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Note 3 - Investments | 3 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Investments and Other Noncurrent Assets [Text Block] | NOTE 3. INVESTMENTS As of September 30, 2023, the Company held investments carried at fair value on a recurring basis of $18.3 million and a cost basis of $26.2 million. The fair value of these investments is approximately 33.8 percent of the Company’s total assets at September 30, 2023. In addition, the Company held other investments of approximately $1.6 million and held-to-maturity debt investments, net of allowance for credit losses, of $795,000. 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. 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 $11.5 million and $12.4 million as of September 30, 2023, and June 30, 2023, respectively, and investments in HIVE Digital Technologies Ltd. (“HIVE”), which were warrants and convertible debentures valued at $6.3 million at September 30, 2023, and $7.3 million at 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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Because of the inherent uncertainties of valuation, the values reflected may materially differ from the values received upon actual sale of those investments. The Company has established a Proprietary Valuation Committee (the “Committee”) to administer and oversee the Company’s valuation policies and procedures, which are approved by the Board of Directors, and to perform a periodic review of valuations provided by independent pricing services. For actively traded securities, the Company values investments using the closing price of the securities on the exchange or market on which the securities principally trade. If the security is not traded on the last business day of the quarter, it is generally valued at the mean between the last bid and ask quotation. The fair value of a security that has a restriction 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 tables summarize the major categories of investments with fair values adjusted on a recurring basis as of September 30, 2023, and June 30, 2023, and other investments with fair values adjusted on a nonrecurring basis, with fair values shown according to the fair value hierarchy.
|  | September 30, 2023 |
|  |  |  |  |  | Significant |  |  | Significant |  |  |  |  |
|  | Quoted |  |  | Other |  |  | Unobservable |  |  |  |  |
|  | Prices |  |  | Inputs |  |  | Inputs |  |  |  |  |
(dollars in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Investments carried at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments in equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equities - International |  | $ | 421 |  |  | $ | - |  |  | $ | 4 |  |  | $ | 425 |
Mutual funds - Fixed income |  |  | 10,793 |  |  |  | - |  |  |  | - |  |  |  | 10,793 |
Mutual funds - Global equity |  |  | 702 |  |  |  | - |  |  |  | - |  |  |  | 702 |
Total investments in equity securities: |  | $ | 11,916 |  |  | $ | - |  |  | $ | 4 |  |  | $ | 11,920 |
Investments in debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale - Convertible debentures |  |  | - |  |  |  | - |  |  |  | 6,343 |  |  |  | 6,343 |
Total investments carried at fair value on a recurring basis: |  | $ | 11,916 |  |  | $ | - |  |  | $ | 6,347 |  |  | $ | 18,263 |
Investments carried at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other investments (1) |  | $ | - |  |  | $ | - |  |  | $ | 435 |  |  | $ | 435 |
1. | Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates during the three months ended September 30, 2023. These securities are classified as level 3 due to the infrequency of the observable price changes and/or restrictions on the shares.
|  | June 30, 2023 |
|  |  |  |  |  | Significant |  |  | Significant |  |  |  |  |
|  | Quoted |  |  | Other |  |  | Unobservable |  |  |  |  |
|  | Prices |  |  | Inputs |  |  | Inputs |  |  |  |  |
(dollars in thousands) |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | Total |
Investments carried at fair value on a recurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments in equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equities - International |  | $ | 488 |  |  | $ | - |  |  | $ | 290 |  |  | $ | 778 |
Mutual funds - Fixed income |  |  | 11,642 |  |  |  | - |  |  |  | - |  |  |  | 11,642 |
Mutual funds - Global equity |  |  | 785 |  |  |  | - |  |  |  | - |  |  |  | 785 |
Total investments in equity securities: |  | $ | 12,915 |  |  | $ | - |  |  | $ | 290 |  |  | $ | 13,205 |
Investments in debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale - Convertible debentures |  |  | - |  |  |  | - |  |  |  | 7,008 |  |  |  | 7,008 |
Total investments carried at fair value on a recurring basis: |  | $ | 12,915 |  |  | $ | - |  |  | $ | 7,298 |  |  | $ | 20,213 |
Investments carried at fair value on a nonrecurring basis: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other investments (1) |  | $ | - |  |  | $ | - |  |  | $ | 1,786 |  |  | $ | 1,786 |
