XFRA:UGL US Global Investors Inc Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

    FORM 10-Q    

 

[X]

   Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2012

 

For the Quarterly Period Ended March 31, 2012

OR

 

[    ]

  

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)  
     

 

Texas   74-1598370

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)

7900 Callaghan Road

San Antonio, Texas

 

78229-1234

(Zip Code)

(Address of principal executive offices)  

(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.

YES [X]                                 NO [ ]

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).

YES [X]                                 NO [ ]

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):

Large accelerated filer [    ]          Accelerated filer [X]              Non-accelerated filer [    ]          Smaller Reporting Company [    ]

(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).

YES [ ]                                NO [X]

On April 20, 2012, there were 13,862,505 shares of Registrant’s class A nonvoting common stock issued and 13,380,191 shares of Registrant’s class A nonvoting common stock issued and outstanding, no shares of Registrant’s class B nonvoting common shares outstanding, and 2,073,043 shares of Registrant’s class C voting common stock issued and outstanding.


Table of Contents

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

     1   

ITEM 1. FINANCIAL STATEMENTS

     1   

CONSOLIDATED BALANCE SHEETS

     1   

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

     3   

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED )

     4   

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

     5   

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     15   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     20   

ITEM 4. CONTROLS AND PROCEDURES

     20   

PART II. OTHER INFORMATION

     21   

ITEM 1A. RISK FACTORS

     21   

ITEM 6. EXHIBITS

     21   

SIGNATURES

     22   


Table of Contents

U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 1 OF 26

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

 

Assets  

March 31,

2012

    

June 30,

2011

 
    (UNAUDITED)         

Current Assets

    

Cash and cash equivalents

  $ 20,916,776       $         27,207,896   

Trading securities, at fair value

    5,499,418         5,703,916   

Receivables

    

Mutual funds

    2,117,649         3,259,251   

Offshore clients

    29,250         33,828   

Income tax

    527,879         244,149   

Employees

    1,777         2,200   

Other

    7,415         7,391   

Prepaid expenses

    714,845         816,814   

Deferred tax asset

    20,316         -     

Total Current Assets

    29,835,325         37,275,445   
    

Net Property and Equipment

    3,431,571         3,547,303   
    

Other Assets

    

Deferred tax asset, long term

    643,377         482,927   

Investment securities available-for-sale, at fair value

    9,238,756         4,660,928   

Total Other Assets

    9,882,133         5,143,855   

Total Assets

  $ 43,149,029       $ 45,966,603   

 

 

The accompanying notes are an integral part of this statement.

 


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 2 OF 26

 

 

 

 

 

Consolidated Balance Sheets
Liabilities and Shareholders’ Equity   

March 31,

2012

   

June 30,

2011

 
     (UNAUDITED)        

Current Liabilities

    

Accounts payable

   $ 24,736      $ 55,181   

Accrued compensation and related costs

     899,594        1,734,267   

Deferred tax liability

     -        77,432   

Dividends payable

     927,318        924,672   

Other accrued expenses

     1,287,246        2,117,604   
  

 

 

   

 

 

 

Total Current Liabilities

     3,138,894        4,909,156   
  

 

 

   

 

 

 
    

Commitments and Contingencies

    
    

Shareholders’ Equity

    

Common stock (class A) - $0.025 par value; nonvoting; authorized, 28,000,000 shares; issued, 13,862,505 and 13,862,445 shares at March 31, 2012, and June 30, 2011, respectively

     346,563        346,561   

Common stock (class B) - $0.025 par value; nonvoting; authorized, 4,500,000 shares; no shares issued

     -        -   

Convertible common stock (class C) - $0.025 par value; voting; authorized, 3,500,000 shares; issued, 2,073,043 and 2,073,103 shares at March 31, 2012, and June 30, 2011, respectively

     51,826        51,828   

Additional paid-in-capital

     15,512,692        15,267,231   

Treasury stock, class A shares at cost; 482,314 and 526,583 shares at March 31, 2012, and June 30, 2011, respectively

     (1,129,279     (1,232,929

Accumulated other comprehensive income, net of tax

     781,052        1,042,462   

Retained earnings

     24,447,281        25,582,294   
  

 

 

   

 

 

 

Total Shareholders’ Equity

     40,010,135        41,057,447   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $     43,149,029      $     45,966,603   
  

 

 

   

 

 

 

 

The accompanying notes are an integral part of this statement.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 3 OF 26

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

 

 

     Nine Months Ended March 31,     Three Months Ended March 31,  
     2012     2011     2012     2011  

Revenues

  

 

Mutual fund advisory fees

   $     11,649,691      $     20,009,026      $         2,848,116      $         7,579,190   

