e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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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, 2006 |
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
(State or Other Jurisdiction of
Incorporation or Organization)
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74-1598370
(IRS Employer Identification Number) |
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7900 Callaghan Road
San Antonio, Texas
(Address of Principal Executive Offices)
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78229-1234
(Zip Code) |
(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 is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o |
Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
On May 8, 2006, there were 6,392,974 shares of Registrant’s class A nonvoting common stock issued
and 6,063,157 shares of Registrant’s class A nonvoting common stock issued and outstanding, no
shares of Registrant’s class B nonvoting common shares outstanding, and 1,496,800 shares of
Registrant’s class C common stock issued and outstanding.
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U.S. Global Investors, Inc.
March 31, 2006, 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
Assets
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MARCH 31, 2006 |
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JUNE 30, 2005 |
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(UNAUDITED) |
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Current Assets |
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Cash and cash equivalents |
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$ |
6,908,092 |
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$ |
3,814,178 |
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Trading securities, at fair value |
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4,806,964 |
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2,612,529 |
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Receivables |
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Mutual funds, net of allowance of $0 and $26,488
at March 31, 2006, and June 30, 2005,
respectively |
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4,465,657 |
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2,221,148 |
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Other advisory clients |
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552,478 |
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54,140 |
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Employees |
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3,567 |
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750 |
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Other |
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213,187 |
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43,274 |
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Prepaid expenses |
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728,431 |
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450,963 |
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Deferred tax asset |
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— |
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80,989 |
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Total Current Assets |
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17,678,376 |
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9,277,971 |
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Net Property and Equipment |
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2,054,567 |
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1,768,334 |
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Other Assets |
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Long-term deferred tax asset |
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193,414 |
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165,749 |
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Investment securities available for sale,
at fair value |
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71,311 |
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890,461 |
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Total Other Assets |
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264,725 |
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1,056,210 |
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Total Assets |
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$ |
19,997,668 |
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$ |
12,102,515 |
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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, 2006, Quarterly Report on Form 10-Q
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Page 2 of 23 |
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Liabilities and Shareholders’ Equity
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MARCH 31, 2006 |
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JUNE 30, 2005 |
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(UNAUDITED) |
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Current Liabilities |
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Accounts payable |
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$ |
343,243 |
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$ |
193,249 |
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Accrued compensation and related costs |
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1,365,359 |
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525,140 |
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Deferred tax liability |
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503,448 |
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— |
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Other accrued expenses |
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2,975,963 |
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1,481,038 |
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Total Current Liabilities |
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5,188,013 |
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2,199,427 |
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Total Liabilities |
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5,188,013 |
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2,199,427 |
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Shareholders’ Equity |
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Common stock (Class A) — $.05 par value;
nonvoting; authorized, 7,000,000 shares; issued,
6,392,974 shares and 6,316,474 shares at March
31, 2006, and June 30, 2005, respectively |
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319,649 |
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315,824 |
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Common stock (Class B) — $.05 par value;
nonvoting; authorized, 2,250,000 shares; no
shares issued |
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— |
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— |
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Common stock (Class C) — $.05 par value; voting;
authorized, 1,750,000 shares; issued, 1,496,800
shares |
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74,840 |
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74,840 |
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Additional paid-in-capital |
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11,603,283 |
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11,008,535 |
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Treasury stock, class A shares at cost; 330,411
and 326,988 shares at March 31, 2006, and June
30, 2005, respectively |
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(783,277 |
) |
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(650,592 |
) |
Accumulated other comprehensive income, net of tax |
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17,072 |
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390,329 |
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Retained earnings (deficit) |
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3,578,088 |
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(1,235,848 |
) |
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Total Shareholders’ Equity |
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14,809,655 |
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9,903,088 |
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Total Liabilities and Shareholders’ Equity |
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$ |
19,997,668 |
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$ |
12,102,515 |
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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, 2006, 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 (Unaudited)
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Nine Months Ended |
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Three Months Ended |
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March 31, |
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March 31, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenues |
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Investment advisory fees |
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$ |
19,860,474 |
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$ |