1. | Other investments include equity securities without readily determinable fair values that were adjusted as a result of the measurement alternative on dates during the fiscal 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, which were warrants and convertible debentures valued at $6.3 million at September 30, 2023, and $7.3 million at June 30, 2023. The Company utilizes an independent third-party to estimate the fair values of the investments in HIVE. The following table is a reconciliation of investments recorded at fair value for which unobservable inputs (Level 3) were used in determining fair value during the three months ended September 30, 2023. Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
|  | Three Months Ended September 30, 2023 |
|  | Investments in |  |  | Investments in |
(dollars in thousands) |  | equity securities |  |  | debt securities |
Beginning Balance |  | $ | 290 |  |  | $ | 7,008 |
Principal repayments |  |  | - |  |  |  | (750 | )
Amortization of day one premium |  |  | - |  |  |  | (51 | )
Accretion of bifurcation discount |  |  | - |  |  |  | 150 |
Total gains or losses included in: |  |  |  |  |  |  |  |
Net Investment Income (Loss) |  |  | (286 | ) |  |  | 257 |
Other Comprehensive Loss |  |  | - |  |  |  | (271 | )
Ending Balance |  | $ | 4 |  |  | $ | 6,343 |
During January 2021, the Company purchased convertible securities of HIVE, a company that is headquartered in Canada with cryptocurrency mining facilities in Iceland, Sweden, and Canada, for $15.0 million. The convertible securities are comprised of 8.0% interest-bearing unsecured convertible debentures, payable in quarterly installments with a final maturity in January 2026, and 5 million common share purchase warrants in the capital of HIVE. Under the original terms, the principal amount of each debenture was convertible into common shares in the capital of HIVE at a conversion rate of $2.34, and each whole warrant, expiring in January 2024, entitled the Company to acquire one common share at a price of $3.00 (Canadian). Under the current terms, which reflect a reverse stock split, the principal amount of each debenture is convertible into common shares in the capital of HIVE at a conversion rate of $11.70, and each five whole warrants entitles the Company to acquire one common share at a price of $15.00 (Canadian). The remaining principal amount was $6.8 million as of September 30, 2023. 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 (loss) recognized in net investment income (loss), and unrealized gain (loss) recognized in other comprehensive income (loss). The investments did not represent ownership in HIVE as of September 30, 2023, or June 30, 2023. The securities are subject to Canadian securities regulations. Frank Holmes serves on the board as executive chairman of HIVE and held shares and options at September 30, 2023. From August 2018 through January 2023, Mr. Holmes was Interim CEO of HIVE. The Company recorded the warrants at the estimated fair value of $5.9 million on the purchase date. The debentures were recorded at the estimated fair value of $16.0 million on purchase date, and an unrealized gain of $6.9 million was recognized in other comprehensive income (loss), which will be realized in net investment income (loss) ratably using the effective interest method until maturity, conversion, or other disposition. During the three months ended September 30, 2023, and 2022, $336,000 and $469,000, respectively, was realized in net investment income (loss). The fair value of the warrants and debentures was $4,000 and $6.3 million, respectively, at September 30, 2023, and $290,000 and $7.0 million, respectively, at June 30, 2023. The Company currently considers the fair value measurements of HIVE convertible securities to contain Level 3 inputs. The following is quantitative information as of September 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).
|  | September 30, 2023 |
(dollars in thousands) |  | Fair Value |  | Principal Valuation Techniques |  | Unobservable Inputs |
Investments in equity securities: |  |  |  |  |  |  |  |  |  |  |
Common share purchase warrants |  | $ | 4 |  | Option pricing model |  | Volatility |  |  | 90.0 | %
|  |  |  |  |  |  | Risk-Free Rate |  |  | 5.1 | %
Investments in debt securities: |  |  |  |  |  |  |  |  |  |  |
Available-for-sale - Convertible debentures |  | $ | 6,343 |  | Binomial lattice model |  | Volatility |  |  | 90.0 | %
|  |  |  |  |  |  | Credit Spread |  |  | 10.4 | %
|  |  |  |  |  |  | Risk-Free Rate |  |  | 4.7 | %
Equity Investments at Fair Value Investments in equity securities with readily determinable fair values are carried at fair value, and changes in unrealized gains or losses are reported in the current period's earnings. The following details the components of the Company’s equity investments carried at fair value as of September 30, 2023, and June 30, 2023.