Distribution fees

     3,264,166        4,451,540        962,395        1,642,515   

Transfer agent fees

     2,886,989        3,878,042        855,140        1,359,188   

Administrative services fees

     1,058,160        1,427,441        312,110        526,359   

Other advisory fees

     263,634        1,276,285        86,536        116,907   

Other

     30,679        34,262        8,967        10,856   

Investment income

     56,256        1,165,114        464,863        175,216   
  

 

 

   

 

 

   

 

 

   

 

 

 
     19,209,575        32,241,710        5,538,127        11,410,231   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

  

Employee compensation and benefits

     7,781,417        9,763,236        2,368,646        3,107,156   

General and administrative

     4,392,153        5,938,744        1,412,290        1,757,752   

Platform fees

     3,150,296        4,591,891        869,437        1,726,909   

Advertising

     1,007,665        1,919,546        6,743        681,680   

Depreciation

     212,744        219,281        70,586        72,239   

Subadvisory fees

     45,000        159,994        15,000        15,000   
  

 

 

   

 

 

   

 

 

   

 

 

 
     16,589,275        22,592,692        4,742,702        7,360,736   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income Before Income Taxes

     2,620,300        9,649,018        795,425        4,049,495   

Provision for Federal Income Taxes

        

Tax expense

     974,262        3,358,954        308,287        1,355,410   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     1,646,038        6,290,064        487,138        2,694,085   

Other Comprehensive Income, Net of Tax:

        

Unrealized gains (losses) on available-for-sale securities arising during period

     (149,083     729,934        263,894        165,304   

Less: reclassification adjustment for gains/losses included in net income

     (112,327     (60,894     (112,327     (20,264
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

   $ 1,384,628      $ 6,959,104      $ 638,705      $ 2,839,125   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Net Income per Share

   $ 0.11      $ 0.41      $ 0.03      $ 0.17   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Net Income per Share

   $ 0.11      $ 0.41      $ 0.03      $ 0.17   
  

 

 

   

 

 

   

 

 

   

 

 

 
Basic weighted average number of common shares outstanding      15,436,601        15,377,765        15,448,100        15,396,240   
Diluted weighted average number of common shares outstanding      15,436,959        15,377,765        15,448,518        15,396,240   

 

The accompanying notes are an integral part of this statement.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 4 OF 26

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

     Nine Months Ended March 31,  
     2012     2011  

Cash Flows from Operating Activities:

  

Net income

   $ 1,646,038      $ 6,290,064   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

   $ 212,744      $ 219,281   

Net recognized loss (gain) on disposal of fixed assets

   $ (78,638   $ 154,214   

Net recognized gain on securities

   $ (157,668   $ (132,486

Provision for deferred taxes

   $ (130,206   $ 404,925   

Stock bonuses

   $ 188,300      $ 161,989   

Stock-based compensation expense

   $ 25,424      $ 28,369   

Changes in operating assets and liabilities:

    

Accounts receivable

   $ 862,849      $ (1,070,349

Prepaid expenses

   $ 101,969      $ (122,133

Trading securities

   $ 201,860      $ (847,138

Accounts payable and accrued expenses

   $ (1,695,476   $ 591,158   
  

 

 

   

 

 

 

Total adjustments

   $ (468,842   $ (612,170
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 1,177,196      $ 5,677,894   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

  

Purchase of property and equipment

     (18,374     (65,968

Purchase of available-for-sale securities

     (5,002,332     (1,056,384

Proceeds on sale of available-for-sale securities

     170,192        191,505   

Return of capital on investment

     18,542        55,905   
  

 

 

   

 

 

 

Net cash used in investing activities

     (4,831,972     (874,942
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

  

Issuance of common stock

     142,062        142,794   

Dividends paid

     (2,778,406     (2,767,919
  

 

 

   

 

 

 

Net cash used in financing activities

     (2,636,344     (2,625,125
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (6,291,120     2,177,827   

Beginning cash and cash equivalents

     27,207,896        23,837,479   
  

 

 

   

 

 

 

Ending cash and cash equivalents

     20,916,776        26,015,306   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information

  

Cash paid for income taxes

   $ 1,365,000      $ 2,460,000   

 

The accompanying notes are an integral part of this statement.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 5 OF 26

 

 

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, 2011.