9,755,081 |
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$ |
8,482,770 |
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$ |
4,159,173 |
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Transfer agent fees |
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3,545,385 |
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2,295,751 |
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1,325,893 |
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834,429 |
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Investment income (loss) |
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2,349,811 |
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(212,457 |
) |
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1,695,269 |
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(146,464 |
) |
Other |
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136,692 |
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113,951 |
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53,076 |
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38,561 |
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25,892,362 |
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11,952,326 |
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11,557,008 |
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4,885,699 |
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Expenses |
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Employee compensation and benefits |
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6,433,094 |
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4,371,688 |
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2,470,860 |
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1,528,571 |
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General and administrative |
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3,508,338 |
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2,607,660 |
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1,270,690 |
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|
935,892 |
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Subadvisory fees |
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5,096,173 |
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|
1,746,504 |
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2,301,638 |
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|
902,685 |
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Omnibus platform fees |
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2,868,573 |
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1,186,046 |
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1,256,850 |
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567,377 |
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Advertising |
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358,546 |
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286,679 |
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118,625 |
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|
193,279 |
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Depreciation |
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|
100,972 |
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|
81,701 |
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|
40,042 |
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27,335 |
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18,365,696 |
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10,280,278 |
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|
7,458,705 |
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4,155,139 |
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Income Before Income Taxes |
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7,526,666 |
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1,672,048 |
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|
4,098,303 |
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|
730,560 |
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Provision for Federal Income Taxes |
|
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Tax Expense |
|
|
2,712,730 |
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|
575,488 |
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1,547,895 |
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|
281,649 |
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|
|
|
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Net Income |
|
|
4,813,936 |
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|
1,096,560 |
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|
2,550,408 |
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|
448,911 |
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|
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|
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Other comprehensive income (loss),
net of tax |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on
available-for-sale securities |
|
|
(373,257 |
) |
|
|
(9,404 |
) |
|
|
(283,553 |
) |
|
|
(103,722 |
) |
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|
|
|
|
|
|
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|
|
|
|
|
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Comprehensive Income |
|
$ |
4,440,679 |
|
|
$ |
1,087,156 |
|
|
|
2,266,855 |
|
|
$ |
345,189 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
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Basic Net Income per Share |
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$ |
0.64 |
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|
$ |
0.15 |
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$ |
0.34 |
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$ |
0.06 |
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|
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Diluted Net Income per Share |
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$ |
0.64 |
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$ |
0.15 |
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$ |
0.34 |
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|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic weighted average number of
common shares outstanding |
|
|
7,498,663 |
|
|
|
7,478,538 |
|
|
|
7,509,178 |
|
|
|
7,481,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of
common shares outstanding |
|
|
7,560,198 |
|
|
|
7,553,416 |
|
|
|
7,576,235 |
|
|
|
7,577,374 |
|
The accompanying notes are an integral part of this statement.
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U.S. Global Investors, Inc.
March 31, 2006, 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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2006 |
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2005 |
|
Cash Flows from Operating Activities: |
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Net income |
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$ |
4,813,936 |
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$ |
1,096,560 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
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Depreciation |
|
|
100,972 |
|
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|
81,701 |
|
Net recognized loss (gain) on securities |
|
|
(751,694 |
) |
|
|
184,253 |
|
Loss (gain) on disposal of fixed assets |
|
|
3,189 |
|
|
|
(297 |
) |
Provision for deferred taxes |
|
|
749,056 |
|
|
|
173,605 |
|
Provision for losses on accounts receivable |
|
|
(26,488 |
) |
|
|
(11,623 |
) |
Changes in assets and liabilities, impacting cash from
operations: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,889,089 |
) |
|
|
(1,084,823 |
) |
Prepaid expenses and other |
|
|
(277,468 |
) |
|
|
(315,100 |
) |
Trading securities |
|
|
(1,958,499 |
) |
|
|
(566,553 |
) |
Accounts payable and accrued expenses |
|
|
2,184,625 |
|
|
|
804,033 |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(2,865,396 |
) |
|
|
(1,162,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
1,948,540 |
|
|
|
361,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(390,394 |
) |
|
|
(13,276 |
) |
Purchase of available-for-sale securities |
|
|
(8,419 |
) |
|
|
— |
|
Proceeds on sale of available-for-sale securities |
|
|
777,787 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Investing Activities |
|
|
378,974 |
|
|
|
(13,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance or exercise of stock,
warrants, and options |
|
|
479,689 |
|
|
|
60,577 |
|
FAS 123R adjustment |
|
|
17,475 |
|
|
|
— |
|
Benefit from tax deduction in excess of
stock-based compensation cost |
|
|
350,451 |
|
|
|
— |
|
Purchase of treasury stock |
|
|
(164,654 |
) |
|
|
(6,902 |
) |
Treasury stock issued |
|
|
83,439 |
|
|
|
— |
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
766,400 |
|
|
|
53,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Cash Equivalents |
|
|
3,093,914 |
|
|
|
402,155 |
|
|
|
|
|
|
|
|
|
|
Beginning Cash and Cash Equivalents |
|
|
3,814,178 |
|
|
|
2,831,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Cash and Cash Equivalents |
|
$ |
6,908,092 |
|
|
$ |
3,233,831 |
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of this statement.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 5 of 23 |
| |
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 and
the rules and regulations of the Securities and Exchange Commission 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 year ended June 30, 2005.