|  | September 30, 2023 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains (Losses) |  |  | Fair Value |
Equity securities at fair value |  |  |  |  |  |  |  |  |  |  |  |
Equities - International |  | $ | 6,680 |  |  | $ | (6,255 | ) |  | $ | 425 |
Equities - Domestic |  |  | 45 |  |  |  | (45 | ) |  |  | - |
Mutual funds - Fixed income |  |  | 11,097 |  |  |  | (304 | ) |  |  | 10,793 |
Mutual funds - Global equity |  |  | 929 |  |  |  | (227 | ) |  |  | 702 |
Total equity securities at fair value |  | $ | 18,751 |  |  | $ | (6,831 | ) |  | $ | 11,920 |
|  | June 30, 2023 |
(dollars in thousands) |  | Cost |  |  | Unrealized Gains (Losses) |  |  | Fair Value |
Equity securities at fair value |  |  |  |  |  |  |  |  |  |  |  |
Equities - International |  | $ | 6,679 |  |  | $ | (5,901 | ) |  | $ | 778 |
Equities - Domestic |  |  | 45 |  |  |  | (45 | ) |  |  | - |
Mutual funds - Fixed income |  |  | 11,947 |  |  |  | (305 | ) |  |  | 11,642 |
Mutual funds - Global equity |  |  | 930 |  |  |  | (145 | ) |  |  | 785 |
Total equity securities at fair value |  | $ | 19,601 |  |  | $ | (6,396 | ) |  | $ | 13,205 |
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 on available-for-sale debt securities 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 classified as available-for-sale containing an embedded derivative, which represents an investment in HIVE, at September 30, 2023, and June 30, 2023. As of September 30, 2023, the unrealized loss position in the available-for-sale security 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 as of September 30, 2023, and June 30, 2023.
|  | September 30, 2023 |
(dollars in thousands) |  | Amortized Cost |  |  | Gross Unrealized Gains in Other Comprehensive Income (Loss) |  |  | Gross Unrealized Losses in Other Comprehensive Income (Loss) |  |  | Gross Unrealized Losses in Net Investment Income (Loss) (1) |  |  | Fair Value |  |  | Allowance for Credit Losses |
Available-for-sale - Convertible debentures |  | $ | 7,414 |  |  | $ | 1,436 |  |  | $ | - |  |  | $ | (2,507 | ) |  | $ | 6,343 |  |  | $ | - |
|  | June 30, 2023 |
(dollars in thousands) |  | Amortized Cost |  |  | Gross Unrealized Gains in Other Comprehensive Income (Loss) |  |  | Gross Unrealized Losses in Other Comprehensive Income (Loss) |  |  | Gross Unrealized Losses in Net Investment Income (Loss) (1) |  |  | Fair Value |  |  | Allowance for Credit Losses |
Available-for-sale - Convertible debentures |  | $ | 7,729 |  |  | $ | 1,707 |  |  | $ | - |  |  | $ | (2,428 | ) |  | $ | 7,008 |  |  | $ | - |
1. | Represents changes in unrealized gains and losses related to embedded derivatives included within net investment income (loss) on 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 September 30, 2023, and June 30, 2023.
|  | September 30, 2023 |  |  | June 30, 2023 |
|  | Other Assets |  |  | Other Assets |
|  | Investments in |  |  | Investments in |
|  | available-for-sale |  |  | available-for-sale |
(dollars in thousands) |  | debt securities |  |  | debt securities |
Embedded Derivatives: |  |  |  |  |  |  |  |
Equity price risk exposure |  | $ | 35 |  |  | $ | 114 |
The following table presents the effect of embedded derivatives on the Consolidated Statements of Operations, categorized by risk exposure, for the three months ended September 30, 2023, and 2022.
|  | Three Months Ended |
|  | September 30, |
|  | 2023 |  |  | 2022 |
|  | Other Income (Loss) |  |  | Other Income (Loss) |
(dollars in thousands) |  | Net Investment Income (Loss) |  |  | Net Investment Income (Loss) |
Embedded Derivatives: |  |  |  |  |  |  |  |
Equity price risk exposure |  | $ | (79 | ) |  | $ | - |
At September 30, 2023, and June 30, 2023, the Company held one debt security classified as held-to-maturity. The security had an estimated fair value that was lower than the carrying value by $205,000 at September 30, 2023, and $232,000 at June 30, 2023. The security has been in a continuous unrealized loss position for over twelve months. We have evaluated the unrealized loss on the security at September 30, 2023, and determined it to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns regarding the ability of the issuer to meet their obligations. The following details the components of the Company’s held-to-maturity debt investments as of September 30, 2023, and June 30, 2023.
|  | September 30, 2023 |
(dollars in thousands) |  | Amortized Cost |  |  | Gross Unrecognized Holding Gains |  |  | Gross Unrecognized Holding Losses |  |  | Fair Value |  |  | Allowance for Credit Losses |
Held-to-maturity - Debentures (1) |  | $ | 1,000 |  |  | $ | - |  |  | $ | (205 | ) |  | $ | 795 |  |  | $ | 205 |
|  | June 30, 2023 |
(dollars in thousands) |  | Amortized Cost |  |  | Gross Unrecognized Holding Gains |  |  | Gross Unrecognized Holding Losses |  |  | Fair Value |  |  | Allowance for Credit Losses |
Held-to-maturity - Debentures (1) |  | $ | 1,000 |  |  | $ | - |  |  | $ | (232 | ) |  | $ | 768 |  |  | $ | - |
1. | Held-to-maturity debt investments 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 September 30, 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. For the three months ended September 30, 2023, the change in allowance attributable to the passage of time and included as an increase in interest income within net investment income (loss) on the Consolidated Statements of Operations was $27,000. 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.