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, 2012, 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.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The ASU expands existing disclosure requirements and amends some fair value measurement principles. The ASU is effective for interim periods beginning on or after December 15, 2011.The adoption of ASU No. 2011-04 by the Company did not have a material effect on its consolidated financial statements except for enhanced disclosure in the notes to its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Under this guidance, an entity can elect to present items of net income and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. This guidance is effective for publicly traded companies for fiscal years beginning after December 15, 2011 and interim and annual periods thereafter. Early adoption is permitted, but full retrospective application is required. As the Company reports comprehensive income within its consolidated statement of operations, the adoption of this guidance will not result in a change in the presentation of comprehensive income in the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU no. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This standard indefinitely defers certain provisions of ASU 2011-05 (described above). The amendments take effect for fiscal years and interim periods within those years beginning after December 15, 2011. The adoption of this guidance will not result in a change in the presentation of comprehensive income in the Company’s consolidated financial statements.

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 through June 2012 and will be reviewed by the board quarterly.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 6 OF 26

 

 

NOTE 3. INVESTMENTS

As of March 31, 2012, the Company held investments with a market value of approximately $14.7 million and a cost basis of approximately $14.0 million. The market value of these investments is approximately 34.2 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 Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

The following summarizes the market value, cost, and unrealized gain or loss on investments as of March 31, 2012, and June 30, 2011.

 

Securities    Market Value      Cost      Unrealized Gain
(Loss)
   

Unrealized holding
gains on available-for-

sale securities, net of
tax

 
          

Trading¹

   $ 5,499,418       $ 5,960,634       $ (461,216     N/A   

Available-for-sale²

     9,238,756         8,055,344         1,183,412      $ 781,052   

Total at March 31, 2012

   $ 14,738,174       $ 14,015,978       $ 722,196     
          

Trading¹

   $ 5,703,916       $ 5,963,272       $ (259,356     N/A   

Available-for-sale²

     4,660,928         3,081,439         1,579,489      $ 1,042,462   

Total at June 30, 2011

   $ 10,364,844       $ 9,044,711       $ 1,320,133     

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.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 7 OF 26

 

 

The following details the components of the Company’s available-for-sale investments as of March 31, 2012, and June 30, 2011.

 

     March 31, 2012 (in thousands)       
            Gross Unrealized             
     Cost      Gains      (Losses)     Market Value       

Available-for-sale securities

             

Common stock

   $ 919       $ 511       $ (25   $ 1,405      

Venture capital investments

     106         -         -        106      

Offshore fund

     5,000         -         -        5,000      

Mutual funds

     2,030         700         (2     2,728      

Total available-for-sale securities

   $ 8,055       $ 1,211       $ (27   $ 9,239      

 

     June 30, 2011 (in thousands)       
            Gross Unrealized             
     Cost      Gains      (Losses)     Market Value       

Available-for-sale securities

             

Common stock

   $ 917       $ 777       $ (4   $ 1,690      

Venture capital investments

     134         122         (13     243      

Mutual funds

     2,030         698         -        2,728      

Total available-for-sale securities

   $ 3,081       $ 1,597       $ (17   $ 4,661      

The following tables show the gross unrealized losses and fair values of available-for-sale investment securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

 

     March 31, 2012 (in thousands)  
     Less Than 12 Months     12 Months or Greater      Total  
     Fair Value      Gross
Unrealized
Losses
    Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 

Available-for-sale securities

                

Common stock

   $ 129       $ (25   $ -       $ -       $ 129       $ (25

Venture capital investments

     -         -        -         -         -         -   

Offshore Fund

     -         -        -         -         -         -   

Mutual funds

     10         (2     -         -         10         (2

Total available-for-sale securities

   $ 139       $ (27   $ -       $ -       $ 139       $ (27

 

     June 30, 2011 (in thousands)  
     Less Than 12 Months     12 Months or Greater      Total  
     Fair Value      Gross
Unrealized
Losses
    Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 

Available-for-sale securities

                

Common stock

   $ 31       $ (4   $ -       $ -       $ 31       $ (4

Venture capital investments

     112         (13     -         -         112         (13

Mutual funds

     -         -        -         -         -         -   

Total available-for-sale securities

   $ 143       $ (17   $ -       $ -       $ 143       $ (17


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 8 OF 26

 

 

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 three and nine months ended March 31, 2012, 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 reflected in earnings for the periods discussed:

 

Investment Income    Nine Months Ended March 31,  
     2012     2011  

Realized gains on sales of available-for-sale securities

   $ 179,379      $ 132,486   

Realized losses on sales of trading securities

     (2,638     -   

Unrealized gains (losses) on trading securities

     (201,860     847,138   

Realized foreign currency gains (losses)

     (646     1,060   

Other-than-temporary declines in available-for-sale securities

     (19,073     -   

Dividend and interest income

     101,094        184,430   
  

 

 

   

 

 

 

Total Investment Income (Loss)

   $ 56,256      $ 1,165,114   
  

 

 

   