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries, United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), U.S. Global
Investors (Guernsey) Limited (USGG), U.S. Global Brokerage, Inc.
(USGB), and U.S. Global Investors
(Bermuda) Limited (USBERM).
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-month and three-month periods ended March 31, 2006, are not necessarily indicative of the results to be expected for the entire year.
Note 2. Investments
As of March 31, 2006, the Company held investments with a market value of $4.88 million and a cost
basis of $3.86 million. The market value of these investments is approximately 24.4 percent of the
Company’s total assets.
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.
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. The following summarizes the market value, cost, and unrealized gain or loss on
investments as of March 31, 2006, and June 30, 2005.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Holding |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale |
|
| |
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Securities, |
|
| Securities |
|
Market Value |
|
|
Cost |
|
|
Gain (Loss) |
|
|
Net of 34% Tax |
|
| |
Trading1 |
|
$ |
4,806,964 |
|
|
$ |
3,814,280 |
|
|
$ |
992,684 |
|
|
|
|
|
Available for sale2 |
|
|
71,311 |
|
|
|
45,444 |
|
|
|
25,867 |
|
|
$ |
17,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at March 31, 2006 |
|
$ |
4,878,275 |
|
|
$ |
3,859,724 |
|
|
$ |
1,018,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading1 |
|
$ |
2,612,529 |
|
|
$ |
3,040,700 |
|
|
$ |
(428,171 |
) |
|
|
|
|
Available for sale2 |
|
|
890,461 |
|
|
|
299,055 |
|
|
|
591,406 |
|
|
$ |
390,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at June 30, 2005 |
|
$ |
3,502,990 |
|
|
$ |
3,339,755 |
|
|
$ |
163,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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. |
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 6 of 23 |
| |
Investment income can be volatile and may vary 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 ending March 31, 2006, 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, |
|
|
|
2006 |
|
|
2005 |
|
| |
Realized gains on sales of available-for-sale securities |
|
$ |
544,414 |
|
|
$ |
— |
|
Realized gains (losses) on sales of trading securities |
|
|
235,936 |
|
|
|
(78,253 |
) |
Unrealized gains (losses) on trading securities |
|
|
1,420,855 |
|
|
|
(75,230 |
) |
Realized foreign currency losses |
|
|
(13,771 |
) |
|
|
— |
|
Other-than-temporary declines in available-for-sale securities |
|
|
(28,655 |
) |
|
|
(106,000 |
) |
Dividend and interest income |
|
|
191,032 |
|
|
|
47,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
2,349,811 |
|
|
$ |
(212,457 |
) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Investment Income (Loss) |
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
| |
Realized gains on sales of available-for-sale securities |
|
$ |
529,705 |
|
|
$ |
— |
|
Realized gains (losses) on sales of trading securities |
|
|
147,426 |
|
|
|
(77,527 |
) |
Unrealized gains (losses) on trading securities |
|
|
941,404 |
|
|
|
(79,920 |
) |
Realized foreign currency losses |
|
|
(15,118 |
) |
|
|
— |
|
Other-than-temporary declines in available-for-sale securities |
|
|
— |
|
|
|
(11,130 |
) |
Dividend and interest income |
|
|
91,852 |
|
|
|
22,113 |
|
|
|
|
|
|
|
|
Total Investment Income (Loss) |
|
$ |
1,695,269 |
|
|
$ |
(146,464 |
) |
|
|
|
|
|
|
|
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 7 of 23 |
| |
Note 3. Investment Management, Transfer Agent, and Other Fees
The Company serves as investment adviser to U.S. Global Investors Funds (USGIF) and U.S. Global
Accolade Funds (USGAF) and receives a fee based on a specified percentage of net assets under
management. Three of the four funds within USGAF are sub-advised by third-party managers, who are
in turn compensated out of the investment advisory fees received by the Company. The Company also
serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder
accounts. Additionally, the Company provides in-house legal services to USGIF and USGAF for which
it is reimbursed and receives certain miscellaneous fees directly from USGAF and USGIF
shareholders. Fees for providing investment management and transfer agent services to USGIF and
USGAF continue to be the Company’s primary revenue source.