(dollars in thousands) |  | September 30, 2023 |
Beginning Balance, prior to adoption of ASU 2016-13 |  | $ | - |
Impact of ASU 2016-13 adoption |  |  | 232 |
Provision for credit losses - reversal (1) |  |  | (27 | )
Ending Balance |  | $ | 205 |
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 September 30, 2023, by contractual maturity dates. Actual maturities may differ from final contractual maturities due to principal repayment installments or prepayment rights held by issuers.
|  | September 30, 2023 |
|  | Available-for-sale |  |  | Held-to-maturity |
|  | debt securities |  |  | debt securities |
|  | Convertible |  |  | Due after one year |
(dollars in thousands) |  | debentures (1) |  |  | through five years |
Amortized Cost |  | $ | 7,414 |  |  | $ | 1,000 |
Fair Value |  | $ | 6,343 |  |  | $ | 795 |
1. | Principal payments of $750,000 are due quarterly with a final maturity date in January 2026.
As of September 30, 2023, none of the Company's investments in debt securities were delinquent or in a non-accrual status. 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 carrying value of equity securities without readily determinable fair values was approximately $2.4 million as of June 30, 2023. The following table presents the carrying value of equity securities without readily determinable fair values held as of September 30, 2023, and 2022, that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes or impairments. These securities are included in the nonrecurring fair value hierarchy tables when applicable price changes are observable, or when impairments occur.
|  | Three Months Ended |
|  | September 30, |
(dollars in thousands) |  | 2023 |  |  | 2022 |
Other Investments |  |  |  |  |  |  |  |
Carrying value |  | $ | 1,613 |  |  | $ | 2,630 |
Upward carrying value changes |  | $ | - |  |  | $ | - |
Downward carrying value changes/impairment |  | $ | (775 | ) |  | $ | (1,839 | )
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 September 30, 2023. The cumulative amount of impairments and other downward adjustments, which include return of capital distributions and observable price changes, to all equity securities without readily determinable fair values total $4.5 million since their respective acquisitions through September 30, 2023. The Company has an investment in The Sonar Company (“Sonar”), a company headquartered in the United States, at a cost of $175,000. The investment had a carrying value of approximately $362,000 at September 30, 2023, and at June 30, 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 September 30, 2023. Net Investment Income (Loss) Net investment income (loss) from the Company’s investments includes:
| ● | realized gains and losses on sales of securities;
| ● | realized gains and losses on principal payment proceeds;
| ● | unrealized gains and losses on securities at fair value;
| ● | impairments and observable price changes on equity investments without readily determinable fair values;
| ● | dividend and interest income; and
| ● | realized foreign currency gains and losses.
The following summarizes net investment income (loss) reflected in earnings for the periods presented.
|  | Three Months Ended |
(dollars in thousands) |  | September 30, |
Net Investment Income (Loss) |  | 2023 |  |  | 2022 |
Realized losses on equity securities |  | $ | (818 | ) |  | $ | - |
Realized gains on debt securities |  |  | 336 |  |  |  | 469 |
Unrealized losses on equity securities |  |  | (443 | ) |  |  | (1,930 | )
Unrealized losses on embedded derivatives |  |  | (79 | ) |  |  | - |
Unrealized losses on cash equivalents |  |  | (1 | ) |  |  | - |
Dividend and interest income |  |  | 582 |  |  |  | 418 |
Realized foreign currency losses |  |  | (90 | ) |  |  | (417 | )
Total Net Investment Income (Loss) |  | $ | (513 | ) |  | $ | (1,460 | )
For the three months ended September 30, 2023, and 2022, realized gains on principal payment proceeds in the amount of $336,000 and $469,000, respectively, were released from other comprehensive income (loss). The following table presents unrealized gains and losses recognized during the three months ended September 30, 2023, and 2022, on equity investments still held at each respective date.
|  | Three Months Ended |
|  | September 30, |
(dollars in thousands) |  | 2023 |  |  | 2022 |
Net gains and losses recognized during the period on equity securities |  | $ | (1,261 | ) |  | $ | (1,930 | )
Less: Net gains and losses recognized during the period on equity securities sold during the period |  |  | (43 | ) |  |  | - |
Unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date (1) |  | $ | (1,218 | ) |  | $ | (1,930 | )
1. | Includes $775,000 and $1.8 million of net losses for the three months ended September 30, 2023, and 2022, respectively, as a result of the measurement alternative.
Net investment income (loss) can be volatile and vary depending on market fluctuations, the Company’s ability to participate in investment opportunities, and the timing of transactions. The Company expects that gains and losses will continue to fluctuate in the future.

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