 

 

 
    
Investment Income    Three Months Ended March 31,  
     2012     2011  

Realized gains on sales of available-for-sale securities

   $ 179,379      $ 69,622   

Unrealized gains on trading securities

     277,192        44,106   

Realized foreign currency gains (losses)

     (253     4,892   

Other-than-temporary declines in available-for-sale securities

     (19,036     -   

Dividend and interest income

     27,581        56,596   
  

 

 

   

 

 

 

Total Investment Income

   $ 464,863      $ 175,216   
  

 

 

   

 

 

 

NOTE 4. FAIR VALUE DISCLOSURES

Accounting Standards Codification (ASC) 820, Fair Value Measurement and Disclosures (formerly SFAS 157), 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. ASC 820 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., Levels 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.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 9 OF 26

 

 

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, offshore funds and a venture capital investment at net asset value.

The following table presents fair value measurements, as of March 31, 2012, 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)  
     Quoted Prices      Significant
Other Inputs
     Significant
Unobservable
Inputs
     Total  
     (Level 1)      (Level 2)      (Level 3)         

Trading securities

           

Common stock

   $ 259       $ 4       $ -       $ 263   

Mutual funds

     4,024         -         -         4,024   

Offshore fund

     -         1,212         -         1,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total trading securities

     4,283         1,216         -         5,499   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities

           

Common stock

     1,406         -         -         1,406   

Venture capital investments

     -         -         106         106   

Mutual funds

     2,727         -         -         2,727   

Offshore fund

     -         5,000         -         5,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     4,133         5,000         106         9,239   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 8,416       $ 6,216       $ 106       $         14,738   
  

 

 

    

 

 

    

 

 

    

 

 

 

Approximately 57 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, 42 percent of the Company’s financial assets measured at fair value are derived from Level 2 inputs, including an investment in an offshore fund, and the remaining one percent are Level 3 inputs. The Company recognizes transfers between levels at the end of each quarter. The Company did not transfer any securities between Level 1 and Level 2 during the nine months ended March 31, 2012.

In Level 2, the Company has an investment in an offshore fund it advises with a fair value of $1,211,965 that invests in companies in the energy and natural resources 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.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 10 OF 26

 

 

During the quarter ended March 31, 2012, the Company invested $5,000,000 in an offshore fund it advises classified as a Level 2 investment that invests in dividend-paying equity and debt securities of companies located around the world. 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.

In Level 3, the Company held investments in three securities with a value of zero and one venture capital investment that was measured at fair value using significant unobservable inputs at March 31, 2012.

During the quarter ended March 31, 2012, the Company redeemed its Level 3 investment in a venture capital investment that primarily invests in companies in the energy and precious metals sectors for a realized gain of $179,379.

The Company also has a Level 3 venture capital investment with a fair value of $105,964 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, 2012, the Company has an unfunded commitment of $125,000 related to this investment.

The following table presents additional information about investments measured at fair value on a recurring basis and for which the Company has utilized significant unobservable 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, 2012 (in thousands)      
     Venture Capital
Investments
     

Beginning Balance

   $ 243     

Return of capital

     (19  

Total gains or losses (realized/unrealized)

    

Included in earnings (investment income)

     160     

Included in other comprehensive income

     (108  

Purchases, sales, issuances, and settlements

     (170  

Transfers in and/or out of Level 3

     -     
  

 

 

   

Ending Balance

   $ 106     
  

 

 

   

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.

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.

The advisory agreement for the nine equity funds provides for a base advisory fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. For the three and nine months ended March 31, 2012, the Company adjusted its base advisory fees downward by $1,137,345 and $1,787,199. For the corresponding periods in fiscal 2011, base advisory fees were increased by $925,897 and $2,005,984.

The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on all thirteen funds. These caps will continue on a 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 three and nine months ended March 31, 2012, were $773,394 and $2,372,547 compared with $741,991 and $2,280,301, respectively, for the corresponding periods in fiscal 2011.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 11 OF 26

 

 

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). Yields on such products have declined to record lows as a result of the decline in the federal funds’ rate pursuant to the Federal Reserve’s economic policy to spur economic growth through low interest rates and quantitative easing. For the three and nine months ended March 31, 2012, total fees waived and/or expenses reimbursed as a result of this agreement were $349,661 and $1,150,573. For the corresponding periods in fiscal year 2011, the total fees waived and/or expenses reimbursed were $384,954 and $1,140,710.