The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses
on several funds within USGIF funds and one USGAF fund through November 1, 2006, and February 28,
2007, respectively, or such later date as the Company determines. The aggregate fees waived and
expenses borne by the Company for the nine-month periods ended March 31, 2006, and 2005 were
$1,010,000, and $1,090,000, respectively.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire
on February 28, 2007 and May 31, 2006, respectively. Management anticipates the trustees of both
USGIF and USGAF will renew the contracts.
In the first quarter of fiscal year 2005, the Company began providing management and advisory
services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund. The Company
receives a monthly management fee and a quarterly performance fee, if any, based on the overall
increase in value of the net assets in the fund for the quarter. The Company recorded fees totaling
$873,650 and $235,703 for the nine months ended March 31, 2006, and March 31, 2005, respectively.
The Company recorded total fees of $377,661 and $178,107, respectively, for the three months ended
March 31, 2006, and March 31, 2005. Frank Holmes, a director and CEO of the Company, is a director
of Meridian Fund Managers Ltd., the manager of the fund.
In the first quarter of fiscal year 2006, the Company began providing management and advisory
services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For
these services, the Company is paid a monthly management fee and a quarterly performance fee, if
any. The Company recorded fees totaling $99,011 for the nine months ended March 31, 2006. For the
three months ended March 31, 2006, the Company recorded total fees of $68,711. Holmes is a director
of U.S. Global Investors Balanced Natural Resources Fund Ltd.
In the third quarter of fiscal year 2006, the Company began providing investment advisory services
to Endeavour Mining Capital Corp., an offshore company. The Company is paid a monthly management
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 $106,230 in management fees for the three months ended March
31, 2006. Holmes is a member and Chairman of the Board of Directors of Endeavour Mining Capital
Corp.
The Company receives additional revenue from several sources including custodial fee revenues,
revenues from miscellaneous transfer agency activities including lockbox functions, mailroom
operations from A&B, as well as investment income.
Note 4. Credit Facility
The Company has access to a $1 million credit facility with a one-year maturity for working capital
purposes. Any use of this credit facility will be secured by the Company’s eligible accounts
receivable. As of March 31, 2006, this credit facility remained unutilized by the Company.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 8 of 23 |
| |
Note 5. Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R
eliminates the alternative to use the intrinsic value method of accounting provided in SFAS 123,
which generally resulted in no compensation expense recorded in the financial statements related to
the issuance of equity awards to employees. SFAS 123R requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements. SFAS 123R establishes
fair value as the measurement objective in accounting for share-based payment arrangements and
requires all companies to apply a fair-value-based measurement method in accounting for generally
all share-based payment transactions with employees.
On July 1, 2005 (the first day of the Company’s 2006 fiscal year), the Company adopted SFAS 123R.
The provisions of SFAS 123R became effective the first annual reporting period beginning after June
15, 2005, and the Company adopted SFAS 123R using a modified prospective application, as permitted
under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application,
the Company is required to record compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted awards that remain outstanding at the
date of adoption.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 9 of 23 |
| |
The following table details the effect on net income and earnings per share had compensation
expense for the employee stock-based awards been recorded in the nine months ended March 31, 2005,
based on the fair value method under SFAS 123. The reported and pro forma net income and earnings
per share for the nine months ended March 31, 2006, are the same since stock-based compensation
expense is calculated under the provisions of SFAS 123R. The amounts for the nine and three months
ended March 31, 2005, are included in the table below solely to provide the detail for a
comparative presentation to the period of the previous year.
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended March 31, |
|
| |
|
2006 |
|
|
2005 |
|
Net Income, as Reported |
|
$ |
4,813,936 |
|
|
$ |
1,096,560 |
|
Add: Stock-based employee compensation expense
included in reported net income, net of tax |
|
|
36,285 |
|
|
|
24,750 |
|
Deduct: Total stock-based employee compensation
expense determined under fair value based method,
net of tax |
|
|
(36,285 |
) |
|
|
(27,485 |
) |
|
|
|
|
|
|
|
Pro Forma Net Income |
|
$ |
4,813,936 |
|
|
$ |
1,093,825 |
|
|
|
|
|
|
|
|
Earnings per Share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.64 |
|
|
$ |
0.15 |
|
Basic pro forma |
|
$ |
0.64 |
|
|
$ |
0.15 |
|
Diluted as reported |
|
$ |
0.64 |
|
|
$ |
0.15 |
|
Diluted pro forma |
|
$ |
0.64 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended March 31, |
|
| |
|
2006 |
|
|
2005 |
|
Net Income, as Reported |
|
$ |
2,550,408 |
|
|
$ |
448,911 |
|
Add: Stock-based employee compensation expense
included in reported net income, net of tax |
|
|
12,095 |
|
|
|
8,250 |
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method,
net of tax |
|
|
(12,095 |
) |
|
|
(9,162 |
) |
|
|
|
|
|
|
|
Pro Forma Net Income |
|
$ |
2,550,408 |
|
|
$ |
447,999 |
|
|
|
|
|
|
|
|
Earnings per Share: |
|
|
|
|
|
|
|
|
Basic as reported |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
Basic pro forma |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
Diluted as reported |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
Diluted pro forma |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
Prior to the adoption of SFAS 123R, the Company applied Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB 25) to account for stock-based awards. Beginning
with the 2006 fiscal year, with the adoption of SFAS 123R, stock-based compensation expense was
recorded for the cost of stock options. Stock-based compensation expense for the nine months ended
March 31, 2006, was $54,975 ($36,285 after tax).
