarily due to net cash provided by operating activities of $853,000, proceeds from principal paydowns of $2.3 million, and proceeds from sales of corporate investments of $1.8 million; offset by repurchases of the Company's common stock of $1.7 million, and dividends paid of $965,000. Consolidated shareholders’ equity at March 31, 2024, was $49.8 million, a decrease of $2.4 million, or 4.5 percent since June 30, 2023. The decrease was primarily due to repurchases of the Company's common stock of $1.8 million, dividends declared of $954,000, the impact of ASU 2016-13 adoption of $183,000, other comprehensive loss of $517,000, offset by net income of $1.0 million, for the nine months ended March 31, 2024.

The Company also has access to a $1 million credit facility, which can be utilized for working capital purposes. The credit agreement requires the Company to maintain certain covenants; the Company has been in compliance with these covenants during the current fiscal year. The credit agreement expires on May 31, 2024, and the Company intends to renew annually. The credit facility is collateralized by approximately $1 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 March 31, 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.-based ETFs has been renewed through July 2024.

The primary cash requirements are for operating activities. The Company also uses cash to purchase investments, pay dividends and repurchase Company stock. The cash outlays for investments and dividend payments are discretionary and management or the Board may discontinue as deemed necessary. The stock repurchase plan is approved through December 31, 2024, but may be suspended or discontinued at any time. Cash and securities recorded at fair value on a recurring basis, excluding convertible securities, of approximately $39.0 million are available to fund current activities.

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

### CRITICAL ACCOUNTING ESTIMATES

For a discussion of other critical accounting policies that the Company follows, please refer to the notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2023. There have been no material changes to our critical accounting policies, except for the Company's adoption of a new accounting standard as discussed in Item 1, Financial Statements at Note 2, Basis of Presentation and Consolidation, of this Quarterly Report on Form 10-Q.

## Market risk

As filed, 8,888 characters.

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 balance sheet 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.

As a result, the Company’s revenues are subject to volatility beyond market-based fluctuations discussed in the investment management and administrative services fees section above. Due to these performance adjustments, the Company realized a decrease in its USGIF base advisory fee of $101,000 and $344,000 for the three and nine months ended March 31, 2024, respectively, and $109,000 and $390,000 for the three and nine months ended March 31, 2023, respectively.

### Corporate Investments

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

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

### Equity price risk

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

The following table summarizes the Company’s equity price risks in securities recorded at fair value on a recurring basis as of March 31, 2024, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.

*(dollars in thousands)*

|  | Fair Value at March 31, 2024 | Hypothetical Percentage Change | Estimated Fair Value After Hypothetical Price Change | Estimated Increase (Decrease) in Net Income (Loss)(1) |
| --- | ---: | --- | ---: | ---: |
| Trading securities at fair value | $11,506 | 25% increase | $14,383 | $2,272 |
|  |  | 25% decrease | $8,630 | $(2,272) |
| Embedded derivatives at fair value (2) | $29 | 25% increase | $36 | $6 |
|  |  | 25% decrease | $22 | $(6) |

*1. Changes in unrealized gains and losses on embedded derivatives and trading securities at fair value are included in earnings in the Consolidated Statements of Operations. The estimated increase (decrease) is after income taxes at the statutory rate in effect as of the balance sheet date.*

*2. An embedded derivative and its related host contract represent one legal contract and are combined within the investments in available-for-sale debt securities on the Consolidated Balance Sheets.*

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

COVID-19 had an effect on volatility in global and domestic financial markets, which may reoccur and continue for an undetermined period. This may not only adversely affect the Company’s assets under management but also the valuation of the Company’s corporate investments.

The embedded derivatives subject to equity price risk shown in the above table are related to investments in convertible debentures of HIVE Digital Technologies Ltd. (“HIVE”). HIVE is discussed in more detail in Note 3, Investments, in the notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 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 (loss).

### 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 included on the Consolidated Balance Sheets, and unrealized gains (losses) and interest income recognized in net investment income (loss).

### Foreign currency risk

A portion of cash and certain corporate investments are held in foreign currencies, primarily Canadian. 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.

### Indirect exposure to cryptocurrencies risk

Cryptocurrencies (also referred to as “virtual currencies” and “digital currencies”) are digital assets that are designed to act as a medium of exchange. Although the Company has no current intention of directly investing in cryptocurrencies, the Company has indirect exposure to cryptocurrencies by investing in securities of issuers with exposure to the cryptocurrency industry. Cryptocurrencies (some of the most well-known include Bitcoin, Dogecoin and Ethereum) are not backed by any government, corporation, or other identified body. Trading markets for cryptocurrencies are often unregulated and may be more exposed to operational or technical issues as well as the potential for fraud or manipulation than established, regulated exchanges for securities, derivatives and traditional currencies.

Cryptocurrencies have been subject to significant fluctuations in value. The value of a cryptocurrency may significantly fluctuate precipitously (including declining to zero) and unpredictably for a variety of reasons, including, but not limited to: investor perceptions and expectations; regulatory changes; general economic conditions; adoption and use in the retail and commercial marketplace; public opinion regarding the environmental impact of the creation (“minting” or “mining”) of cryptocurrency; confidence in, and the maintenance and development of, its network and open-source software protocols such as blockchain for ensuring the integrity of cryptocurrency transactional data; and general risks tied to the use of information technologies, including cybersecurity risks.

## Controls and procedures

As filed, 1,495 characters.

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2024, was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were not effective as of March 31, 2024, due to the existence of the material weaknesses in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures).

The material weaknesses in internal controls over financial reporting that were disclosed in our annual report on Form 10-K as of and for the year ended June 30, 2023, were also present as of March 31, 2024. Notwithstanding the material weaknesses, we believe that the Consolidated Financial Statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the period, presented, in conformity with U.S. GAAP.

Other than as described above, there has been no change in the Company’s internal control over financial reporting that occurred during the three and nine months ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 270 characters.

For a discussion of risk factors which could affect the Company, please refer to Item 1A, “Risk Factors” in the Annual Report on Form 10-K for the year ended June 30, 2023. There have been no material changes since the fiscal year end to the risk factors listed therein.

Filed May 9, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-015690. Last ingested by Listed: Nov 3, 2026, 19:00 ET. No prices; not investment advice.