The Company may recapture any fees waived and/or expenses reimbursed within three years after the end of the funds’ fiscal year of such waiver and/or reimbursement to the extent that such recapture would not cause the funds’ yield to fall below the Minimum Yield. Thus, $1,047,980 of these waivers is recoverable by the Company through December 31, 2012; $1,562,956 through December 31, 2013; $1,605,619 through December 31, 2014; and $349,661 through December 31, 2015. Management believes that these potential recoveries will be realized only in a rising interest rate environment and that these waivers could increase in the future. Such increases in fee waivers could be significant and will negatively impact the Company’s revenues and net income. Management cannot predict the impact of the waivers and/or reimbursements due to the number of variables and the range of potential outcomes.

The Company provides advisory services for three offshore clients and receives monthly advisory fees based on the net asset values of the clients and quarterly performance fees, if any, based on the overall increase in net asset values. The Company recorded advisory fees from these clients totaling $86,536 and $263,634 for the three and nine months ended March 31, 2012. The Company recorded advisory and performance fees totaling $116,907 and $1,276,285 for the corresponding periods in fiscal 2011. 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, 2012, and June 30, 2011, is invested in USGIF money market funds.

NOTE 6. BORROWINGS

As of March 31, 2012, 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, 2012, 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 three and nine months ended March 31, 2012, was $7,882 and $25,424 compared to $9,457 and $28,369 in the corresponding periods in fiscal 2011. As of March 31, 2012, and 2011, respectively, there was approximately $25,300 and $48,000 of total unrecognized share-based compensation cost related to share-based compensation granted under the plans that will be recognized over the remainder of their respective vesting periods.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 12 OF 26

 

 

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, 2012.

 

     Number of Options     Weighted Average
Exercise Price
      

Options outstanding, beginning of year

     25,300      $ 19.40      

Granted

     5,000        6.54      

Exercised

     -        -      

Forfeited

     (1,000     24.74      
  

 

 

   

 

 

    

Options outstanding, end of period

     29,300      $ 17.02      
  

 

 

   

 

 

    

Options exercisable, end of period

     22,240      $ 19.17      
  

 

 

   

 

 

    

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 Months Ended March 31,  
     2012      2011  

Net income

   $ 1,646,038       $ 6,290,064   
     

Weighted average number of outstanding shares

     

Basic

     15,436,601         15,377,765   
     

Effect of dilutive securities

     

Employee stock options

     358         -   
  

 

 

    

 

 

 

Diluted

     15,436,959         15,377,765   
  

 

 

    

 

 

 
     

Earnings per share

     

Basic

   $ 0.11       $ 0.41   

Diluted

   $ 0.11       $ 0.41   
     
     Three Months Ended March 31,  
     2012      2011  

Net income

   $ 487,138       $ 2,694,085   
     

Weighted average number of outstanding shares

     

Basic

     15,448,100         15,396,240   
     

Effect of dilutive securities

     

Employee stock options

     418         -   
  

 

 

    

 

 

 

Diluted

     15,448,518         15,396,240   
  

 

 

    

 

 

 
     

Earnings per share

     

Basic

   $ 0.03       $ 0.17   

Diluted

   $ 0.03       $ 0.17   


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 13 OF 26

 

 

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, 2012, 24,300 options were excluded from diluted EPS and 25,300 were excluded in the corresponding periods in fiscal 2011.

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 nine months ended March 31, 2012. 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 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, 2012, or June 30, 2011.

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
Services
     Corporate
Investments
     Consolidated  

Nine months ended March 31, 2012

        

Net revenues

   $ 19,171,019       $ 38,556       $ 19,209,575   
  

 

 

    

 

 

    

 

 

 

Net income before income taxes

     2,591,491         28,809         2,620,300   
  

 

 

    

 

 

    

 

 

 

Depreciation

     212,744         -         212,744   
  

 

 

    

 

 

    

 

 

 

Capital expenditures

     18,374         -         18,374   
  

 

 

    

 

 

    

 

 

 

Gross identifiable assets at March 31, 2012

     27,728,600         14,756,736         42,485,336   

Deferred tax asset

           663,693   
        

 

 

 

Consolidated total assets at March 31, 2012

         $ 43,149,029   
        

 

 

 

Nine months ended March 31, 2011

        

Net revenues

   $ 31,181,757       $ 1,059,953       $ 32,241,710   
  

 

 

    

 

 

    

 

 

 

Net income before income taxes

     8,597,084         1,051,934         9,649,018   
  

 

 

    

 

 

    

 

 

 

Depreciation

     219,281         -         219,281   
  

 

 

    

 

 

    

 

 

 

Capital expenditures

     65,968         -         65,968   
  

 

 

    

 

 

    

 

 

 

Three months ended March 31, 2012

        

Net revenues

   $ 5,073,839       $ 464,288       $ 5,538,127   
  

 

 

