e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2010 |
OR
| [ ] |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from
to |
Commission File Number 0-13928
U.S. GLOBAL INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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| Texas
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74-1598370 |
| (State or Other Jurisdiction of
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(IRS Employer Identification Number) |
| Incorporation or Organization) |
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| 7900 Callaghan Road
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78229-1234 |
| San Antonio, Texas
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(Zip Code) |
| (Address of Principal Executive Offices) |
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(210) 308-1234
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address, and Former Fiscal Year, if Changed since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
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| Large accelerated filer [ ]
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Accelerated filer [X]
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Non-accelerated filer [ ]
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Smaller Reporting Company [ ] |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
On April 30, 2010, there were 13,862,123 shares of Registrant’s class A nonvoting common stock
issued and 13,283,144 shares of Registrant’s class A nonvoting common stock issued and outstanding,
no shares of Registrant’s class B nonvoting common shares outstanding, and 2,073,425 shares of
Registrant’s class C voting common stock issued and outstanding.
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U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
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Page 1 of 23 |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
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March 31, |
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June 30, |
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| Assets |
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2010 |
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2009 |
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(UNAUDITED) |
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Current Assets |
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Cash and cash equivalents |
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$ |
22,400,675 |
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$ |
20,303,594 |
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Trading securities, at fair value |
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5,390,041 |
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4,511,497 |
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Receivables |
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Mutual funds |
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3,354,505 |
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2,629,351 |
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Offshore clients |
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50,261 |
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37,399 |
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Income tax |
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| - |
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1,051,288 |
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Employees |
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15,286 |
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5,434 |
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Other |
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145,230 |
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120,440 |
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Prepaid expenses |
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863,602 |
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584,214 |
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Deferred tax asset |
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| - |
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645,768 |
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Total Current Assets |
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32,219,600 |
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29,888,985 |
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Net Property and Equipment |
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3,991,236 |
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3,773,121 |
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Other Assets |
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Deferred tax asset, long term |
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791,682 |
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955,075 |
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Investment securities available-for-sale, at fair value |
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3,291,782 |
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2,536,665 |
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Total Other Assets |
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4,083,464 |
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3,491,740 |
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Total Assets |
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$ |
40,294,300 |
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$ |
37,153,846 |
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
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Page 2 of 23 |
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March 31, |
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June 30, |
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| Liabilities and Shareholders’ Equity |
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2010 |
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2009 |
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(UNAUDITED) |
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Current Liabilities |
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Accounts payable |
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$ |
210,060 |
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$ |
137,428 |
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Accrued compensation and related costs |
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1,854,285 |
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1,168,199 |
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Deferred tax liability |
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70,400 |
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| - |
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Dividends payable |
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921,201 |
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| - |
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Other accrued expenses |
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927,930 |
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1,220,225 |
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Total Current Liabilities |
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3,983,876 |
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2,525,852 |
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Commitments and Contingencies |
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Shareholders’ Equity |
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Common stock (class A) — $0.025 par value;
nonvoting; authorized, 28,000,000 shares; issued,
13,862,063 shares and 13,819,673 shares at March
31, 2010, and June 30, 2009, respectively |
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346,552 |
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345,492 |
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Common stock (class B) — $0.025 par value;
nonvoting; authorized, 4,500,000 shares; no
shares issued |
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| - |
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| - |
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Common stock (class C) — $0.025 par value;
voting; authorized, 3,500,000 shares; issued,
2,073,485 shares and 2,091,875 shares at March
31, 2010, and June 30, 2009, respectively |
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51,837 |
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52,297 |
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Additional paid-in-capital |
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15,094,672 |
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14,628,431 |
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Treasury stock, class A shares at cost; 580,789
and 618,920 shares at March 31, 2010, and June
30, 2009, respectively |
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(1,359,845 |
) |
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(1,449,124 |
) |
Accumulated other comprehensive income, net of tax |
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781,256 |
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352,334 |
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Retained earnings |
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21,395,952 |
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20,698,564 |
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Total Shareholders’ Equity |
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36,310,424 |
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34,627,994 |
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Total Liabilities and Shareholders’ Equity |
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$ |
40,294,300 |
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$ |
37,153,846 |
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The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
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Page 3 of 23 |
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Consolidated Statements of Operations and Comprehensive Income
(Loss) (Unaudited)
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Nine Months Ended March 31, |
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Three Months Ended March 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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Mutual fund advisory fees |
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$ |
15,389,101 |
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$ |
13,403,004 |
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$ |
5,750,034 |
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$ |
2,420,350 |
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Transfer agent fees |
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4,111,575 |
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4,734,892 |
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1,331,103 |
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1,190,629 |
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Distribution fees |
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3,937,894 |
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1,823,130 |
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1,350,608 |
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856,237 |
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Administrative services fees |
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1,363,406 |
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789,275 |
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432,196 |
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371,708 |
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Other advisory fees |
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308,102 |
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851,841 |
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109,921 |
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49,301 |
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Investment income (loss) |
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1,271,517 |
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(4,968,230 |
) |
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375,323 |
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92,794 |
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Other |
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36,986 |
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32,386 |
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11,906 |
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11,778 |
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26,418,581 |
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16,666,298 |
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9,361,091 |
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4,992,797 |
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Expenses |
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Employee compensation and benefits |
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9,349,496 |
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7,363,608 |
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3,382,710 |
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2,234,468 |
