Item 2.02. Results of Operations and Financial Condition.
On October 12, 2021, U.S. Global Investors, Inc. (the "Company") reached a
determination to restate the Company's consolidated financial statements and
related disclosures for the quarterly and year-to-date period for the nine
months ended March 31, 2021. For additional information about the restatement
and related matters, please see Item 4.02 below.
As previously disclosed, the Company did not file its Annual Report on Form 10-K
for the fiscal year ended June 30, 2021, by the prescribed due date. The
Company's delay in completing such filing is due to additional time needed by
the Company to fully evaluate the fair value calculations performed by a third
party on certain corporate investments, which is substantially complete, and
taking the necessary time to thoroughly and properly reflect the restatement in
the March 31, 2021, Form 10-Q. The Company is working diligently to file its
restated Form 10-Q/A and its Annual Report on Form 10-K for the fiscal year
ended June 30, 2021, as soon as practicable.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On October 12, 2021, the Company, in consultation with the Audit Committee of
its Board of Directors (the "Audit Committee"), reached a determination that the
Company's consolidated financial statements and related disclosures for the
quarterly and year-to-date periods for the period ended March 31, 2021, should
no longer be relied upon because of certain misstatements contained in those
financial statements. The Company also discussed this assessment with the
Company's independent registered public accounting firm, BDO USA, LLP ("BDO").
Fair Value Restatements
In January 2021, the Company purchased corporate investments that consisted of
unsecured convertible debentures and purchase warrants. As a result of
additional analysis of the fair value of these corporate investments, the
purchase price of the corporate investments was reallocated to the unsecured
convertible debentures and purchase warrants at the acquisition date and the
fair value of the unsecured convertible debentures was understated by $7.5
million and the fair value of purchase warrants was overstated by $1.7 million
at March 31, 2021. The impact of these corrections to previously reported
financial statements is an increase in employee compensation and benefits
expense of $60 thousand, a decrease to investment income of $7.1 million, a
decrease to net income of $5.6 million, a decrease in basic and diluted earnings
per share of $0.37 and an increase in other comprehensive income net of tax of
$10.1 million for the three and nine months ended March 31, 2021. The impact to
the balance sheet is a net increase in securities of $5.8 million, a net
increase in liabilities of $1.2 million and an increase in equity of $4.5
Other Immaterial Revisions
The Company was granted forgiveness of its Paycheck Protection Program ("PPP")
loan and accrued interest totaling $444,000 in the quarter ended December 31,
2020. The Company recorded the extinguishment of debt related to the forgiveness
as other operating revenue in both the December 31, 2020, and the March 31,
2021, financial statements. Since the extinguishment of debt is not revenue, it
should have been recorded as other income. This revision has no impact on net
income or earnings per share. The revision was not deemed material. Since the
Company is restating the March 31, 2021, Form 10-Q, we will properly record the
forgiveness of the PPP loan forgiveness in the restated Form 10-Q/A. For the
quarter and six months ended December 31, 2020, and for the nine months ended
March 31, 2021, the line-item other operating revenue will be removed, and the
line-item gain on forgiveness of PPP loan will be added to other income.
Other Potential Misstatements
In addition, the Company is evaluating potential adjustments s relating to the
classification of changes in the fair value of its investment securities on the
statement of cash flows and its impact on prior filings.
The Company intends to, as soon as practicable, restate the consolidated
financial statements for the period ending March 31, 2021, on Form 10-Q/A. The
Company also intends to file the 2021 Form 10-K as soon as practicable.
Management's Report on Internal Control Over Financial Reporting
Management identified a deficiency in the design and operating effectiveness of
the Company's internal controls as of March 31, 2021, that represents a material
weakness in our internal control over financial reporting. This deficiency is
the result of inadequate design and implementation of internal controls to
identify complex investments requiring specialized valuation expertise.
Specifically, the Company's controls over valuation procedures did not address
valuation methodologies for hybrid financial instruments. The deficiency in our
internal control over financial reporting resulted in the understated fair value
measurements that led to the restatement of previously issued financial
statements. Management is in the process of designing and implementing
remediation efforts intended to address the material weakness.
Disclosures About Forward-Looking Statements
All above statements regarding the expected impact of the restatement constitute
forward-looking statements that are based on our current expectations. The final
amounts and the detailed presentation of the restatement will be included in our
upcoming filings after we have completed our work on the restatement, and BDO
USA, LLP have completed their review of the financial statements for the
restatement period, and the Audit Committee has completed its final review of
the financial statements for the restatement period. There can be no assurance
that this information will not change, possibly materially, before we file the
restated financial statements.
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Report Act of 1995. All statements other than
those that are purely historical are forward-looking statements. These
statements are often identified by the use of words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "should," "estimate," or
"continue," and similar expressions or variations. Forward-looking statements
include statements regarding expected materiality or significance, and any
anticipated conclusions of the Company, the Audit Committee or management. Such
forward-looking statements are subject to risks and uncertainties and other
factors that could cause actual results, as well as expectations regarding
materiality or significance, the effectiveness of our disclosure controls and
procedures, and our deficiencies in internal control over financial reporting to
differ materially from those in the forward-looking statements.
Item 9.01 - Financial Statement and Exhibits
Exhibit 99.1 - Press Release issues by U.S. Global Investors, Inc. Dated
October 18, 2021, reporting Non-Cash Adjustments to Its Financial Statements for
Periods Ended March 31, 2021.
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