    

 

 

    

 

 

 

Net income before income taxes

     336,904         458,521         795,425   
  

 

 

    

 

 

    

 

 

 

Depreciation

     70,586         -         70,586   
  

 

 

    

 

 

    

 

 

 

Capital expenditures

     5,384         -         5,384   
  

 

 

    

 

 

    

 

 

 

Three months ended March 31, 2011

        

Net revenues

   $ 11,260,440       $ 149,791       $ 11,410,231   
  

 

 

    

 

 

    

 

 

 

Net income before income taxes

     3,905,741         143,754         4,049,495   
  

 

 

    

 

 

    

 

 

 

Depreciation

     72,239         -         72,239   
  

 

 

    

 

 

    

 

 

 

Capital expenditures

     14,074         -         14,074   
  

 

 

    

 

 

    

 

 

 


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 14 OF 26

 

 

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 estimable.

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.

The Board has authorized a monthly dividend of $0.02 per share through June 2012, at which time it will be considered for continuation by the Board. 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. The total amount of cash dividends to be paid to class A and class C shareholders from April to June 2012 will be approximately $927,318.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 15 OF 26

 

 

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.

Detailed information regarding the SEC-registered funds managed by the Company can be found on the Company’s website, www.usfunds.com, including performance information for each fund for various time periods, assets under management as of the most recent month end and the inception date of each fund.

SEC-registered mutual fund shareholders are not required to give advance notice prior to redemption of shares in the funds; however, the equity funds charge a redemption fee if the fund shares have been held for less than the applicable periods of time set forth in the funds’ prospectuses. The fixed income and money market funds charge no redemption fee. Detailed information about redemption fees can be found in the funds’ prospectus, which is available on the Company’s website, www.usfunds.com.

The Company provides advisory services for three offshore clients and receives monthly advisory fees based on the net asset values of the clients and quarterly performance fees, if any, based on the overall increase in net asset values. The Company recorded advisory fees from these clients totaling $86,536 and $263,634 for the three and nine months ended March 31, 2012. The Company recorded advisory and performance fees totaling $116,907 and $1,276,285 for the corresponding periods in fiscal 2011. 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, 2012, total assets under management as of period-end, including both SEC-registered funds and offshore clients, were $1.894 billion versus $3.180 billion at March 31, 2011, a decrease of 40.5 percent. During the nine months ended March 31, 2012, average assets under management were $2.168 billion versus $2.797 billion during the nine months ended March 31, 2011. Total assets under management as of period-end at March 31, 2012, were $1.894 billion versus $2.603 billion at June 30, 2011, the Company’s prior fiscal year end.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 16 OF 26

 

 

The following tables summarize the changes in assets under management for the SEC-registered funds for the three and nine months ended March 31, 2012, and 2011:

 

     Changes in Assets Under Management  
     Three Months Ended March 31,  
     2012     2011  
(Dollars in Thousands)    Equity    

Money Market

and

Fixed Income

    Total     Equity     Money Market
and
Fixed Income
    Total  

Beginning Balance

   $ 1,540,132      $ 318,898      $ 1,859,030      $ 2,643,210      $ 352,258      $ 2,995,468   

Market appreciation/(depreciation)

     89,222        433        89,655        59,704        267        59,971   

Dividends and distributions

     (1     (391     (392     -        (373     (373

Net shareholder purchases/(redemptions)

     (80,242     (13,040     (93,282     86,916        (8,123     78,793   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 1,549,111      $ 305,900      $ 1,855,011      $ 2,789,830      $ 344,029      $ 3,133,859   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            

Average investment management fee

     0.99%        0.00%        0.83%        0.99%        0.00%        0.88%   

Average net assets

   $ 1,624,744      $ 312,038      $ 1,936,782      $ 2,703,630      $ 350,959      $ 3,054,589   
            
     Changes in Assets Under Management  
     Nine Months Ended March 31,  
     2012     2011  
(Dollars in Thousands)    Equity    

Money Market
and

Fixed Income

    Total     Equity    

Money Market
and

Fixed Income

    Total  

Beginning Balance

   $ 2,225,729      $ 336,793      $ 2,562,522      $ 1,985,203      $ 382,062      $ 2,367,265   

Market appreciation/(depreciation)

     (294,998     2,072        (292,926     793,780        325        794,105   

Dividends and distributions

     (117,744     (1,121     (118,865     (144,176     (1,116     (145,292

Net shareholder purchases/(redemptions)

     (263,876     (31,844     (295,720     155,023        (37,242     117,781   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

   $ 1,549,111      $ 305,900      $ 1,855,011      $ 2,789,830      $ 344,029      $ 3,133,859   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            