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General and administrative |
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4,582,200 |
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7,516,879 |
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1,702,272 |
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1,372,786 |
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Platform fees |
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4,101,509 |
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3,794,365 |
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1,433,394 |
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777,038 |
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Subadvisory fees |
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425,567 |
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2,305,879 |
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145,578 |
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85,294 |
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Advertising |
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746,820 |
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328,703 |
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334,092 |
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91,461 |
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Depreciation |
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243,623 |
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213,995 |
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80,371 |
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67,223 |
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19,449,215 |
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21,523,429 |
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7,078,417 |
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4,628,270 |
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Income (Loss) Before Income Taxes |
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6,969,366 |
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(4,857,131 |
) |
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2,282,674 |
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364,527 |
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Provision for Federal Income Taxes |
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Tax expense (benefit) |
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2,590,837 |
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(1,656,631 |
) |
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808,704 |
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36,718 |
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Net Income (Loss) |
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4,378,529 |
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(3,200,500 |
) |
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1,473,970 |
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327,809 |
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Other comprehensive income (loss), net of tax: |
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Unrealized gains (losses) on available-for-sale
securities arising during period |
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428,922 |
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302,979 |
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155,069 |
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(22,472 |
) |
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Comprehensive Income (Loss) |
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$ |
4,807,451 |
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$ |
(2,897,521 |
) |
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$ |
1,629,039 |
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$ |
305,337 |
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Basic Net Income (Loss) per Share |
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$ |
0.29 |
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$ |
(0.21 |
) |
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$ |
0.10 |
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$ |
0.02 |
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Diluted Net Income (Loss) per Share |
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$ |
0.29 |
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|
$ |
(0.21 |
) |
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$ |
0.10 |
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$ |
0.02 |
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Basic weighted average number of common shares outstanding |
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15,333,142 |
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15,266,073 |
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15,350,888 |
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|
15,275,056 |
|
Diluted weighted average number of common shares
outstanding |
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|
15,336,485 |
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15,266,073 |
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|
15,353,504 |
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|
15,295,296 |
|
The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
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Page 4 of 23 |
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Consolidated Statements of Cash Flows
(Unaudited)
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Nine Months Ended March 31, |
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2010 |
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2009 |
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Cash Flows from Operating Activities |
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Net income (loss) |
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$ |
4,378,529 |
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$ |
(3,200,500 |
) |
Adjustments to reconcile net income (loss) to net cash provided
by operating activities: |
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Depreciation |
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|
243,623 |
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|
213,995 |
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Net recognized (gain) loss on sale of fixed assets |
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(1,017 |
) |
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|
2,075 |
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Net recognized loss on securities |
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|
58,576 |
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|
2,456,618 |
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Provision for deferred taxes |
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|
673,540 |
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(1,857,362 |
) |
Stock bonuses |
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|
238,897 |
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|
107,569 |
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Stock-based compensation expense |
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|
43,934 |
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|
244,374 |
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Changes in assets and liabilities, impacting cash from operations: |
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Accounts receivable |
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278,630 |
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|
5,128,302 |
|
Prepaid expenses |
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|
(279,388 |
) |
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|
(57,936 |
) |
Trading securities |
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|
(937,141 |
) |
|
|
2,797,636 |
|
Accounts payable and accrued expenses |
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|
466,424 |
|
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|
(4,076,878 |
) |
Deferred taxes |
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|
(14,939 |
) |
|
|
(83,087 |
) |
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|
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Total adjustments |
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|
771,139 |
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|
4,875,306 |
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Net Cash Provided by Operations |
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|
5,149,668 |
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1,674,806 |
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Cash Flows from Investing Activities |
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Purchase of property and equipment |
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|
(461,739 |
) |
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|
(1,263,555 |
) |
Proceeds from sale of fixed assets |
|
|
1,017 |
|
|
| - |
|
Purchase of available-for-sale securities |
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|
(146,906 |
) |
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|
(2,486,200 |
) |
Return of capital on investment |
|
|
41,671 |
|
|
| - |
|
Proceeds on sale of available-for-sale securities |
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|
22 |
|
|
| - |
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Net Cash Used in Investing Activities |
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(565,935 |
) |
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|
(3,749,755 |
) |
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Cash Flow from Financing Activities |
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|
|
|
|
|
Issuance or exercise of stock and options |
|
|
273,288 |
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|
|
147,921 |
|
Dividends paid |
|
|
(2,759,940 |
) |
|
|
(2,756,042 |
) |
|
|
|
|
|
|
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Net Cash Used in Financing Activities |
|
|
(2,486,652 |
) |
|
|
(2,608,121 |
) |
|
|
|
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Net Increase (Decrease) in Cash and Cash Equivalents |
|
|
2,097,081 |
|
|
|
(4,683,070 |
) |
|
|
|
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Beginning Cash and Cash Equivalents |
|
|
20,303,594 |
|
|
|
25,135,075 |
|
|
|
|
|
|
|
|
Ending Cash and Cash Equivalents |
|
$ |
22,400,675 |
|
|
$ |
20,452,005 |
|
|
|
|
|
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|
The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
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Page 5 of 23 |
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Notes to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
U.S. Global Investors, Inc. (the “Company” or “U.S. Global”) has prepared the consolidated
financial statements pursuant to accounting principles generally accepted in the United States of
America (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange
Commission (“SEC”) that permit reduced disclosure for interim periods. The financial information
included herein reflects all adjustments (consisting solely of normal recurring adjustments), which
are, in management’s opinion, necessary for a fair presentation of results for the interim periods
presented. The Company has consistently followed the accounting policies set forth in the notes to
the consolidated financial statements in the Company’s Form 10-K for the fiscal year ended June 30,
2009.
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, United Shareholder Services, Inc. (“USSI”), U.S. Global Investors (Guernsey) Limited,
U.S. Global Brokerage, Inc., and U.S. Global Investors (Bermuda) Limited.
All significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts have been reclassified for comparative purposes. The results of operations for the
nine months ended March 31, 2010, are not necessarily indicative of the results to be expected for
the entire year.
The unaudited interim financial information in these condensed financial statements should be read
in conjunction with the consolidated financial statements contained in the Company’s annual report.
Note 2. Dividend
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. A monthly dividend of $0.02 per share is authorized and
accrued through June 2010, and will be reviewed by the board quarterly.
Note 3. Investments
As of March 31, 2010, the Company held investments with a market value of approximately $8.682
million and a cost basis of approximately $8.071 million. The market value of these investments is
approximately 21.5 percent of the Company’s total assets. The Company currently has no investments
in debt securities or mortgage-backed securities.
Investments in securities classified as trading are reflected as current assets on the consolidated
balance sheet at their fair market value. Unrealized holding gains and losses on trading
securities are included in earnings in the consolidated statements of operations and comprehensive
income (loss).
Investments in securities classified as available-for-sale, which may not be readily marketable,
are reflected as non-current assets on the consolidated balance sheet at their fair value.
Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and
reported in other comprehensive income as a separate component of shareholders’ equity until
realized.