Stock compensation plans
The Company’s stock option plans provide for the granting of 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.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 10 of 23 |
| |
The following table summarizes information about our stock option plans for the nine months ended
March 31, 2006.
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
| |
|
Number of Options |
|
|
Exercise Price |
|
Options Outstanding, Beginning of Year |
|
|
164,500 |
|
|
$ |
2.11 |
|
Granted |
|
|
— |
|
|
|
— |
|
Exercised |
|
|
76,500 |
|
|
$ |
2.08 |
|
Repurchased |
|
|
10,000 |
|
|
$ |
2.00 |
|
|
|
|
|
|
|
|
|
|
Options Outstanding, End of Quarter |
|
|
78,000 |
|
|
$ |
2.15 |
|
|
|
|
|
|
|
|
|
Options Exercisable, End of Quarter |
|
|
68,000 |
|
|
$ |
1.98 |
|
|
|
|
|
|
|
|
|
Note 6. Earnings Per Share
Basic earnings per share (“EPS”) 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 earnings per share (EPS):
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended March 31, |
|
| |
|
2006 |
|
|
2005 |
|
Net Income |
|
$ |
4,813,936 |
|
|
$ |
1,096,560 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Outstanding Shares |
|
|
|
|
|
|
|
|
Basic |
|
|
7,498,663 |
|
|
|
7,478,538 |
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
61,535 |
|
|
|
74,878 |
|
|
|
|
|
|
|
|
Diluted |
|
|
7,560,198 |
|
|
|
7,553,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.64 |
|
|
$ |
0.15 |
|
Diluted |
|
$ |
0.64 |
|
|
$ |
0.15 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended March 31, |
|
| |
|
2006 |
|
|
2005 |
|
Net Income |
|
$ |
2,550,408 |
|
|
$ |
448,911 |
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Outstanding Shares |
|
|
|
|
|
|
|
|
Basic |
|
|
7,509,178 |
|
|
|
7,481,600 |
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
Employee stock options |
|
|
67,057 |
|
|
|
95,774 |
|
|
|
|
|
|
|
|
Diluted |
|
|
7,576,235 |
|
|
|
7,577,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
Diluted |
|
$ |
0.34 |
|
|
$ |
0.06 |
|
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 11 of 23 |
| |
The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed
the average market price for the period. For the nine months ended March 31, 2006, and March 31,
2005, options for -0- and 20,000 shares, respectively, were excluded from diluted EPS. For the
three-month period ended March 31, 2006, and March 31, 2005, options for -0- and -0- shares,
respectively, were excluded from diluted EPS.
Note 7. 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 liability primarily consists of temporary
differences in the deductibility of prepaid expenses and accrued liabilities, as well as unrealized
gains on trading securities. The long-term deferred tax asset is composed primarily of unrealized
tax losses on available-for-sale securities.