Average investment management fee

     0.99%        0.00%        0.84%        1.00%        0.00%        0.87%   

Average net assets

   $ 1,806,825      $ 325,355      $ 2,132,180      $ 2,390,702      $ 364,147      $ 2,754,849   

As shown above, both average and period-end assets under management for the three and nine months ended March 31, 2012, decreased compared to the same time periods for fiscal year 2011. The decrease in assets under management during the three months ended March 31, 2012, was driven by shareholder redemptions in the equity funds, primarily in the natural resources and emerging market categories, which were offset by market appreciation during the quarter. The decrease in assets under management during the nine months ended March 31, 2012, was driven by market depreciation and shareholder redemptions in the equity funds, primarily in the natural resources and emerging market categories. A significant portion of the dividends and distributions shown above are reinvested and included in net shareholder purchases (redemptions). Fixed income funds experienced a net decrease as shareholders sought alternatives to low yields.

Stock market performance was marked by wide swings in 2010 and 2011. Equities linked to gold and broader natural resources, where most of the assets managed by the Company are invested, were also volatile. Effects from the recent global financial crisis and subsequent volatility in markets, combined with fund performance, were significant factors in the shareholder activity shown in all periods.

The average annualized investment management fee rate (total mutual fund advisory fees, excluding performance fees, as a percentage of average assets under management) was 83 and 84 basis points in the three and nine months ending March 31, 2012, respectively, compared to 88 and 87 basis points for the same time periods in fiscal 2011. The average investment management fee for the equity funds was 99 basis points for the three and nine months ending March 31, 2012, respectively, compared to 99 and 100 basis points for the same time periods in fiscal year 2011. The average investment management fee for the fixed income funds is nil or close to nil for the periods. This is due to voluntary fee waivers on these funds as discussed in Note 5 to the financial statements, including a voluntary agreement to support the yields for the money market funds.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 17 OF 26

 

 

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. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices. 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, 2012, the Company held investments with a market value of approximately $14.7 million and a cost basis of approximately $14.0 million. The market value of these investments is approximately 34.2 percent of the Company’s total assets. See Note 3 (Investments) and Note 4 (Fair Value Disclosures) for additional detail regarding investment activities.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 18 OF 26

 

 

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2012 AND 2011

The Company posted net income of $487,138 ($0.03 per share) for the three months ended March 31, 2012, compared with net income of $2,694,085 ($0.17 per share) for the three months ended March 31, 2011, a decrease of $2,206,947, or 81.9 percent.

Revenues

Total consolidated revenues for the three months ended March 31, 2012, decreased $5,872,104, or 51.5 percent, compared with the three months ended March 31, 2011. This decrease was primarily attributable to the following:

 

   

Mutual fund advisory fees decreased by $4,731,074, or 62.4 percent. Of that amount, $2,667,832 was attributable to a decrease in mutual fund management fees, primarily due to shareholder redemptions in the natural resources and emerging markets funds. In addition, $2,063,242 was attributable to a swing in performance fee adjustments driven by net payments to the funds in the current quarter versus net receipts from the funds in the same quarter of the prior year. Performance fees are paid or received when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months.

   

Distribution fee revenue decreased by $680,120, or 41.4 percent, as a result of decreased assets under management.

   

Transfer agent fees decreased by $504,048, or 37.1 percent, as a result of a decline in the number of shareholder accounts and the number of transactions.

Expenses

Total consolidated expenses for the three months ended March 31, 2012, decreased $2,618,034, or 35.6 percent, compared with the three months ended March 31, 2011. This was largely attributable to the following:

 

   

Platform fees decreased by $857,472, or 49.7 percent, primarily as a result of lower assets under management.

   

Employee compensation and benefits decreased by $738,510, or 23.8 percent, primarily as a result of lower performance-based bonuses.

   

Advertising decreased by $674,937, or 99.0 percent as a result of decreased marketing and sales activity.

   

General and administrative expense decreased by $345,462, or 19.7 percent, primarily due to prior period software implementation and prior period consulting expenses.

RESULTS OF OPERATIONS – NINE MONTHS ENDED MARCH 31, 2012 AND 2011

The Company posted net income of $1,646,038 ($0.11 per share) for the nine months ended March 31, 2012, compared with net income of $6,290,064 ($0.41 per share) for the nine months ended March 31, 2011, a decrease of $4,644,026 or 73.8 percent.