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|
U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 6 of 23 |
| |
|
|
| |
The following summarizes the market value, cost, and unrealized gain or loss on investments as of
March 31, 2010, and June 30, 2009.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding |
|
| Securities |
|
Market Value |
|
|
Cost |
|
|
Unrealized Gain |
|
|
losses on available-for- |
|
| |
|
|
|
|
(Loss) |
|
|
sale securities, net of |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
tax |
|
Trading1 |
|
$ |
5,390,041 |
|
|
$ |
5,963,272 |
|
|
$ |
(573,231 |
) |
|
|
N/A |
|
Available-for-sale2 |
|
|
3,291,782 |
|
|
|
2,108,060 |
|
|
|
1,183,722 |
|
|
$ |
781,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at March 31, 2010 |
|
$ |
8,681,823 |
|
|
$ |
8,071,332 |
|
|
$ |
610,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading 1 |
|
$ |
4,511,497 |
|
|
$ |
6,276,578 |
|
|
$ |
(1,765,081 |
) |
|
|
N/A |
|
Available-for-sale 2 |
|
|
2,536,665 |
|
|
|
2,002,826 |
|
|
|
533,839 |
|
|
$ |
352,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at June 30, 2009 |
|
$ |
7,048,162 |
|
|
$ |
8,279,404 |
|
|
$ |
(1,231,242 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
|
Unrealized and realized gains and losses on trading securities are included in earnings in
the statement of operations. |
| |
| 2 |
|
Unrealized gains and losses on available-for-sale securities are excluded from earnings and
recorded in other comprehensive income as a separate component of shareholders’ equity until
realized. |
Investment income can be volatile and varies 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 for the nine months ended March 31, 2010, is
concentrated in a small number of issuers. The Company expects that gains and losses will continue
to fluctuate in the future.
Investment income (loss) from the Company’s investments includes:
| |
• |
realized gains and losses on sales of securities; |
| |
| |
• |
unrealized gains and losses on trading securities; |
| |
| |
• |
realized foreign currency gains and losses; |
| |
| |
• |
other-than-temporary impairments on available-for-sale securities; and |
| |
| |
• |
dividend and interest income. |
The following summarizes investment income (loss) reflected in earnings for the periods discussed:
| |
|
|
|
|
|
|
|
|
| Investment Income (Loss) |
|
Nine Months Ended March 31, |
|
| |
|
2010 |
|
|
2009 |
|
Realized losses on sales of trading securities |
|
$ |
(58,598 |
) |
|
$ | - |
|
Realized gain on sales of available-for-sale securities |
|
|
22 |
|
|
| - |
|
Unrealized gains (losses) on trading securities |
|
|
1,191,850 |
|
|
|
(2,798,736 |
) |
Realized foreign currency gains (losses) |
|
|
196 |
|
|
|
(53,295 |
) |
Other-than-temporary declines in available-for-sale securities |
|
| - |
|
|
|
(2,456,618 |
) |
Dividend and interest income |
|
|
138,047 |
|
|
|
340,419 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
1,271,517 |
|
|
$ |
(4,968,230 |
) |
|
|
|
|
|
|
|
| |
| Investment Income |
|
Three Months Ended March 31, |
|
| |
|
2010 |
|
|
2009 |
|
Unrealized gains on trading securities |
|
$ |
321,361 |
|
|
$ |
37,910 |
|
Realized foreign currency losses |
|
|
(2,916 |
) |
|
|
(4,500 |
) |
Dividend and interest income |
|
|
56,878 |
|
|
|
59,384 |
|
|
|
|
|
|
|
|
Total Investment Income |
|
$ |
375,323 |
|
|
$ |
92,794 |
|
|
|
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 7 of 23 |
| |
|
|
| |
Note 4. Fair Value Disclosures
In Accounting Standards Codification (ASC) 820 Fair Value Measurement and Disclosures (formerly
Statement of Financial Accounting Standards (“SFAS”) No. 157 Fair Value Measurements) the Financial
Accounting Standards Board (“FASB”) defines fair value 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 standard establishes a hierarchy that prioritizes inputs to valuation
techniques used to measure fair value and requires companies to disclose the fair value of their
financial instruments according to a fair value hierarchy (i.e., Level 1, 2, and 3 inputs, as
defined below). The fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Additionally, companies are required to provide enhanced disclosures regarding instruments in the
Level 3 category (which have inputs to the valuation techniques that are unobservable and require
significant management judgment), including a reconciliation of the beginning and ending values
separately for each major category of assets or liabilities.
Financial instruments measured and reported at fair value are classified and disclosed in one of
the following categories:
Level 1 – Valuations based on quoted prices in active markets for identical assets or
liabilities at the reporting date. Since valuations are based on quoted prices that are
readily and regularly available in an active market, value of these products does not entail
a significant degree of judgment.
Level 2 – Valuations based on quoted prices in markets that are not active or for which all
significant inputs are observable, directly or indirectly.
Level 3 – Valuations based on inputs that are unobservable and significant to the fair value
measurement.
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.
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 actively traded, it is valued based on the last bid and/or ask quotation. Securities that are
not traded on an exchange or market are generally valued at cost, monitored by management and fair
value adjusted as considered necessary. The Company values the mutual funds and offshore funds at
net asset value.
The following table presents fair value measurements, as of March 31, 2010, for the three major
categories of U.S. Global’s investments measured at fair value on a recurring basis:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurement using (in thousands) |
|
| |
|
|
|
|
|
Significant |
|
|
Significant |
|
|
|
|
| |
|
Quoted |
|
|
Other |
|
|
Unobservable |
|
|
|
|
| |
|
Prices |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
| |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
Trading securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
139 |
|
|
$ |
38 |
|
|
$ | - |
|
|
$ |
177 |
|
Mutual funds |
|
|
3,942 |
|
|
| - |
|
|
| - |
|
|
|
3,942 |
|
Offshore fund |
|
| - |
|
|
|
1,271 |
|
|
| - |
|
|
|
1,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading securities |
|
|
4,081 |
|
|
|
1,309 |
|
|
| - |
|
|
|
5,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1,659 |
|
|
| - |
|
|
| - |
|
|
|
1,659 |
|
Venture capital investments |
|
| - |
|
|
| - |
|
|
|
224 |
|
|
|
224 |
|
Mutual funds |
|
|
1,409 |
|
|
| - |
|
|
| - |
|
|
|
1,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
|
3,068 |
|
|
| - |
|
|
|
224 |
|
|
|
3,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments |
|
$ |
7,149 |
|
|
$ |
1,309 |
|
|
$ |
224 |
|
|
$ |
8,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 8 of 23 |
| |
|
|
| |
The following table presents additional information about investments measured at fair value on a
recurring basis and for which the Company has utilized inputs to determine fair value:
| |
|
|
|
|
| Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis |
|
| For the Nine Months Ended March 31, 2010 (in thousands) |
|
| |
|
Venture Capital |
|
| |
|
Investments |
|
Beginning Balance |
|
$ | - |
|
Return of capital |
|
| - |
|
Total gains or losses (realized/unrealized) |
|
| - |
|
Included in earnings (or changes in net assets) |
|
| - |
|
Included in other comprehensive income |
|
| - |
|
Purchases, issuances, and settlements |
|
| - |
|
Transfers in and/or out of Level 3 |
|
|
224 |
|
|
|
|
|
Ending Balance |
|
$ |
224 |
|
|
|
|
|
| |
|
|
|
|
| Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis |
|
| For the Three Months Ended March 31, 2010 (in thousands) |
|
| |
|
Venture Capital |
|
| |
|
Investments |
|
Beginning Balance |
|
$ | - |
|
Return of capital |
|
| - |
|
Total gains or losses (realized/unrealized) |
|
| - |
|
Included in earnings (or changes in net assets) |
|
| - |
|
Included in other comprehensive income |
|
| - |
|
Purchases, issuances, and settlements |
|
| - |
|
Transfers in and/or out of Level 3 |
|
|
224 |
|
|
|
|
|
Ending Balance |
|
$ |
224 |
|
|
|
|
|
Approximately 82 percent of the Company’s financial assets measured at fair value are derived from
Level 1 inputs including SEC-registered mutual funds and equity securities traded on an active
market, 15 percent are Level 2 inputs, including an investment in an offshore fund, and the
remaining 3 percent are Level 3 inputs.