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 at March 31, 2006, or June 30,
2005, respectively.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 12 of 23 |
| |
Note 8. Financial Information by Business Segment
The Company operates principally in two business segments: (i) providing investment management
services to its mutual funds and private client and (ii) 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 (loss) by business segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment |
|
|
|
|
|
|
|
| |
|
Management |
|
|
Corporate |
|
|
|
|
| |
|
Services |
|
|
Investments |
|
|
Consolidated |
|
Nine Months Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
23,731,754 |
|
|
$ |
2,160,608 |
|
|
$ |
25,892,362 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
5,388,833 |
|
|
$ |
2,137,833 |
|
|
$ |
7,526,666 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
100,972 |
|
|
$ |
— |
|
|
$ |
100,972 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
390,394 |
|
|
$ |
— |
|
|
$ |
390,394 |
|
|
|
|
|
|
|
|
|
|
|
Gross identifiable assets at March 31, 2006 |
|
$ |
14,903,191 |
|
|
$ |
4,901,063 |
|
|
$ |
19,804,254 |
|
Deferred tax asset |
|
|
|
|
|
|
|
|
|
|
193,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets at March 31, 2006 |
|
|
|
|
|
|
|
|
|
$ |
19,997,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (Investment loss) |
|
$ |
12,210,817 |
|
|
$ |
(258,491 |
) |
|
$ |
11,952,326 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
1,979,067 |
|
|
$ |
(307,019 |
) |
|
$ |
1,672,048 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
81,701 |
|
|
$ |
— |
|
|
$ |
81,701 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
13,276 |
|
|
$ |
— |
|
|
$ |
13,276 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Investment |
|
|
|
|
|
|
|
| |
|
Management |
|
|
Corporate |
|
|
|
|
| |
|
Services |
|
|
Investments |
|
|
Consolidated |
|
Three Months Ended March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
9,952,444 |
|
|
$ |
1,604,564 |
|
|
$ |
11,557,008 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
2,506,389 |
|
|
$ |
1,591,914 |
|
|
$ |
4,098,303 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
40,042 |
|
|
$ |
— |
|
|
$ |
40,042 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
214,105 |
|
|
$ |
— |
|
|
$ |
214,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (Investment loss) |
|
$ |
5,053,333 |
|
|
$ |
(167,634 |
) |
|
$ |
4,885,699 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
946,722 |
|
|
$ |
(216,162 |
) |
|
$ |
730,560 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
$ |
27,335 |
|
|
$ |
— |
|
|
$ |
27,335 |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
7,837 |
|
|
$ |
— |
|
|
$ |
7,837 |
|
|
|
|
|
|
|
|
|
|
|
Note 9. 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 under the
criteria of SFAS No. 5, “Accounting for Contingencies,” through consultation with legal counsel,
and a loss contingency is recorded if the contingency is probable and reasonably estimable at the
date of the financial statements.
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, 2006, 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 Investors, Inc. 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 are made.
BUSINESS SEGMENTS
The Company, with principal operations in San Antonio, Texas, manages two business segments: (1)
the Company offers money management advisory services to meet the needs of individual and
institutional investors, and (2) the Company invests for its own account in an effort to add growth
and value to its cash position.
The Company generates substantially all its operating revenues from investment management services
for U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Although the
Company generates the majority of its revenues from this segment, the Company holds a significant
portion of its total assets in investments. The following is a brief discussion of the Company’s
two business segments.
Investment Management Advisory Services
The Company generates substantially all of its operating revenues from managing and servicing USGIF
and USGAF. 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.
During the nine-month period ended March 31, 2006, SEC registered mutual fund assets under
management averaged $2.99 billion versus $1.68 billion for the same period ended March 31, 2005.
During the quarter ended March 31, 2006, mutual fund assets under management averaged $3.78 billion
versus $2.01 billion for the same period ended March 31, 2005. This increase was primarily due to
significant increases in the natural resources and foreign equity funds under management. These
funds realized the benefit of net inflows as well as market appreciation.
In addition to managing SEC registered mutual funds, the Company provides management and advisory
services for various offshore clients. The Company receives monthly management fees and either
quarterly or annual performance fees, depending on the agreement. The Company recorded fees
totaling $1,078,891 and $235,703 for the nine months ended March 31, 2006, and March 31, 2005,
respectively. The Company recorded total fees of $552,602 and $178,107, respectively, for the three
months ended March 31, 2006, and March 31, 2005,
The Company receives additional revenue from several sources including custodial fee revenues,
revenues from miscellaneous transfer agency activities including lockbox functions, mailroom
operations from A&B, as well as investment income.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 14 of 23 |
| |
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 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.
As of March 31, 2006, the Company held approximately $4.88 million in investment securities with a
cost basis of $3.86 million. The value of these investments is approximately 24.4 percent of total
assets.
For the nine-month period ended March 31, 2006, the Company had net realized gains on
available-for-sale securities of $544,414 compared with $0 for the nine-month period ended March
31, 2005, and net realized gains on trading securities of $235,936 compared with net realized
losses of $78,253 for the nine-month period ended March 31, 2005. The change in net unrealized
holding gains and losses on trading securities held at March 31, 2006, and 2005, which has been
included in income for the nine-month period, was $1,420,855 and ($75,230), respectively.
