GROW US Global Investors Inc

Dear Mr. Frank Holmes and GROW Directors,

Kanen Wealth Management, LLC (“KWM”) is one of the largest shareholders of U.S. Global Investors, Inc. (NASDAQ: GROW), owning over 450K shares, representing 3.3% of the Company’s stock. At the core of our thesis, we believe that the Company’s current share price is significantly below its intrinsic value and that investments, real estate, and cash alone are worth more than the market cap. Additionally, we believe its asset management business, with ~$11m in recurring fees, is worth $2.75/share.

We are deeply concerned that the board has shown little interest in creating value for outside shareholders by creating policies that funnel an exorbitant amount of money to Mr. Holmes and insiders. In our opinion, Holmes is incentivized to gamble shareholder money to earn larger bonuses for himself. Despite Frank Holmes’ reputation as a sophisticated finance expert, GROW continues to trade at a significant discount to its liquidation value. The growing pattern of late filings, accounting restatements, and stock price underperformance suggests the company is not fit for public markets. We remind investors that management rejected a buyout offer two years ago that represents an approximate 100% premium to today’s stock price.

We question whether such credibility is beyond repair, as GROW shares are down 90% in the past 18 years. The market cap is now a mere $36 million. This freefall is a direct result of poor governance and failed strategies:

• Poor Corporate Governance: GROW’s Compensation Committee is dominated by an entrenched board, whose average age is alarmingly high—Mr. Lydon (64), Mr. Terracina (78), and Mr. Rubinstein (86). Despite their average tenure of 25 years, the value of their annual compensation awarded by the company in ‘23 ($300k) exceeds the value of their ownership in GROW ($215k). We are concerned that the board is incentivized to act in the best interest of Mr. Holmes and not outside shareholders.
• Questionable Incentives: We believe this lack of independence creates policies funneling an obscene amount of cash into Mr. Holmes’ pocket. Since 2019, Mr. Holmes has received over $8 million in cash compensation, which is over 20% of the company’s market cap. In addition to Mr. Holmes’ base salary and bonus tied to operating performance, he “receives a bonus when the investment team meets their performance goals… in recognition of Mr. Holmes’ creation and oversight of the investment processes and strategy.” We believe this motivates Holmes to pursue a very risky investment strategy with shareholder money to earn larger bonuses for himself. If GROW is merely a ‘lifestyle company;’ for Mr. Holmes and his incompetent board of retirees, it explains their lack of urgency in creating shareholder value.
• Risky Investments: Mr. Holmes’ use of GROW capital as “mad money” to pursue thematic investments is without sufficient scrutiny. In the event that his risky investments work, we estimate Mr. Holmes is paid to the tune of 20% of realized gains. If investments do not pan out, GROW investors lose. Not only does this create an incentive mismatch between management and investors, it also distracts Mr. Holmes from turning around the core business. Why should we trust Mr. Holmes with our capital when his own company trades below liquidation value?
  • In 2023, over 30% of GROW’s portfolio was tied up in HIVE Digital Holdings, a cryptocurrency mining company where Mr. Holmes is Chairman. After exiting the equity investment in 2021, GROW reinvested proceeds into a convertible debenture with warrants. In January ’24, these warrants expired recording a realized loss of $5.9m, with shares down ~90% since reinvesting proceeds in the convertible.
  • In October 2021, the company purchased 1 million shares in Network Media Group “to provide exposure to Network’s emerging non-fungible token (NFT) business.” Since announcing the private placement, NETWF shares have traded down ~75%. To our knowledge, Mr. Holmes has not mentioned this investment publicly since its precipitous decline.

We believe GROW’s stock trades at a significant discount to its liquidation value due to questionable corporate governance and incentives that enrich insiders at the expense of outside shareholders. Given our understanding of the Company’s assets and recurring fee income, we believe that a sale of the Company, if undertaken, could generate meaningful and certain value creation for equity investors:

• GROW Assets: When including 1) $28.5m in cash; 2) $5.2m of HIVE debenture; 3) $11.5m in mutual fund investments; and 4) their estimated ~$6.0m of real estate value, we believe GROW’s assets are worth $51.0m, or $3.70/share.
• Asset Management Business: In addition to our balance sheet, the investment management business generates ~$11 million in recurring fee income. Based on our conversations with industry participants, we believe a strategic would pay 3-4x fee income, which could equate to $2.75/share.

If the Board pursues a sale, we believe shares would be worth between $6.0-7.0/share, which represents a 130-175% upside from the current stock price.

Because the equity trades below the $51m of tangible assets, the board should immediately authorize a tender up to $3.60 per share which in effect equals the cash, investments, and real estate. The fact that the board doesn’t recognize buying $1.00 of assets for $0.70 demonstrates they lack the skillset to serve as directors ($36m market cap with $51m of liquid and tangible assets).

It’s been over two years since Mr. Holmes dismissed a $5.30 buyout offer as ‘insufficient.’ We believe such an offer or better is still on the table. If the Board pursues a sale, we believe GROW’s equity would be worth 2-3x more than its current stock price implies. Mr. Holmes, it is time to end the public embarrassment that U.S. Global Investors has become. We urge you to run a proper sales process and finally create value for shareholders. What are we waiting for, Director/ Chairman Jerry Rubinstein’s 90th birthday?

Sincerely,

David Kanen

President/CEO

Kanen Wealth Management

dkanen@kanenadvisory.com

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