In Level 2, the Company has an investment in an offshore fund with a fair value of approximately
$1,271,000 that invests in companies in the energy and natural resource sectors. The Company may
redeem this investment on the first business day of each month after providing a redemption notice
at least forty-five days prior to the proposed redemption date.
During the quarter ended March 31, 2010, the two venture capital investments were transferred into
Level 3. U.S. Global held investments in three securities with a value of zero and two venture
capital investments that were measured at fair value using significant unobservable inputs (Level
3) at March 31, 2010. There were no realized or unrealized gains or losses or transactions in these
securities during the three- and nine-month period ending March 31, 2010. The Company has a
venture capital investment with a fair value of approximately $162,000 that primarily invests in
companies in the energy and precious metals sectors. The Company may redeem this investment at the
end of a calendar quarter after providing a written redemption notice at least thirty days prior,
and the redemption prices are subject to a discount from the net value of the dealer bid prices or
estimated liquidation value at the time of redemption. It is estimated that the underlying assets
would be liquidated within the next three years. The Company also has a venture capital investment
with a fair value of approximately $63,000 that primarily invests in companies in the medical and
medical technology sectors. The Company may redeem this investment with general partner approval.
As of March 31, 2010, the Company has an unfunded commitment of $187,500 related to this
investment.
|
|
|
U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 9 of 23 |
| |
|
|
| |
Note 5. Investment Management, Transfer Agent and Other Fees
The Company serves as investment adviser to U.S. Global Investors Funds (“USGIF”) and receives a
fee based on a specified percentage of net assets under management. Two of the funds within USGIF
(Eastern European Fund and Global Emerging Markets Fund) were actively managed by a third-party
adviser, Charlemagne Capital (IOM) Limited (“Charlemagne”), through November 6, 2008. Effective
November 7, 2008, the Company assumed the day-to-day management of both funds. The subadvisory
agreements with Charlemagne were amended, effective November 7, 2008, to reflect reduced
subadvisory fees in light of restructured responsibilities. On March 1, 2010, three funds within
USGIF (Global MegaTrends Fund, Global Resources Fund, and World Precious Minerals Fund) began
offering institutional class shares.
USSI also serves as transfer agent to USGIF and receives fees based on the number of shareholder
accounts as well as transaction- and activity-based fees. Additionally, the Company receives
certain miscellaneous fees directly from USGIF shareholders. Fees for providing investment
management, administrative, distribution and transfer agent services to USGIF continue to be the
Company’s primary revenue source.
Investment advisory fees for the USGIF funds totaled $15,389,101 and $13,403,004 for the nine
months ended March 31, 2010, and March 31, 2009, respectively. Transfer agency fees totaled
$4,111,575 and $4,734,892 for the nine months ended March 31, 2010, and March 31, 2009,
respectively. Frank Holmes, CEO, serves as a trustee of USGIF.
A special meeting of shareholders of USGIF and U.S. Global Accolade Funds (“USGAF”) was held on
September 23, 2008, to consider several proposals. The proposals were approved effective October
1, 2008, and included (i) a reorganization of the USGIF and USGAF funds from two separate
Massachusetts business trusts into a single Delaware statutory trust under the name USGIF, (ii) a
new advisory agreement for the USGIF funds, (iii) a new distribution plan for the nine equity
USGIF funds under which U.S. Global Brokerage, Inc. is paid a fee at an annual rate of 0.25 percent
of the average daily net assets of each fund and (iv) a new administrative services agreement for
the USGIF funds. With respect to four equity funds, the new advisory agreement increased the base
advisory fee and changed the advisory fee breakpoints. In addition, administrative services that
were part of the previous advisory agreement were removed and became the subject of a separate
agreement. Under the new administrative services agreement, the USGIF funds no longer reimburse the
Company for certain legal and administrative services, but instead pay the Company compensation at
an annual rate of 0.08 percent of the average daily net assets of each fund for administrative
services provided by the Company to USGIF. A full discussion of the proposals is set forth in
proxy materials filed with the SEC by USGIF and USGAF. The Company incurred a total of $3.7
million in merger-related costs, of which $3.5 million was recorded in the first quarter of fiscal
2009.
The new advisory agreement for the nine equity USGIF funds that went into effect October 1, 2008,
provides for base advisory fees that, beginning in October 2009, were adjusted upwards or downwards
by 0.25 percent if there was a performance difference of 5 percent or more between a fund’s
performance and that of its designated benchmark index over the prior 12 months. For the quarter
and nine months ended March 31, 2010, base advisory fees were increased by $263,653 and decreased
by $133,440, respectively.
Prior to October 1, 2008, the Company contractually waived or reduced its advisory fees and/or
agreed to pay expenses on seven of thirteen funds. Effective October 1, 2008, the Company
contractually agreed to cap the expenses of all thirteen funds through September 30, 2009.
Thereafter, these caps will continue on a modified and voluntary basis at the Company’s discretion.
Effective with the March 1, 2010, offering of institutional class shares in three USGIF funds, the
Company voluntarily agreed to waive all institutional class specific expenses. The aggregate fees
waived and expenses borne by the Company for the nine months ended March 31, 2010, and March 31,
2009, were $2,659,408 and $3,988,758, respectively.