For available-for-sale securities with declines in value that are deemed other than temporary, the
cost basis of the securities is reduced accordingly, and the resulting loss is realized in
earnings. The Company recorded other than temporary declines of $28,655 and $106,000 for the
nine-month period ended March 31, 2006, and 2005, respectively.
Dividend and interest income for the nine-month period ended March 31, 2006, was $191,032 compared
with $47,026 for the nine-month period ended March 31, 2005.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 15 of 23 |
| |
RESULTS OF OPERATIONS — NINE MONTHS ENDED MARCH 31, 2006 AND 2005
The Company posted net after-tax income of $4,813,936 ($.64 income per share) for the nine-month
period ended March 31, 2006, compared with net after-tax income of $1,096,560 ($.15 income per share) for the
nine-month period ended March 31, 2005.
Revenues
Total consolidated revenues for the nine-month period ended March 31, 2006, increased $13,940,036
or 117 percent, compared with the nine-month period ended March 31, 2005. This increase was
primarily attributable to the following:
| |
• |
|
Investment advisory fees grew by $10,105,000 as a result of increased assets under
management and growth and performance of offshore funds; |
| |
| |
• |
|
Investment income increased by $2,562,000 primarily due to an increase in realized and
unrealized gains on corporate investments classified as trading securities; and |
| |
| |
• |
|
Transfer agent fees increased by $1,250,000 primarily through growth in the number of
shareholder accounts. |
Expenses
Total consolidated expenses for the nine-month period ended March 31, 2006, increased $8,085,000 or
79 percent, compared with the nine-month period ended March 31, 2005. This was largely attributable
to the following:
| |
• |
|
Consistent with continued growth in the Eastern European Fund, subadvisory fees
increased by $3,350,000; |
| |
| |
• |
|
Driven by strong mutual fund performance, compensation expense increased by $2,061,000; |
| |
| |
• |
|
Omnibus platform fees increased by $1,683,000 due to increased mutual fund asset flows
through broker/dealer omnibus platforms; and |
| |
| |
• |
|
General and administrative expensed increased by $901,000 primarily due to consulting
fees, marketing-related travel costs, and audit fees. |
RESULTS OF OPERATIONS — QUARTER ENDED MARCH 31, 2006 AND 2005
The Company posted net after-tax income of $2,550,408 ($.34 income per share) for the three-month
period ended March 31, 2006, compared with net after-tax income of $448,911 ($.06 income per share)
for the three-month period ended March 31, 2005.
Revenues
Total consolidated revenues for the quarter ended March 31, 2006, increased $6,671,309 or 137
percent, compared with the quarter ended March 31, 2005. This increase was primarily attributable
to the following:
| |
• |
|
Investment advisory fees grew by $4,324,000 as a result of increased assets
under management and growth and performance of offshore funds; |
| |
| |
• |
|
Investment income increased by $1,842,000 primarily due to an increase in realized and
unrealized gains; and |
| |
| |
• |
|
Transfer agent fees increased by $491,000 primarily through growth in the number of
shareholder accounts. |
Expenses
Total consolidated expenses for the quarter ended March 31, 2006, increased $3,304,000, or 80
percent, compared with the quarter ended March 31, 2005. This was largely attributable to the
following:
| |
• |
|
Consistent with continued growth in the Eastern European Fund, subadvisory fees
increased by $1,399,000; |
| |
| |
• |
|
Driven by strong mutual fund performance, compensation expense increased by $942,000; |
| |
| |
• |
|
Omnibus platform fees increased by $689,000 due to increased mutual fund asset flows
through broker/dealer omnibus platforms; and |
| |
| |
• |
|
General and administrative expenses increased by $335,000 primarily due to consulting
fees, audit fees, and marketing-related travel costs. |
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 16 of 23 |
| |
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, the Company had net working capital (current assets minus current liabilities)
of approximately $12.5 million and a current ratio (current assets divided by current liabilities)
of 3.4 to 1. With approximately $6.9 million in cash and cash equivalents and approximately $4.9
million in marketable securities, the Company has adequate liquidity to meet its current
obligations. Total shareholders’ equity was approximately $14.8 million with cash, cash
equivalents, and marketable securities comprising 59% of total assets.
As of March 31, 2006, 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. Any use of this
credit facility will be secured by the Company’s eligible accounts receivable. As of March 31,
2006, the Company had not used this credit facility. The Company’s available working capital and
potential cash flow are expected to be sufficient to cover current expenses.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire
on
February 28, 2007, and May 31, 2006, respectively. Management anticipates the board of trustees of
both USGIF and USGAF will renew the contracts.
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.