Revenues

Total consolidated revenues for the nine months ended March 31, 2012, decreased $13,032,135, or 40.4 percent, compared with the nine months ended March 31, 2011. This decrease was primarily attributable to the following:

 

   

Mutual fund advisory fees decreased by $8,359,335, or 41.8 percent. Of that amount, $4,566,152 was attributable to a decrease in mutual fund management fees, primarily due to market depreciation and shareholder redemptions in the natural resources and emerging markets funds. In addition, $3,793,183 was attributable to a swing in performance fee adjustments driven by net payments to the funds in the current quarter versus net receipts in the same quarter of the prior year. Performance fees are paid or received when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months.

   

Distribution fee revenue decreased by $1,187,374, or 26.7 percent, as a result of decreased assets under management.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 19 OF 26

 

 

   

Investment income decreased $1,108,858, or 95.2 percent, primarily due to lower unrealized gains on trading securities in the nine months ended March 31, 2012, compared to unrealized gains on trading securities in the nine months ended March 31, 2011.

   

Other advisory fees decreased by $1,012,651, or 79.3 percent, primarily as a result of a decrease in offshore fund performance fees due to natural resource-related market depreciation of fund holdings.

   

Transfer agent fees decreased by $991,053, or 25.6 percent, primarily due to a decline in the number of shareholder accounts and account activity.

Expenses

Total consolidated expenses for the nine months ended March 31, 2012, decreased $6,003,417, or 26.6 percent, compared with the nine months ended March 31, 2011. This was largely attributable to the following:

 

   

Employee compensation and benefits decreased by $1,981,819, or 20.3 percent, primarily as a result of lower performance-based bonuses.

   

General and administrative expense decreased by $1,546,591, or 26.0 percent, primarily due to prior period software implementation and prior period consulting expenses.

   

Platform fees decreased by $1,441,595, or 31.4 percent, primarily as a result of lower assets under management.

   

Advertising decreased by $911,881, or 47.5 percent as a result of decreased marketing and sales activity.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2012, the Company had net working capital (current assets minus current liabilities) of approximately $26.7 million and a current ratio (current assets divided by current liabilities) of 9.5 to 1. With approximately $20.9 million in cash and cash equivalents and approximately $14.7 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $40.0 million, with cash, cash equivalents, and marketable securities comprising 82.6 percent of total assets.

As of March 31, 2012, 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, 2012, this credit facility remained unutilized by the Company.

Management believes current cash reserves, financing 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 annual investment advisory and related contracts between the Company and USGIF were renewed effective October 1, 2011. The Company provides advisory services to three 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.

CRITICAL ACCOUNTING ESTIMATES

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, 2011. As discussed in Note 1 of the Notes to Consolidated Financial Statements, the Company has adopted certain recently issued financial accounting pronouncements.


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 20 OF 26

 

 

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 certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics and other policies affecting the Company’s investment practices.

The table below summarizes the Company’s equity price risks as of March 31, 2012, and shows the effects of a hypothetical 25 percent increase and a 25 percent decrease in market prices.

 

   

Fair Value at

March 31, 2012

 

Hypothetical

Percentage Change

 

Estimated Fair

Value After

Hypothetical Price

Change

 

Increase (Decrease) in

Shareholders’ Equity,

Net of Tax

Trading securities ¹

  $5,499,418   25% increase   $6,874,273   $907,404 
    25% decrease   $4,124,564   ($907,404)

Available-for-sale ²

  $9,238,756   25% increase   $11,548,445   $1,524,395 
    25% decrease   $6,929,067   ($1,524,395)

¹Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

 

²Unrealized 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.

 

The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be significantly different 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, 2012, was conducted under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of March 31, 2012.

There has been no change in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2012, 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.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 21 OF 26

 

 

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, 2011. There has been no material changes since fiscal year end to the risk factors listed therein.

 

ITEM 6. EXHIBITS

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

 

  101.INS XBRL Instance Document

 

  101.SCH XBRL Taxonomy Extension Schema Document

 

  101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

  101.DEF XBRL Taxonomy Extension Definition Linkbase Document

 

  101.LAB XBRL Taxonomy Extension Labels Linkbase Document

 

  101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 


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U.S. GLOBAL INVESTORS, INC.

MARCH 31, 2012, QUARTERLY REPORT ON FORM 10-Q   PAGE 22 OF 26

 

 

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 2, 2012                         BY: /s/ Frank E. Holmes                
                                Frank E. Holmes
                                Chief Executive Officer
   
DATED: May 2, 2012                         BY: /s/ Catherine A. Rademacher                
                                 Catherine A. Rademacher
                                 Chief Financial Officer

XFRA:UGL US Global Investors Inc Class A Quarterly Report 10-Q Filling

US Global Investors Inc Class A XFRA:UGL Stock - Get Quarterly Report SEC Filing of US Global Investors Inc Class A XFRA:UGL stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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