The above waived fees include amounts waived under an agreement whereby the Company has voluntarily
agreed to waive fees and/or reimburse the U.S. Treasury Securities Cash Fund and the U.S.
Government Securities Savings Fund to the extent necessary to maintain the respective fund’s yield
at a certain level as determined by the Company (Minimum Yield). For the nine months ended March
31, 2010, and March 31, 2009, fees waived and/or expenses reimbursed to maintain positive or zero
net yields in the two money market funds totaled $1,064,918 and $342,992, respectively. The Company
may recapture any fees waived and/or expenses reimbursed to support the Minimum Yield within three
years after the end of the fund’s fiscal year of such waiver and/or reimbursement to the extent
that such recapture would not cause the fund’s yield to fall below the Minimum Yield. Thus,
$170,642 of these waivers are recoverable by the Company through December 31, 2011, $1,047,980
through December 31, 2012, and $399,713 through December 31, 2013.
Management cannot predict the impact of the waivers due to the number of variables and the range of
potential outcomes; however, increases in fee waivers could be significant and could negatively
impact the Company’s revenues and net income. The Company expects to continue to waive fees and/or
pay for fund expenses if market and economic conditions warrant. However, subject to the Company’s
commitment to certain funds with respect to fee waivers and expense limitations, the Company may
reduce the amount of fund expenses it is bearing.
|
|
|
U.S. Global Investors, Inc.
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 10 of 23 |
| |
|
|
| |
On November 6, 2008, effective immediately, the Company terminated its relationship with Endeavour
Financial Corp. as the adviser to its equity portfolio. As investment adviser, the Company was
paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance
fee, if any, based on a percentage of consolidated net income from operations in excess of a
predetermined percentage return on equity. The Company recorded fees related to the Endeavour
Financial Corp. contract totaling $0 and $661,262 for the nine months ended March 31, 2010, and
March 31, 2009, respectively.
The Company continues to provide advisory services for two offshore clients and receives a monthly
advisory fee based on the net asset values of the clients and performance fees, if any, based on
the overall increase in net asset values. The Company recorded fees from these clients totaling
$308,102 and $190,579 for the nine months ended March 31, 2010, and March 31, 2009, respectively.
The performance fees for these clients are calculated and recorded quarterly in accordance with the
terms of the advisory agreements. These fees may fluctuate significantly from year to year based
on factors that may be out of the Company’s control. Frank Holmes, CEO, serves as a director of
the offshore clients.
The Company receives additional revenue from several sources including custodial fee revenues,
mailroom operations, and investment income.
Substantially all of the cash and cash equivalents included in the balance sheet at March 31, 2010,
and June 30, 2009, is invested in USGIF money market funds.
Note 6. Borrowings
As of March 31, 2010, the Company has no long-term liabilities.
The Company has access to a $1 million credit facility with a one-year maturity for working capital
purposes. The credit agreement requires the Company to maintain certain quarterly financial
covenants to access the line of credit. As of March 31, 2010, this credit facility remained
unutilized by the Company.
Note 7. Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718 Compensation – Stock
Compensation (formerly SFAS No. 123 (revised 2004) Share-Based Payment). Stock-based compensation
expense is recorded for the cost of stock options. Stock-based compensation expense for the nine
months ended March 31, 2010, and March 31, 2009, respectively, was $43,935 and $244,374. As of
March 31, 2010, and March 31, 2009, respectively, there was approximately $85,826 and $193,739 of
total unrecognized share-based compensation cost related to share-based compensation granted under
the stock option plans that will be recognized over the remainder of their respective vesting
periods.
Stock compensation plans
The Company’s stock option plans provide for the granting of class A shares as either incentive or
nonqualified stock options to employees and non-employee directors. Options are subject to terms
and conditions determined by the Compensation Committee of the Board of Directors.
The following table summarizes information about the Company’s stock option plans for the nine
months ended March 31, 2010.
| |
|
|
|
|
|
|
|
|
| |
|
Number of Options |
|
|
Weighted Average |
|
| |
|
|
|
Exercise Price |
|
Options outstanding, beginning of period |
|
|
77,300 |
|
|
$ |
13.66 |
|
Granted |
|
|
2,000 |
|
|
|
12.31 |
|
Exercised |
|
|
(24,000 |
) |
|
|
0.75 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
Options outstanding, end of period |
|
|
55,300 |
|
|
$ |
19.21 |
|
|
|
|
|
|
|
|
Options exercisable, end of period |
|
|
47,120 |
|
|
$ |
19.50 |
|
|
|
|
|
|
|
|
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 11 of 23 |
|
|
|
| |
Note 8. Earnings Per Share
The basic earnings per share (“EPS”) calculation excludes dilution and is computed by dividing net
income 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 following table sets forth the computation for basic and diluted EPS:
| |
|
|
|
|
|
|
|
|
| |
|
Nine Month Ended March 31, |
| |
|
2010 |
|
|
2009 |
Net income (loss) |
|
$ |
4,378,529 |
|
|
$ |
(3,200,500 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding
shares |
|
|
|
|
|
|
|
|
Basic |
|
$ |
15,333,142 |
|
|
|
15,266,073 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
3,343 |
|
|
|
- |
|
|
|
|
|
|
|
|
Diluted |
|
|
15,336,485 |
|
|
|
15,266,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.29 |
|
|
$ |
(0.21 |
) |
Diluted |
|
$ |
0.29 |
|
|
$ |
(0.21 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended March 31, |
| |
|
2010 |
|
|
2009 |
Net income (loss) |
|
$ |
1,473,970 |
|
|
$ |
327,809 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of outstanding
shares |
|
|
|
|
|
|
|
|
Basic |
|
|
15,350,888 |
|
|
|
15,275,056 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
2,616 |
|
|
|
20,240 |
|
|
|
|
|
|
|
|
Diluted |
|
|
15,353,504 |
|
|
|
15,295,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.10 |
|
|
$ |
0.02 |
|
Diluted |
|
$ |
0.10 |
|
|
$ |
0.02 |
|
The diluted EPS calculation excludes the effect of stock options when their exercise prices
exceed the average market price for the period. For the three and nine months ended March 31, 2010,
45,300 options were excluded from diluted EPS. For the three months ended March 31, 2009, 53,300
options were excluded from diluted EPS. For the nine months ending March 31, 2009, no options were
included in the computation of diluted earnings per share because they would be antidilutive due to
the net loss.