CRITICAL ACCOUNTING POLICIES
Adoption of SFAS 123R
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R
eliminates the alternative to use the intrinsic value method of accounting provided in SFAS 123,
which generally resulted in no compensation expense recorded in the financial statements related to
the issuance of equity awards to employees. SFAS 123R requires that the cost resulting from all
share-based payment transactions be recognized in the financial statements. SFAS 123R establishes
fair value as the measurement objective in accounting for share-based payment arrangements and
requires all companies to apply a fair-value-based measurement method in accounting for generally
all share-based payment transactions with employees.
On July 1, 2005 (the first day of the Company’s 2006 fiscal year), the Company adopted SFAS 123R.
The provisions of SFAS 123R became effective the first annual reporting period beginning after June
15, 2005, and the Company adopted SFAS 123R using a modified prospective application, as permitted
under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application,
the Company is required to record compensation expense for all awards granted after the date of
adoption and for the unvested portion of previously granted awards that remain outstanding at the
date of adoption.
Revenue Recognition on Subadvisory Contract
In the third quarter of fiscal year 2006, the Company began providing investment advisory services
for Endeavour Mining Capital Corp. (EMCC), an offshore company. The Company is paid a monthly
management 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.
EITF Abstract Topic No. D-96, “Accounting for Management Fees Based on a Formula,” identifies two
methods by which incentive revenue may be recorded. Under “Method 1,” incentive fees are recorded
at the end of the contract year; under “Method 2,” the incentive fees are recorded periodically and
calculated as the amount that would be due under the formula at any point in time as if the
contract was terminated at that date. Management has chosen the more conservative
method (“Method 1”), in which performance fees are recorded annually at the end of each fiscal year
of EMCC. The Company recorded $106,230 in management fees for the three months ended March 31,
2006.
For discussion of the Company’s other significant accounting policies, 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, 2005.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, 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, 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.
The Company’s investment activities are reviewed and monitored by Company compliance personnel, and
various reports are provided to investment advisory clients. The Company has in place a code of
ethics that requires pre-clearance of any trading activity by the Company. 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, 2006, and shows the
effects of a hypothetical 25% increase and a 25% decrease in market prices.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SENSITIVITY ANALYSIS |
|
|
|
|
|
|
Estimated |
|
|
Increase |
|
| |
|
|
|
|
|
|
|
|
|
Fair Value after |
|
|
(Decrease) in |
|
| |
|
|
|
|
|
Hypothetical |
|
|
Hypothetical |
|
|
Shareholders' |
|
| |
|
Fair Value at |
|
|
Percentage |
|
|
Percent |
|
|
Equity, Net |
|
| |
|
March 31, 2006 |
|
|
Change |
|
|
Change |
|
|
of Tax |
|
Trading Securities |
|
$ |
4,806,964 |
|
|
25% increase |
|
$ |
6,008,706 |
|
|
$ |
793,149 |
|
|
|
|
|
|
|
25% decrease |
|
$ |
3,605,223 |
|
|
$ |
(793,149 |
) |
Available-for-Sale |
|
$ |
71,311 |
|
|
25% increase |
|
$ |
89,138 |
|
|
$ |
11,766 |
|
|
|
|
|
|
|
25% decrease |
|
$ |
53,483 |
|
|
$ |
(11,766 |
) |
1Unrealized and realized gains and losses on trading securities are included in earnings in the
statement of operations.
2Unrealized 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.
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, 2006, 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, 2006.
No change in the Company’s internal control over financial reporting has occurred during the
quarter ended March 31, 2006, that materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 18 of 23 |
| |
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
| |
31 |
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| |
32 |
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
2. Reports on Form 8-K
Current Report on Form 8-K filed February 14, 2006, filing of press release reporting earnings
and other financial results for the second quarter ended December 31, 2005.
|
|
|
U.S. Global Investors, Inc.
March 31, 2006, Quarterly Report on Form 10-Q
|
|
Page 19 of 23 |
| |
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.
| |
|
|
|
|
|
|
|
|
|
|
U.S. GLOBAL INVESTORS, INC.
|
|
|
|
|
|
|
|
|
|
DATED:
May 15, 2006
|
|
BY:
|
|
/s/ Frank E. Holmes |
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank E. Holmes |
|
|
|
|
|
|
Chief Executive Officer |
|
|
|
|
|
|
|
|
|
DATED:
May 15, 2006
|
|
BY:
|
|
/s/ Catherine A. Rademacher |
|
|
|
|
|
|
|
|
|
|
|
|
|
Catherine A. Rademacher |
|
|
|
|
|
|
Chief Financial Officer |
|
|