The Company may repurchase stock from employees. The Company made no repurchases of shares of its
class A, class B, or class C common stock during the quarter ended March 31, 2010. Upon repurchase,
these shares are classified as treasury shares and are deducted from outstanding shares in the
earnings per share calculation.
Note 9. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. 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 current deferred tax asset primarily consists of unrealized
losses on trading securities as well as temporary differences in the deductibility of prepaid
expenses and accrued liabilities. The long-term deferred tax asset is composed primarily of
unrealized losses on available-for-sale securities and the difference in tax treatment of stock
options.
A valuation allowance is provided when it is more likely than not that some portion of the deferred
tax amount will not be realized. No valuation allowance was included or deemed necessary at March
31, 2010, or June 30, 2009.
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 12 of 23 |
|
|
|
| |
Note 10. Financial Information by Business Segment
The Company operates principally in two business segments: providing investment management services
to the funds it manages and investing for its own account in an effort to add growth and value to
its cash position. The following schedule details total revenues and income by business segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment |
|
|
|
|
|
|
|
| |
|
Management |
|
|
Corporate |
|
|
|
|
| |
|
Services |
|
|
Investments |
|
|
Consolidated |
Nine months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
25,285,111 |
|
|
$ |
1,133,470 |
|
|
$ |
26,418,581 |
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
5,851,434 |
|
|
|
1,117,932 |
|
|
|
6,969,366 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
243,623 |
|
|
|
- |
|
|
|
243,623 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
461,739 |
|
|
|
- |
|
|
|
461,739 |
|
|
|
|
|
|
|
|
|
|
|
Gross identifiable assets at March 31, 2010 |
|
|
30,801,546 |
|
|
|
8,701,072 |
|
|
|
39,502,618 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
|
|
|
|
|
|
|
|
791,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets at March 31, 2010 |
|
|
|
|
|
|
|
|
|
$ |
40,294,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
21,938,604 |
|
|
$ |
(5,272,306 |
) |
|
$ |
16,666,298 |
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
2,083,777 |
|
|
|
(5,284,277 |
) |
|
|
(3,200,500 |
) |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
213,995 |
|
|
|
- |
|
|
|
213,995 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
1,263,555 |
|
|
|
- |
|
|
|
1,263,555 |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
9,042,644 |
|
|
$ |
318,447 |
|
|
$ |
9,361,091 |
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
1,972,233 |
|
|
|
310,441 |
|
|
|
2,282,674 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
80,371 |
|
|
|
- |
|
|
|
80,371 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
45,751 |
|
|
|
- |
|
|
|
45,751 |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
4,901,996 |
|
|
$ |
90,801 |
|
|
$ |
4,992,797 |
|
|
|
|
|
|
|
|
|
|
|
Net income before income taxes |
|
|
246,135 |
|
|
|
81,674 |
|
|
|
327,809 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
67,223 |
|
|
|
- |
|
|
|
67,223 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
86,050 |
|
|
|
- |
|
|
|
86,050 |
|
|
|
|
|
|
|
|
|
|
|
Note 11. Contingencies and Commitments
The Company continuously reviews all investor, employee and vendor complaints, and pending or
threatened litigation. The likelihood that a loss contingency exists is evaluated through
consultation with legal counsel, and a loss contingency is recorded if probable and reasonably
estimatable.
During the normal course of business, the Company may be subject to claims, legal proceedings, and
other contingencies. These matters are subject to various uncertainties, and it is possible that
some of these matters may be resolved unfavorably. The Company establishes accruals for matters for
which the outcome is probable and can be reasonably estimated. Management believes that any
liability in excess of these accruals upon the ultimate resolution of these matters will not have a
material adverse effect on the consolidated financial statements of the Company.
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 13 of 23 |
|
|
|
| |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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, (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.
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. Although the Company generates
the majority of its revenues from its investment advisory segment, the Company holds a significant
amount of its total assets in investments. The following is a brief discussion of the Company’s
two business segments.
Investment Management Products and Services
The Company generates substantially all of its operating revenues from managing and servicing USGIF
and other advisory clients. 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 funds’ asset levels, thereby affecting income and results of operations.
On November 6, 2008, effective immediately, the Company terminated its relationship with Endeavour
Financial Corp. as the adviser to its equity portfolio. As investment adviser, the Company was
paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance
fee, if any, based on a percentage of consolidated net income from operations in excess of a
predetermined percentage return on equity. The Company recorded fees totaling $0 and $661,262 for
the nine months ended March 31, 2010, and March 31, 2009, respectively.
The Company continues to provide advisory services for two offshore clients and receives monthly
advisory fees based on the net asset values of the clients and performance fees, if any, based on
the overall increase in net asset values. The Company recorded fees from these clients totaling
$308,102 and $190,579 for the nine months ended March 31, 2010, and March 31, 2009, respectively.
The performance fees for these clients are calculated and recorded quarterly in accordance with the
terms of the advisory agreements. These fees may fluctuate significantly from year to year based
on factors that may be out of the Company’s control. Frank Holmes, CEO, serves as a director of
the offshore clients.
At March 31, 2010, total assets under management as of period end, including both SEC-registered
funds and offshore clients, were $2.652 billion versus $1.933 billion at March 31, 2009, and $2.222
billion at June 30, 2009. During the nine and three months ended March 31, 2010, average assets
under management were $2.549 billion and $2.629 billion, respectively, versus $2.670 billion and
$1.902 billion for the same periods ended March 31, 2009.
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. Company compliance and operational personnel review and monitor
these activities, and various reports are provided to investment advisory clients.
Investment income (loss) from the Company’s investments includes:
| |
• |
|
realized gains and losses on sales of securities; |
| |
• |
|
unrealized gains and losses on trading securities; |
| |
• |
|
realized foreign currency gains and losses; |
| |
• |
|
other-than-temporary impairments on available-for-sale securities; and |
| |
• |
|
dividend and interest income. |
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.
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 14 of 23 |
|
|
|
| |
As of March 31, 2010, the Company held investments with a market value of approximately $8.682
million and a cost basis of approximately $8.071 million. The market value of these investments is
approximately 21.5 percent of the Company’s total assets. The Company currently has no investments
in debt securities or mortgage-backed securities.
The following summarizes investment income (loss) reflected in earnings for the periods discussed:
| |
|
|
|
|
|
|
|
|
| Investment Income (Loss) |
|
Nine Months Ended March 31, |
|
| |
|
2010 |
|
|
2009 |
|
Realized losses on sales of trading securities |
|
$ |
(58,598 |
) |
|
$ |
- |
|
Realized gain on sales of available-for-sale securities |
|
|
22 |
|
|
|
- |
|
Unrealized gains (losses) on trading securities |
|
|
1,191,850 |
|
|
|
(2,798,736 |
) |
Realized foreign currency gains (losses) |
|
|
196 |
|
|
|
(53,295 |
) |
Other-than-temporary declines in available-for-sale
securities |
|
|
- |
|
|
|
(2,456,618 |
) |
Dividend and interest income |
|
|
138,047 |
|
|
|
340,419 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
1,271,517 |
|
|
$ |
(4,968,230 |
) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Investment Income |
|
Three Months Ended March 31, |
|
| |
|
2010 |
|
|
2009 |
|
Unrealized gains on trading securities |
|
$ |
321,361 |
|
|
$ |
37,910 |
|
Realized foreign currency losses |
|
|
(2,916 |
) |
|
|
(4,500 |
) |
Dividend and interest income |
|
|
56,878 |
|
|
|
59,384 |
|
|
|
|
|
|
|
|
Total Investment Income |
|
$ |
375,323 |
|
|
$ |
92,794 |
|
|
|
|
|
|
|
|
RESULTS OF OPERATIONS – NINE MONTHS ENDED MARCH 31, 2010, AND 2009
The Company posted net after-tax income of $4,378,529 ($0.29 income per share) for the nine
months ended March 31, 2010, compared with a net after-tax loss of $3,200,500 ($0.21 loss per
share) for the nine months ended March 31, 2009.
Revenues
Total consolidated revenues for the nine months ended March 31, 2010, increased $9,752,283, or 59
percent, compared with the nine months ended March 31, 2009. This increase was primarily
attributable to the following:
| |
• |
|
Investment income increased by $6,240,000 primarily as a result of a rebound from
declines in the market value of trading securities as well as other-than-temporary
impairments in the comparable period; |
| |
| |
• |
|
Distribution and administrative fees increased by $2,689,000. Prior year comparative
figures include only six months of fees since the fees commenced on October 31, 2008,
whereas current year numbers include nine months; and |
| |
| |
• |
|
Mutual fund investment advisory fees increased by approximately $1,986,000 primarily as
a result of increased assets under management in the natural resources and international
equity funds. |
Expenses
Total consolidated expenses for the nine months ended March 31, 2010, decreased $2,074,214, or 10
percent, compared with the nine months ended March 31, 2009. This was largely attributable to the
following:
| |
• |
|
General and administrative expenses decreased by $2,935,000 primarily due to prior
period proxy-related costs associated with the merger of the USGIF
and USGAF trusts; and |
| |
| |
• |
|
Subadvisory fees decreased by $1,880,000 due to a prior period change in the subadvisory
contract. |
These decreases were offset to a certain degree by the following increases:
| |
• |
|
Employee compensation and benefits increased by $1,986,000 primarily as a result of
higher performance-based bonuses; and |
| |
| |
• |
|
Advertising expenses increased $418,000 as a result of increased marketing activity. |
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 15 of 23 |
|
|
|
| |
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2010, AND 2009
The Company posted net after-tax income of $1,473,970 ($0.10 income per share) for the three
months ended March 31, 2010, compared with net after-tax income of $327,809 ($0.02 per share) for
the three months ended March 31, 2009.
Revenues
Total consolidated revenues for the three months ended March 31, 2010, increased $4,368,294, or 87
percent, compared with the three months ended March 31, 2009. This increase was primarily
attributable to the following:
| |
• |
|
Mutual fund investment advisory fees increased by approximately $3,330,000 primarily as
a result of increased assets under management in the natural resources and international
equity funds; |
| |
| |
• |
|
Distribution and administrative fees increased by $555,000 due to increased assets under
management; and |
| |
| |
• |
|
Investment income increased by $283,000, primarily as a result of a rebound from
declines in the market value of trading securities. |
Expenses
Total consolidated expenses for the three months ended March 31, 2010, increased $2,450,147, or 53
percent, compared with the three months ended March 31, 2009. This was largely attributable to the
following:
| |
• |
|
Employee compensation and benefits increased by $1,148,000 primarily as a result of
higher performance-based bonuses; |
| |
| |
• |
|
Platform fees increased by $656,000 as a result of increased assets under management; |
| |
| |
• |
|
General and administrative expenses increased by $329,000 due to increased donations and
travel expenses; and |
| |
| |
• |
|
Advertising expenses increased $243,000 as a result of increased marketing activity. |
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2010, the Company had net working capital (current assets minus current liabilities)
of approximately $28.2 million and a current ratio (current assets divided by current liabilities)
of 8.1 to 1. With approximately $22.4 million in cash and cash equivalents and $8.7 million in
marketable securities, the Company has adequate liquidity to meet its current obligations. Total
shareholders’ equity was approximately $36.3 million, with cash, cash equivalents, and marketable
securities comprising over 77 percent of total assets.
As of March 31, 2010, the Company has no long-term liabilities. The Company has access to a $1
million credit facility with a one-year maturity for working capital purposes. The credit agreement
requires the Company to maintain certain quarterly financial covenants to access the line of
credit. As of March 31, 2010, this credit facility remained unutilized by the Company.
Management believes current cash reserves, financing obtained and/or available, and potential cash
flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the
above-mentioned activities and allow the Company to take advantage of opportunities for growth
whenever available.
Market volatility may cause the price of the Company’s publicly traded class A shares to fluctuate,
which in turn may allow the Company an opportunity to buy back stock at favorable prices.
The investment advisory and related contracts between the Company and USGIF were renewed effective
October 1, 2009. The Company provides advisory services to two offshore clients for which the
Company receives a monthly advisory fee and a quarterly performance fee, if any, based on
agreed-upon performance measurements. The contracts between the Company and these offshore clients
expire periodically, and management anticipates that its offshore clients will renew the contracts.
The Company receives additional revenue from several sources including custodial fee revenues,
mailroom operations, and investment income.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company is subject to extensive and often complex and frequently changing governmental
regulation and accounting oversight. Moreover, financial reporting requirements, such as those
listed below, and the processes, controls and procedures that have been put in place to address
them, are comprehensive and complex. While management has focused considerable attention and
resources on meeting these reporting requirements, interpretations by regulatory or accounting
agencies that differ from those of the Company could negatively impact financial results.
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 16 of 23 |
|
|
|
| |
In June 2009, the FASB removed the concept of a qualifying special-purpose entity and removed the
exception from applying in consolidation of variable interest entities to qualifying
special-purpose entities in ASC 860 Transfers and Servicing (formerly SFAS No. 166, Accounting for
Transfers of Financial Assets – an amendment of FASB Statement No. 140). This standard is effective
for both interim and annual periods as of the beginning of each reporting entity’s first annual
reporting period that begins after November 15, 2009. Management is in the process of determining
the effect the adoption of this standard will have on the Company’s Consolidated Financial
Statements.
Effective for both interim and annual periods as of the beginning of each reporting entity’s first
annual report period beginning after November 15, 2009, enterprises are required to perform an
analysis to determine whether the enterprise’s variable interest or interests give it a controlling
financial interest in a variable interest entity, in accordance with ASC 810 Consolidation
(formerly SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). Management is in the process
of determining the effect the adoption of this standard will have on the Company’s Consolidated
Financial Statements.
In June 2009, the FASB established the Codification as the source of authoritative GAAP recognized
by the FASB, to be applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date,
the Codification superseded all then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification became
nonauthoritative. Codification is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The adoption of Codification did not have a material
affect our financial position or results of operations. Commencing with the Form 10-Q for the
September 30, 2009 quarter end, future filings with the SEC will reference the Codification rather
than prior accounting and reporting standards.
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, Improving
Disclosures about Fair Value Measurements. This ASU will add new requirements for disclosures into
and out of Levels 1 and 2 fair-value measurements and information on purchases, sales, issuances
and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. It also
clarifies existing fair value disclosures about the level of disaggregation, inputs and valuation
techniques. Except for the detailed Level 3 reconciliation disclosures, the guidance in the ASU is
effective for annual and interim reporting periods in fiscal years beginning after December 15,
2009. The new disclosures for Level 3 activity are effective for annual and interim reporting
periods in fiscal years beginning after December 15, 2010. Management is in the process of
determining the effect the adoption of this standard will have on the Company’s Consolidated
Financial Statement disclosures.
CRITICAL ACCOUNTING POLICIES
For a discussion of 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, 2009.
| |
|
|
|
U.S. Global Investors, Inc. |
|
|
March 31, 2010, Quarterly Report on Form 10-Q
|
|
Page 17 of 23 |
|
|
|
| |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s balance sheet includes assets whose fair value is subject to market risks. Due to the
Company’s investments in equity securities (foreign and domestic), 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 market value.
Global financial markets continue to experience unprecedented volatility, and unpredictable
business conditions remain foreseeable for the future. These market conditions have produced
substantial reductions in the Company’s assets under management, which directly impact the
Company’s revenues and net income. Continued market volatility and disruptions in the global
financial markets could substantially impact the Company.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and
various reports are provided to investment advisory clients. Written procedures are also in place
to manage compliance with the code of ethics.
The table below summarizes the Company’s equity price risks as of March 31, 2010, and shows the
effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.
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Estimated Fair |
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Value After |
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Increase (Decrease) in |
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Fair Value at |
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Hypothetical |
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Hypothetical Price |
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Shareholders’ Equity, |
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March 31, 2010 |
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Percentage Change |
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Change |
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Net of Tax |
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Trading securities 1 |
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$5,390,041 |
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25% increase |
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$6,737,551 |
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$889,357 |
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25% decrease |
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$4,042,531 |
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($889,357 |
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Available-for-sale 2 |
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$3,291,782 |
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25% increase |
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$4,114,728 |
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$543,144 |
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25% decrease |
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$2,468,837 |
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($543,144 |
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Unrealized and realized gains and losses on trading securities are included in earnings in
the statement of
operations.
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Unrealized and realized gains and losses on available-for-sale securities are excluded from
earnings and
recorded in other comprehensive income as a component of shareholders’ equity until realized.
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The selected hypothetical change does not reflect what could be considered best or worst-case
scenarios. Results could be significantly worse due to both the nature of equity markets and the
concentration of the Company’s investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures as of March 31, 2010, was conducted under the supervision and with the participation
of management, including the Chief Executive Officer and Chief Financial Officer. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of March 31, 2010.
There has been no change in the Company’s internal control over financial reporting that occurred
during the quarter ended March 31, 2010, that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial reporting.
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U.S. Global Investors, Inc. |
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March 31, 2010, Quarterly Report on Form 10-Q
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Page 18 of 23 |
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
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, 2009. There has been no
material changes since fiscal year end to the risk factors listed therein.
ITEM 6. EXHIBITS
1. Exhibits –
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10.2 |
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Amended and Restated Transfer Agency Agreement, dated January 15, 2010, by and between
U.S. Global Investors Funds and United Shareholder Services, Inc., incorporated by
reference to Post-Effective Amendment 105 filed February 26, 2010 (EDGAR Accession
No. 0000950123-10-018191). |
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10.3 |
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Amended and Restated Administrative Services Agreement, dated January 15, 2010, by and
between U.S. Global Investors Funds and U.S. Global Investors, Inc., incorporated by
reference to Post-Effective Amendment 105 filed February 26, 2010 (EDGAR Accession
No. 0000950123-10-018191). |
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10.4 |
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Amended and Restated Distribution Plan Pursuant to Rule 12b-1 Plan, dated January 15,
2010, by and between U.S. Global Investors Funds and U.S. Global Brokerage, Inc.,
incorporated by reference to Post-Effective Amendment 105 filed February 26, 2010 (EDGAR
Accession No. 0000950123-10-018191). |
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10.5 |
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Amended and Restated Distribution Agreement dated March 4, 2010, by and between U.S.
Global Investors Funds and U.S. Global Brokerage, Inc., incorporated by reference to
Post-Effective Amendment 107 filed April 30, 2010 (EDGAR Accession No.
0001104659-10-024038). |
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31 |
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Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act Of 2002 |
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32 |
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Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act Of 2002 |
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U.S. Global Investors, Inc. |
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March 31, 2010, Quarterly Report on Form 10-Q
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Page 19 of 23 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereto duly authorized.
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U.S. GLOBAL INVESTORS, INC.
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DATED: May 6, 2010
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BY:
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/s/ Frank E. Holmes |
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Frank E. Holmes |
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Chief Executive Officer |
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DATED: May 6, 2010
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BY:
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/s/ Catherine A. Rademacher |
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Catherine A. Rademacher |
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Chief Financial Officer |
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